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UK official denies BAE secret payment

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LONDON, England (CNN) -- UK Attorney General Lord Goldsmith on Friday denied media reports that he ordered investigators to conceal payments from an international anti-bribery watchdog agency.

"It's absolutely untrue that I ordered investigators to conceal payments from the OECD" -- the Organization for Economic Cooperation and Development -- Goldsmith said.

His comments followed British media reports alleging former Saudi Arabian ambassador to the United States, Prince Bandar bin Sultan, may have received up to $2 billion in secret payments from a British defense firm, BAE Systems, over a period of nearly 20 years.

According to the Guardian newspaper and the BBC, the payments were channeled to at least one Saudi embassy account at the now-defunct Riggs Bank in Washington.

The payments were tied to the prince's role in negotiating an $85 billion deal to sell British warplanes to Saudi Arabia in 1985. The agreement -- known as the Al-Yamamah arms deal -- is the largest in British defense history.

Prince Bandar, a close friend of U.S. President George W. Bush, was described as the chief negotiator in the deal. The Saudi royal, through a lawyer's statement, "categorically denies" receiving any "backhanders" -- secret payments -- and called the the reports "an extremely serious allegation."

CNN and other news organizations have previously reported that in 2004, the UK's Serious Fraud Office began an investigation into allegations that BAE Systems paid off Saudi government officials in order to secure defense contracts in the 1980s. But in December of last year, British Prime Minister Tony Blair advised Goldsmith to halt proceedings and abandon the investigation.

When questioned Friday about the decision to abandon the investigation, Goldsmith cited "confidentiality provisions" that he could not break.

"It's not for me to break those, still less, as the Ministry of Defense say, if going into detail about certain matters would cause the very risk to national security which caused the director of the (UK's) Serious Fraud Office to bring the investigation to an end."

A spokesman from the attorney general's office on Friday said even if the allegations regarding the secret payment were true, it does not "in any way undermined the Director of the Serious Fraud Office's decision to stop the investigation on the grounds of national security, nor the Attorney General's view that the investigation would not have got anywhere anyway."

Speaking Thursday, at the G8 Summit in Heiligendamm, Germany, Blair told reporters if the investigation had gone ahead it "would have involved the most serious allegations and investigations being made of the Saudi royal family."

Blair also said that he didn't "believe the investigation would have led anywhere, except the complete wreckage of the vital strategic relationship for our country in terms of fighting terrorism, in terms of the Middle East, in terms of British interests there." He added that as a result of the investigation, "thousands of British jobs" would have been lost, suggesting the Saudis would have taken aerospace business elsewhere.

The British Ministry of Defence was part-owner of BAE Systems throughout much of the period when the alleged payments to Prince Bandar were made.

The Guardian cited unnamed legal sources as saying the alleged payments were unearthed during a British probe when investigators discovered "highly classified documents at the MOD."

Contacted by CNN, the MOD issued a statement, saying the ministry "is unable to comment on these allegations since to do so would involve disclosing confidential information about Al-Yamamah, and that would cause the damage that ending the investigation was designed to prevent."

BAE Systems acknowledged making payments, but denied any wrongdoing. The firm's statement said that "the al-Yamamah program is a government-to-government agreement" and all payments were made "with express approval of both the Saudi and the UK government."

Prince Bandar, in his lawyer's statement, insisted that the money paid into the Riggs Bank was meant "exclusively for purposes approved by MODA" -- the Saudi Ministry of Defence and Aerospace -- and the accounts were annually audited by Saudi Ministry of Finance. The audits showed no "irregularities in the conduct of the accounts," the statement said.

According to British law, any payments to Prince Bandar made before 2002 would not be considered illegal. After 2002, the British government prohibited secret commissions on overseas business transactions.

The Guardian reported the alleged payments to Prince Bandar continued after 2002, but CNN has not been able to verify the claim. Also, it is unclear whether the passage of the 2002 law would effect an already existing contract, and no British court has yet been asked to decide that point.

The Al-Yamamah deal, Britain's largest ever arms deal, was signed in 1985 when Margaret Thatcher was prime minister and provided for the sale to Saudi Arabia of 72 Tornado and 30 Hawk military aircraft made by BAE in partial exchange for Saudi oil at below-market prices. At the time, the sale was considered critical to BAE's financial health.

CNN staffers Terence Burke, Nic Robertson, Cynde Strand, Octavia Nasr, Jonathan Wald, Roger Clark, James Partington, and Samson Desta contributed to this report.

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