Mounting embarrassment over new allegations that BAE Systems bribed high-ranking Saudi officials is forcing the arms manufacturer to establish an independent panel to investigate the claims.

The move comes after reports, led by The Guardian and the BBC, about alleged corruption around the al-Yamamah arms deal with Saudi Arabia.

Last night, BAE found itself embroiled in fresh claims that it had used a secret payments system to funnel millions of pounds to a company linked to David Hart, a former Conservative defence adviser.

An independent inquiry into al-Yamamah would mirror the attempts by BP to draw a line under the Texas refinery explosion when it launched an inquiry led by James Baker, the former US Secretary of State.

BACKGROUND

• MoD names Thales and Boeing as ‘battlespace’ team

• Eurofighters go to Saudi Arabia in £4.4bn order

• MoD seeks a way out of Typhoon contract

• Armor wins $4bn contract with US military

• Arms companies showcase latest technology

A long and lucrative relationship

King Abdullah to make his first state visit to London

Related Internet Links

• BAE Systems company information

• BAE Systems share price chart

• BAE Systems forecast

BAE wants to start an investigation as soon as possible because of potential harm to its reputation should the allegations continue, but insiders believe that investors are so far treating the issue with no great alarm.

The company may, though, be fearful of its standing in the US, where it is awaiting regulatory approval to buy Armor Holdings. Many American defence groups have ethics committees to advise them.

It is expected that another contract with Saudi Arabia, to supply 72 BAE Typhoon fighter aircraft, will be concluded very soon.

It is understood that BAE has already approached one or more people to lead the inquiry. BAE will need a heavyweight figure to give credibility to the inquiry, which will cover the group’s policies in securing contracts in all its overseas dealings. However, the inquiry is likely to centre on the £20 billion Saudi contract in order to address the persistent allegations that continue to dog the company despite the abandonment of a Serious Fraud Office investigation last year.

Tony Blair then said that the inquiry was being stopped in order not to damage relations with Saudi Arabia. It was dropped amid warnings from Saudi Arabia that it might pull out of the impending contract to buy fighter aircraft. The move was widely seen as a climbdown by Britain in the face of commercial pressure from the Saudis.

But the SFO is still investigating BAE’s behaviour in the Czech Republic, Romania and South Africa. It is understood that the company would not want the independent inquiry it establishes to cross over too closely with these continuing SFO inquiries.

A spokesman for BAE refused to comment on whether there would be an inquiry shortly, saying only that the company conducts periodic reviews of all its policies.

The defence group has repeatedly denied that it did anything wrong in its dealings with Saudi Arabia ahead of the signing of the key contract in 1989 and subsequently.

The latest allegations have centred on payments of £100 million a year to Prince Bandar bin Sultan, Saudi Arabia’s former ambassador to Washington.

BAE denied the allegations last week.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive