BAE Systems is negotiating a possible settlement with the Serious Fraud Office (SFO) over bribery and corruption allegations that could see Europe’s largest defence company pay a fine but admit no guilt.

Several outcomes are understood to be on the table as the SFO looks to wrap up investigations into BAE arms sales in Africa and Eastern Europe.

With the inquiry entering its sixth year, sources close to the fraud office have said that it may go after BAE for “procedural” failings. This would allow the SFO to fine BAE without the company admitting guilt on the more serious charges of corruption.

One possibility is that BAE could be penalised for its accounting procedures, specifically the tax treatment of commissions paid to middle men.

There were reports yesterday that BAE had been given one month to agree a deal or face prosecution, but sources close to the company have insisted that there is no deadline and no imminent resolution to the case. BAE has also said that it broke no laws at the time the arms sales were done.

However, while the SFO is said to be in a mood to arrange a deal, there is no end in sight for an investigation into BAE launched two years ago by the US Department of Justice. The DoJ is thought to be insisting on a guilty plea before it settles its case against the company.

The SFO’s inquiries relate to allegations of corruption in BAE deals with South Africa, Tanzania and the Czech Republic. Lord Goldsmith, the Attorney-General, announced in December 2006 that the SFO had abandoned its inquiry into the alleged bribery of Saudi officials by BAE Systems.

That investigation had embarrassed the Saudi Royal Family, on whom the alleged £60 million bribes were claimed to have been spent, and threatened a new £10 billion defence deal awarded to BAE by the kingdom.

An SFO appeal against the Government’s decision was rejected last year.

Meanwhile, the DoJ has pressed on with its investigation into the Saudi deal, which has generated sales of more than £43 billion for BAE since it was agreed by Margaret Thatcher in the mid-1980s. However, it is unclear whether the Americans have sufficient evidence to prosecute the company.

The SFO’s investigation into South Africa has focused on the sale of Hawk training aircraft and Gripen fighters in 1999. The deal cost £1.6 billion and court documents filed in the country have claimed that middle men were paid £115 million for helping to set up the transaction.

The South African authorities are also continuing to investigate the case amid allegations that advisers to the Government received bribes for promoting the deal.

The Tanzanian case relates to a £28 million deal to sell air-traffic control facilities to the country, while the Czech investigation has focused on a £1 billion Gripen deal.

A spokesman for BAE said: “Our view is that the interests of the company, as well as all of its stake-holders, including the general public, are best served by allowing the ongoing investigations to run their course. The company is working with regulators towards that end and is providing access to people, information and premises whenever requested.

“It wholeheartedly supports a rigorous approach, in the hope that it brings to a conclusion enquiries which, in the case of the SFO, are now in their sixth year.”

The SFO declined to comment.

The Suadi controversy

• The Serious Fraud Office faced one of its lowest points when it announced, in 2006, the dropping of its long-running investigation into the alleged bribery of Saudi officials by BAE Systems

• The alleged bribes formed part of the £40 billion al-Yamamah contract for BAE to supply the Royal Saudi Air Force with 200 Tornado fighter jets

• The SFO said it had been “necessary to ... balance the rule of law against the wider public interest”

• Critics claimed domestic political considerations and the need to safeguard jobs at BAE were the real reasons for dropping the case

• The al-Yamamah (“dove of peace) deal is the largest export order signed by Britain

• The SFO investigation into BAE and al-Yamamah began in 2004

• Although that £2 million inquiry was dropped, bribery allegations relating to BAE sales to other countries remained under investigation

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