Prince Bandar bin Sultan has denied claims that he personally received £1 billion from BAE Systems for helping to broker the world's largest arms deal.

His denial came as BAE appointed Lord Woolf, formerly Britain's most senior lawyer, was picked to head a panel which will investigate the company's business ethics. However it is understood that the Panel wil not look into the allegations of bribery surrounding Britain’s al-Yamamah arms deal with Saudi Arabia.

Prince Bandar, Saudi Arabia’s former ambassador to Washington, said today that allegations made in The Guardian, regarding his role in the al-Yamamah £40 billion deal with Saudi Arabia "are not only untrue but are grotesque in their absurdity". It is Britain's largest arms contract.

The Prince attempted to quash suggestions that the funds belonged to him personally, stating the bank account was owned by the Saudi Government. He added: "Further, it can be stated categorically that BAE was not a party to these accounts."

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

Related Links

• BAE comment: Bearing teeth

• Lord Woolf: A civil man

• Mr Fix -it

The bank account in question was held at Riggs Bank, previously the biggest bank in Washington where Prince Bandar served as an ambassador. Riggs Bank became embroiled in a number of corporate scandals before being taken over by PNC Bank in 2005.

Prince Bandar said the account was audited annually by the Saudi Arabian Ministry of Finance, adding: "I required and obtained all requisite Saudi Government authority to disburse any funds from the Riggs account."

He said that following the discovery of serious irregularities in the activities of Riggs, the Saudi account, as well as "many others", were reviewed by US authorities. The prince said: "No wrongdoing was found in relation to the operating or the management of the Saudi account."

Prince Bandar said he would not make any further statement, but said: “My staff and legal advisers will continue to monitor the matter.”

At the weekend, 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.

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.

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 (SFO) 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.

Lord Woolf, 74, has yet to be formally confirmed as head of the investigating panel. He served as the Lord Chief Justice of England and Wales until 2005 and this year was appointed as the first president of the Qatar Financial Centre Civil and Commercial Court in Doha, Qatar, the Middle Eastern country on the border of Saudi Arabia.

Times Recommends

• Equitable Life halts £7bn sale on market turmoil
• Potential buyers emerge to save Woolworths staff
• Terrorist attacks close Bombay Stock Exchange