The decision to drop the Serious Fraud Office bribery investigation over the £43 billion Saudi Arabia arms deal was taken purely for reasons of national security and not on commercial grounds, five law lords were told yesterday.

Richard Alderman, director of the Serious Fraud Office (SFO), is asking the highest court in the land to overturn a High Court ruling that the decision was unlawful and made after “blatant threats” from the Saudis.

Lord Justice Moses and Mr Justice Sullivan ruled in April that the SFO should have continued its investigation into alleged illegal payments to members of the Saudi Royal Family.

The campaigning groups Corner House Research and Campaign Against Arms Trade, which took the case to the High Court, are represented by David Pannick, QC, who will argue that the original decision should stand.

Yesterday Jonathan Sumption, QC, representing the director, told the law lords that the appeal raised “questions of considerable importance concerning the discretion of prosecuting authorities to investigate and prosecute crime and the role of the courts in reviewing their decisions”.

The SFO director had halted the investigations into allegations of corruption by BAE Systems — the main contractor in the al-Yamamah defence contract between the British and Saudi governments — in December 2006. That had been a lawful exercise of his discretion, made on the basis of information he had obtained and in no way an irrational decision, Mr Sumption said.

The SFO director had made his own decision on what facts to accept and what significance to give them. Nor had he “regard to representations that were made to him about the commercial interest of BAE and the economic interest of the United Kingdom”.

In the autumn of 2006, shortly before the SFO halted the investigation, it was trying to access Swiss bank accounts to see whether payments had been made to an agent or public official of Saudi Arabia.

This provoked an explicit threat from Saudi Arabia that if the investigation continued it would stop co-operating on terrorism and the Middle East and would end negotiations to buy Typhoon aircraft.

But Mr Sumption told the five law lords, headed by Lord Bingham of Cornhill, the senior law lord, that the SFO director ended the inquiry because “the risk to national security if the investigation continued was so serious that the public interest required him to bring it to an end”.

The hearing continues.

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