Smash hit

According to the report, the accounts were a “conduit” to Prince Bandar, who used one of them to run his private jet which clocked up thousands of miles each year.

The SFO was said to have uncovered details of the payments at the time of its investigation, but had not established whether they were illegal.

A previous report by the National Audit Office into allegations that huge bribes were paid to secure the deal was suppressed in 1992, amid claims that publication would damage relations with the Saudis.

BAE said today that any payments made under the terms of the deal were done so with the approval of the Government.

“The Al Yamamah programme is a government-to-government agreement and all such payments made under those agreements were made with the express approval of both the Saudi and the UK governments,” a spokesman said.

“We deny all allegations of wrongdoing in relation to this important and strategic programme and we will abide by the duty of confidentiality imposed on us by the agreement.”

Mr Blair’s official spokesman refused to be drawn on whether the Government knew and approved of the continuing payments.

“In terms of the allegations, we are not going to comment on it. It is a matter for others, not for us,” he said.

An MoD spokesman said: “The MoD 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.”

Prince Bandar was said by the BBC to have refused to comment.

But while Mr Blair strongly defended the decision last year to drop the SFO corruption inquiry, Gordon Brown has signalled his support for new controls on arms sales.

Speaking last night at a Labour leadership hustings in London, the Chancellor - who takes over later this month as Prime Minister - said: “I hope we will be able to do more on arms sales in the next period.”

Roger Berry, a Labour MP who chairs the Commons Quadripartite Committee which covers arms deals, said that the latest allegations about the deal must now be properly investigated.

He said that if there was evidence of bribery or corruption in arms deals since new laws were introduced in 2001, then it would be a criminal offence.

“These matters need to be properly investigated,” he told BBC Radio 4’s Today programme. “It’s bad for British business, apart from anything else, if allegations of bribery popping around aren’t investigated.”

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