THE attorney-general, Lord Goldsmith, has been asked to block a criminal investigation into allegations that Britain’s biggest defence company ran a £60m slush fund to support the extravagant lifestyle of members of the Saudi royal family.

Goldsmith has been asked by government officials to examine whether the inquiry by the Serious Fraud Office (SFO) into the slush fund allegedly run by BAE Systems is “in the public interest”. They fear it could provoke Saudi Arabia into pulling out of Britain’s biggest export contract.

Well placed legal sources say that the Saudis are becoming increasingly alarmed about the inquiry, which is examining how the fund was used to provide Saudi princes and princesses with luxury holidays, Rolls-Royces, rented apartments and other perks.

The approach to Goldsmith, the minister in charge of the SFO, follows statements by the Saudi government to Mike Turner, BAE’s chief executive, that it is unhappy with the inquiry.

The latest phase in the £50 billion contract — known as Al Yamamah — was signed last December at a meeting in Riyadh, the Saudi capital, between John Reid, the defence secretary, and King Abdullah.

The order was reportedly for 48 Eurofighter Typhoon jets, with an option to purchase another 24. Reid said at the time that it would safeguard the jobs of many of BAE’s 14,000 employees in Britain.

Defence officials, like the Saudis, are becoming concerned about the progress of the SFO inquiry, which was launched in November 2004 with a series of raids on BAE offices. The subject is said to have been raised during a trip by Tony Blair to Saudia Arabia last year.

Police have so far arrested five men, including former Ministry of Defence (MoD) and BAE employees, on suspicion of corruption. Sir Dick Evans, the former BAE chairman who masterminded the contract, has also been quizzed. He has not been arrested and vehemently denies any impropriety.

As the government’s senior law officer, Goldsmith has a constitutional right to intervene in any investigation if he believes it is not in the national interest. Sources close to the inquiry say he has now been formally approached by a British government department — said to be the MoD — to halt it.

The ministry argues that if the Saudis pull out of Britain’s biggest export contract it would lead to the loss of thousands of jobs.

The main beneficiary of the secret fund is alleged to be Prince Turki bin Nasser, son-in-law of the Saudi crown prince. He is said to have been in charge of the orders for warplanes, which have bolstered BAE’s profit margins since the early 1990s.

He and his entourage were treated to luxury holidays, along with cash payments into American Express accounts. BAE denies that any of these payments were improper. A source close to Evans said: “The allegation of bribery is ridiculous. The Saudis quite rightly regarded all the money used to pay for the perks as their own. After all, it was their money which was paying for the planes.”

A key witness for the SFO is Peter Gardiner, who ran the secret fund through his company, Travellers World, based in the West End of London. In statements to the SFO he has outlined the film star treatment meted out by BAE to the prince and his entourage.

Gardiner has testified how the fund was used in August 1998 to pay for a trip to Oahu island, Hawaii. He said the prince led a party of 50 who were booked into luxury suites at the Kahala Mandarin Oriental hotel. They hired a fleet of cars and spent thousands in restaurants and designer shops.

After a few days they travelled in a private Boeing 707 to another island, Maui, to stay in the Grand Wailea hotel. Gardiner said the total cost of the trip, paid for by the Travellers World fund, was £250,000, including £25,000 for car hire.

Separate files show the purchase of a peacock-blue Rolls-Royce for Turki’s wife and the charter of a jumbo jet to carry the prince’s shopping.

Gardiner’s travel agency is entirely respectable and is not accused of wrongdoing. In an earlier interview with The Sunday Times he said: “The services we provided were extremely wide-ranging.”

Defence lawyers point out that the payments stopped in 2002, when a law was brought in outlawing the payment of bribes by British firms abroad. They say that the Saudis are threatening to cancel the contract if the inquiry continues.

The SFO said it could not comment on Goldsmith’s role. A spokesman for the attorney-general said: “This is an ongoing investigation. We do not give a running commentary on the progress of cases.”

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