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“Look at the grief he got when other long-running inquiries collapsed,” they said, citing the fraud investigation into London’s Jubilee line.

But MPs are lining up to accuse the government of sacrificing the principle of the law on the altar of political and diplomatic expediency.

Sir Menzies Campbell, the Liberal Democrat leader, said: “The rule of law is not something to pick up when you want it and throw away when you don’t.”

The allegations that the SFO had been investigating were that BAE Systems, Britain’s biggest defence company, had set up a £60m “slush fund” to support the extravagant lifestyle of members of the Saudi royal family.

The payments, in the form of lavish holidays, luxury cars including a gold Rolls-Royce, rented apartments and cash perks, were alleged to have been paid to ensure that the Saudis continued to buy from BAE under the so-called Al-Yamamah deal, rather than go to another country.

Al-Yamamah, “the Dove” in Arabic, has been worth £40 billion so far to BAE. It is the biggest defence contract in British history and has kept BAE in business for 20 years.

The SFO was clearly serious about its probe. It had arrested at least five people including Peter Wilson, BAE’s managing director of international programmes, who oversaw the deal. And after two years, and hundreds of witness statements, investigators were on the brink of a breakthrough.

Despite all the talk of “slush funds” and bribes, the SFO was far more interested in probing suggestions of false accounting in BAE’s books than bribery.

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Investigators knew that proving the perks had been given specifically to procure further contracts was always going to be hard. Instead, they thought a prosecution based on how the payments might have been mis- described in BAE’s accounts had a better chance of success.

To this end, they had begun investigating a network of numbered bank accounts in Switzerland, through which millions of pounds of commissions for the deal had been channelled. The payments seemed highly suspicious and pointed to middlemen linked to Riyadh.

The investigators persuaded Helen Garlick, the SFO’s assistant director in charge of foreign liaison, to allow them to apply to a Swiss magistrate for an order to make the banks disclose details of who held the accounts.

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