THE Swiss authorities have begun a criminal investigation into allegations of bribery and corruption surrounding Britain’s biggest defence firm.

The federal prosecutor’s office said a probe is under way into suspicions of money laundering involving BAE Systems. A spokeswoman for the office, said the inquiry was the result of a report received from the Swiss money-laundering authority.

The move will prove highly embarrassing to the British government, which decided to halt a two-year criminal inquiry by the Serious Fraud Office (SFO) into the £40 billion Al Yamamah contract to sell fighter jets and Hawk trainers to Saudi Arabia.

The spokeswoman declined to give further details.

However, The Sunday Times has previously revealed that last summer, before its probe was abandoned, the SFO had asked a Swiss magistrate to order a series of banks to disclose details of accounts into which payments totalling hundreds of millions of pounds had been made. The money, alleged to have come from BAE, is said to have been paid into accounts linked to “third party” offshore firms.

Fraud office sources said the trail led through a prominent British-based businessman to the Saudi capital, Riyadh. The businessman, who has close financial ties to the Tory party, is said to have made at least £800m from his role in the deal. British officials believe equally large sums were paid to members of the Saudi government.

The SFO had been examining a £60m slush fund BAE had allegedly used to pay senior Saudi officials. The fund was used to pay for luxury holidays, apartments, cash expenses and other perks. The main beneficiary was Prince Turki bin Nasser, then head of the Saudi Royal Air Force and the senior official responsible for buying the arms.

But Whitehall officials have recently emphasised that the payments into the Swiss accounts were an even more significant aspect of their inquiry. They believe some of these were destined for some of the most senior members of the Saudi government.

The train of events that led to the government’s decision to drop the inquiry began last September when the Saudis found out that the SFO had persuaded a Swiss court to force the banks to make a partial disclosure of the mystery accounts.

The Saudis warned Britain it would suspend diplomatic and intelligence ties unless the probe was halted. Within weeks, the attorney-general, Lord Goldsmith, announced the inquiry was being stopped on national security grounds. The decision earned a complaint from the United States, which is considering investigating BAE.

The Serious Fraud Office is continuing to examine other BAE contracts, including those involving possible bribes to Tanzania, Romania, Chile and the Czech Republic.

A BAE spokesman said: “We are committed to the highest ethical standards in our dealings with others. Our ethical policy is underpinned by strict compliance and assurance processes. We will not tolerate bribery.”

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