Court told BAE investigation unlawfully ended

LONDON (Reuters) - The Serious Fraud Office unlawfully ended a graft probe into arms deals between BAE Systems and Saudi Arabia because of pressure from members of the Saudi royal family, the High Court was told on Thursday.

A lawyer representing pressure groups Corner House Research and the Campaign Against Arms Trade (CAAT) made the claims at a hearing on whether it was legal for the SFO to drop probes into the biggest export deal in British history.

The SFO has denied the accusations.

"The decision to abandon the investigation was taken, it is claimed, following renewed threats made by members of the Saudi Arabian royal family," lawyer Dinah Rose told the court.

Then-Prime Minister Tony Blair said that if the SFO investigation into the state-to-state Al Yamamah arms deal between Britain and Saudi Arabia proceeded, it would damage national security.

His opponents said the decision went against the rule of law. Last year, a court granted Corner House Research and CAAT permission to seek a full judicial review of the SFO decision.

Rose said members of the royal family had threatened to cancel a proposed order for Eurofighter Typhoon aircraft and to withdraw security and intelligence cooperation if the investigation continued.

"These threats (were) apparently made following BAE's discovery that the SFO was about to obtain access to details of various Swiss bank accounts," she said.

The SFO probe, dropped in December 2006, had focused on BAE, Europe's largest defence company, which served as prime contractor under the deal and supplied the Kingdom with fighter jets and other arms.

The government signed a deal for BAE to supply Saudi Arabia with Eurofighter jets in September last year. BAE denies it made wrongful payments in its dealings with Riyadh.

The U.S. Justice Department is also probing the company's compliance with anti-corruption laws.

The British hearing is set to last at least two days.

(Editing by Michael Winfrey)