David Leigh and Rob Evans

THE GUARDIAN | THE BAE FILES

Saudi Arabia’s rulers threat­ened to make it eas­ier for ter­ror­ists to attack Lon­don unless cor­rup­tion inves­ti­ga­tions into their arms deals were halted, accord­ing to court doc­u­ments revealed yesterday.

Pre­vi­ously secret files describe how inves­ti­ga­tors were told they faced “another 7/7″ and the loss of “British lives on British streets” if they pressed on with their inquiries and the Saudis car­ried out their threat to cut off intelligence.

Prince Ban­dar, the head of the Saudi national secu­rity coun­cil, and son of the crown prince, was alleged in court to be the man behind the threats to hold back infor­ma­tion about sui­cide bombers and ter­ror­ists. He faces accu­sa­tions that he him­self took more than £1bn in secret pay­ments from the arms com­pany BAE.

He was accused in yesterday’s high court hear­ings of fly­ing to Lon­don in Decem­ber 2006 and utter­ing threats which made the prime min­is­ter, Tony Blair, force an end to the Seri­ous Fraud Office inves­ti­ga­tion into bribery alle­ga­tions involv­ing Ban­dar and his family.

The threats halted the fraud inquiry, but trig­gered an inter­na­tional out­cry, with alle­ga­tions that Britain had bro­ken inter­na­tional anti-bribery treaties.

Lord Jus­tice Moses, hear­ing the civil case with Mr Jus­tice Sul­li­van, said the gov­ern­ment appeared to have “rolled over” after the threats. He said one pos­si­ble view was that it was “just as if a gun had been held to the head” of the government.

The SFO inves­ti­ga­tion began in 2004, when Robert War­dle, its direc­tor, stud­ied evi­dence unearthed by the Guardian. This revealed that mas­sive secret pay­ments were going from BAE to Saudi Ara­bian princes, to pro­mote arms deals.

Yes­ter­day, anti-corruption cam­paign­ers began a legal action to over­turn the deci­sion to halt the case. They want the orig­i­nal inves­ti­ga­tion restarted, argu­ing the gov­ern­ment had caved into blackmail.

The judge said he was sur­prised the gov­ern­ment had not tried to per­suade the Saudis to with­draw their threats. He said: “If that hap­pened in our juris­dic­tion [the UK], they would have been guilty of a crim­i­nal offence”. Coun­sel for the claimants said it would amount to per­vert­ing the course of justice.

War­dle told the court in a wit­ness state­ment: “The idea of dis­con­tin­u­ing the inves­ti­ga­tion went against my every instinct as a pros­e­cu­tor. I wanted to see where the evi­dence led.”

But a paper trail set out in court showed that days after Ban­dar flew to Lon­don to lobby the gov­ern­ment, Blair had writ­ten to the attor­ney gen­eral, Lord Gold­smith, and the SFO was pressed to halt its investigation.

The case offi­cer on the inquiry, Matthew Cowie, was described by the judge as “a com­plete hero” for stand­ing up to pres­sure from BAE’s lawyers, who went behind his back and tried to secretly lobby the attor­ney gen­eral to step in at an early stage and halt the investigations.

The cam­paign­ers argued yes­ter­day that when BAE failed at its first attempt to stop the case, it changed tac­tics. Hav­ing argued it should not be inves­ti­gated in order to pro­mote arms sales, it then recruited min­is­ters and their Saudi asso­ciates to make the case that “national secu­rity” demanded the case be cov­ered up.

Moses said that after BAE’s com­mer­cial argu­ments failed, “Lo and behold, the next thing there is a threat to national secu­rity!” Dinah Rose, coun­sel for the Cor­ner House and the Cam­paign against the Arms Trade, said: “Yes, they start to think of a dif­fer­ent way of putting it.” Moses responded: “That’s very unkind!”

Doc­u­ments seen yes­ter­day also show the SFO warned the attor­ney gen­eral that if he dropped the case, it was likely it would be taken up by the Swiss and the US. These pre­dic­tions proved accurate.

Bandar’s pay­ments were pub­lished in the Guardian and Switzer­land sub­se­quently launched a money-laundering inquiry into the Saudi arms deal. The US depart­ment of jus­tice has launched its own inves­ti­ga­tion under the for­eign cor­rupt prac­tices act into the British money received in the US by Ban­dar while he was ambas­sador to Washington.

Prince Ban­dar yes­ter­day did not con­test a US court order pre­vent­ing him from tak­ing the pro­ceeds of prop­erty sales out of the coun­try. The order will stay in place until a law­suit brought by a group of BAE share­hold­ers is decided. The group alleges that BAE made £1bn of “ille­gal bribe pay­ments” to Ban­dar while claim­ing to be a “highly eth­i­cal, law-abiding corporation”.