...Now BAE’s methods are coming under intense scrutiny, after the Serious Fraud Office began investigating claims of a £60 million “slush fund” used by BAE to pay off Saudi Arabian dignitaries. This money is alleged to have helped to provide prostitutes, Rolls-Royce cars and Californian holidays. BAE has always denied any wrongdoing...

SAUDI ARABIA is threatening to suspend diplomatic ties with Britain unless Downing Street intervenes to block an investigation into a £60m “slush fund” allegedly set up for some members of its royal family.

A senior Saudi diplomat in London has delivered an ultimatum to Tony Blair that unless the inquiry into an allegedly corrupt defence deal is dropped, diplomatic links between Britain and Saudi Arabia will be severed, a defence source has disclosed.

The Saudis, key allies in the Middle East, have also threatened to cut intelligence co-operation with Britain over Al-Qaeda.

They have repeated their threat that they will terminate payments on a defence contract that could be worth £40 billion and safeguard at least 10,000 British jobs.

The Saudis are furious about the criminal investigation by the Serious Fraud Office (SFO) into allegations that BAE Systems, Britain’s biggest defence company, set up the “slush fund” to support the extravagant lifestyle of members of the Saudi royal family.

The payments, in the form of lavish holidays, a fleet of luxury cars including a gold Rolls-Royce, rented apartments and other perks, are alleged to have been paid to ensure the Saudis continued to buy from BAE under the so-called Al-Yamamah deal, rather than going to another country. Al-Yamamah is the biggest defence contract in British history and has kept BAE in business for 20 years...