An Embarrassment of Princes

Britain finds that when you want to do business in Riyadh, you do as the Riyadhies do

This authoritarian country, with its princes who are pious Muslims at home and libertines away, is also the one with which Britain signed its biggest export deal in 1985: the al Yamamah agreement to sell 72 Tornado and 30 Hawk warplanes for £43 billion, mostly paid in oil shipments, over 20 years. The deal, signed by the Saudi defence minister Prince Sultan and Britain's then defence secretary, Michael Heseltine, has been mired in controversy and corruption allegations for years.

The furore has erupted again. This time the claim is that BAE Systems, Britain's biggest arms manufacturer, paid more than £1 billion into two Washington accounts controlled by the former Saudi ambassador to the US, Prince Bandar bin Sultan, the Saudi defence minister's son, over more than a decade. The payments, made on a quarterly basis, were allegedly written into "secret annexes" of the al Yamamah contract for the provision of "support services'', with the full knowledge and approval of the Ministry of Defence.

MPs have demanded an inquiry into whether government ministers were involved in corruption. A criminal investigation by the Serious Fraud Office - which is understood to have discovered the payments but not whether they were illegal - was controversially dropped "in the interests of national security" last year, after Tony Blair warned that the Saudis, vital allies in the war on terror and a stabilising force in the Middle East, would stop sharing anti-terrorist intelligence if the inquiry continued.

Many who have lived and worked in Saudi Arabia or done business with the Gulf state say the claims, to be broadcast by BBC's Panorama tomorrow, show a failure to understand Saudi culture. "It's totally different from ours," says Jonathan Aitken, the former defence minister who took part in key negotiations over the al Yamamah contract in the early 1990s. "The Saudi monarchy is similar to a Tudor monarchy in that servants of the Crown are rewarded for doing their public service faithfully and well. They believe people are entitled to a slice of the action when they help with something like a big contract."