My Lords, with the leave of the House, I shall make a Statement which relates to the investigation by the Serious Fraud Office into BAE Systems plc concerning payments made in relation to the Al Yamamah programme with Saudi Arabia. This afternoon, the Serious Fraud Office has announced that it is discontinuing this investigation. Its statement says:

"The Director of the Serious Fraud Office has decided to discontinue the investigation into the affairs of BAe Systems plc as far as they relate to the Al Yamamah defence contract. This decision has been taken following representations that have been made both to the Attorney General and the Director concerning the need to safeguard national and international security. It has been necessary to balance the need to maintain the rule of law against the wider public interest. No weight has been given to commercial interests or to the national economic interest".

Given the intense interest in this issue and its market sensitivity, I have decided to inform the House this afternoon of this decision and to give a further brief explanation. The SFO has divided its investigation of these matters into three periods. The first period, which it has termed phase one, runs from the mid-1980s until the coming into force of the Anti-terrorism, Crime and Security Act 2001. This Act extended the pre-existing law of corruption to the bribery of overseas officials. The view of the SFO in relation to these payments is that no prosecution should be brought before the coming into force of the new Act. That is a view with which I concur.

The other phases concern the period after the coming into force of the new Act. Phase two covers payments made at about the time of the termination of the arrangements under which payments had previously been made by BAE. Phase three covers a longer period in relation to which at the moment there is little hard evidence that payments were made. In the SFO's view, there is no guarantee that this investigation would lead to prosecution and there are real issues to be determined. In order to complete this investigation, significant further inquiries would be necessary, which would last in the SFO's judgment a further 18 months. It accordingly has concluded that in these circumstances the potential damage to the public interest which such a further period of investigation would cause is such that it should discontinue that investigation now. I agree that there are considerable uncertainties that a prosecution could be brought; indeed, my view goes somewhat further as I consider, having carefully considered the present evidence, that there are obstacles to a successful prosecution so that it is likely that it would not in the end go ahead.

As to the public interest considerations, there is a strong public interest in upholding and enforcing the criminal law, in particular against international corruption, which Parliament specifically legislated to prohibit in 2001. In addition I have, as is normal practice in any sensitive case, obtained the views of the Prime Minister and the Foreign and Defence Secretaries as to the public interest considerations raised by this investigation. They have expressed the clear view that continuation of the investigation would cause serious damage to UK/Saudi security, intelligence and diplomatic co-operation, which is likely to have seriously negative consequences for the United Kingdom public interest in terms of both national security and our highest priority foreign policy objectives in the Middle East. The heads of our security and intelligence agencies and our ambassador to Saudi Arabia share this assessment.

Article 5 of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions precludes me and the Serious Fraud Office from taking into account considerations of the national economic interest or the potential effect upon relations with another state, and we have not done so. Noble Lords will understand that further public comment about the case must inevitably be limited in order to avoid causing unfairness to individuals who have been the subject of investigation or any damage to the wider public interest. It is also appropriate that I should add that the company and individuals involved deny any wrongdoing.

My Lords, that concludes the Statement.