British defence firm BAE Systems is under investigation for suspected false accounting in connection with contracts in Saudi Arabia, Britain's Serious Fraud Office (SFO) announced today.
BAE has close ties to Saudi Arabia, supplying fighter jets and other equipment under government deals dating back decades.
The SFO said the investigation was connected with defence contracts with the government of Saudi Arabia and that two men had been arrested and searches conducted in Britain
"We cannot comment on an ongoing police investigation," a BAE spokesman said.
The BAE stock was the heaviest faller in the FTSE blue chip index, down 3.5 per cent at 237p at 1315 GMT, after earlier in the day hitting a new high for the year at 248-1/4p, as markets bet an election win for US President George W. Bush would be positive for defence-related groups.
BAE, Europe's largest defence company, last month denied media reports that said it had used a "slush fund" to influence Saudi officials to grant the company defence deals almost 10 years ago.
"BAE can state categorically that there is not now and there has never been in existence what the media refers to as a slush fund," the company said in a statement at the time.
The Guardianlast year reported allegations that BAE had used a slush fund to woo officials from Saudi Arabia, BAE's largest export market.
British police arrested a former employee at the Ministry of Defence last month as part of its investigation into whether BAE gave improper gifts to secure contracts.
A ministry spokesman said the former employee was released on bail and had not yet appeared in court. He is being investigated for possible breaches of the Prevention of Corruption Act.