[JURIST] Britain's largest defense contractor BAE Systems [corporate website] said Tuesday that the US Department of Justice [official website] has initiated a formal investigation [press release] into BAE's compliance with anti-corruption laws amid allegations that BAE established a $120 million slush fund for members of the Saudi Royal family in exchange for defense contracts. Prime Minister Tony Blair's spokesperson said that the British government had no comment on either the investigation or whether British authorities will cooperate with the investigation.

The Sunday Times reported last November that a senior Saudi diplomat delivered an ultimatum [ST report] to Blair threatening to sever diplomatic relations with the UK unless the British government dropped its probe into corruption allegations. In December, the UK Serious Fraud Office [official website] dropped its inquiry [press release] into a 1985 $86 billion defense contract for aircraft and other military equipment, saying that "it has been necessary to balance the need to maintain the rule of law against the wider public interest" following warnings from Blair and other UK government officials that the investigators would cause serious damage to UK-Saudi relations [BBC report]. AFP has more. BBC News has additional coverage.