The US Department of Justice has launched a formal anti-corruption investigation into BAE Systems' alleged payments of bribes to a Saudi prince, in return for a lucrative contract.
The allegations concern multi-million pound payments to Prince Bandar, a leading member of the Saudi royal family, as part of the Al Yamamah Tornado jet deal.
The investigation will look at BAE's compliance with anti-corruption laws, "including the company's business concerning the Kingdom of Saudi Arabia".
BAE shares have fallen 6% in opening trading today, as a result of the announcement.
The US action follows the UK government's decision to stop a fraud inquiry, last December, into BAE’s 1980s Al Yamamah deal to supply Tornado jets and other military hardware to Saudi Arabia. The UK government cited national security interest as a justification for their decision.
BAE have issued a statement:
"BAE Systems has been notified by the US Department of Justice that it has commenced a formal investigation relating to the company’s compliance with anti-corruption laws including the company’s business concerning the Kingdom of Saudi Arabia."
BAE is one of the largest defence contractors used by the US government.
BAE has already asked Lord Woolf to carry out an independent review of the company's handling of arms deals.
The review does not include BAE dealings with Saudi Arabia.
Prince Bandar has denied receiving improper payments, and BAE has said it acted within the law.