May I first express my thanks to you, Mr. Deputy Speaker, for allowing me to make a statement on this matter at this time? This statement relates to the investigation by the Serious Fraud Office into BAe Systems plc, and concerns payments made in relation to the al-Yamamah programme with Saudi Arabia.

This afternoon, the SFO announced that it was discontinuing the investigation. Its statement reads as follows:

“The Director of the Serious Fraud Office has decided to discontinue the investigation into the affairs of BAe Systems pc 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, the Attorney-General decided to inform Parliament of the decision this afternoon, and to give a further brief explanation.

The SFO has divided its investigation of these matters into three periods. The first period, which has been termed phase 1, runs from the mid-1980s to the date that the Anti-Terrorism, Crime and Security Act 2001 came into force. That Act extended the existing law of corruption to the bribery of overseas officials. The view of the SFO in relation to those payments is that no prosecution should be brought before the coming into force of the new Act. That is a view with which the Attorney-General concurs.

The other phases concern the period after the new Act came into force. Phase 2 covers payments made about the time of the termination of the arrangements under which payments had previously been made by BAe. Phase 3 covers a longer period in which, at the moment, there is little hard evidence that payments were made. In the SFO’s view, there is no guarantee that the investigation would lead to prosecution, and there are real issues to be determined.

In order to complete the investigation, significant further inquiries would be necessary that, in the SFO’s judgment, would last a further 18 months. Accordingly, the SFO has concluded that, in those circumstances, the potential damage to the public interest that such a further period of investigation would cause is such that it should discontinue the investigation now. The Attorney-General agrees that there are considerable uncertainties that a prosecution could be brought. Indeed, his own view goes somewhat further: having carefully examined the present evidence, he considers that there are obstacles to a successful prosecution so that it is likely that it would not, in the end, go ahead.

As for the public-interest considerations, there is a strong public interest in upholding and enforcing the criminal law, in particular against the international corruption that Parliament specifically legislated to prohibit in 2001.

In addition, and as is normal practice in any sensitive case, the Attorney General has obtained the views of the Prime Minister and the Foreign and Defence Secretaries as to the public-interest considerations raised by the 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 UK 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 Her Majesty’s ambassador to Saudi Arabia share that assessment.

Article 5 of the Organisation for Economic Co-operation and Development convention on combating bribery of foreign public officials in international business transactions precludes the Attorney-General and the SFO from taking into account considerations of the national economic interest or the potential effect on relations with another state—and they have not done so.

Hon. Members 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.

First, I thank the Solicitor-General for the promptness with which the statement has been made to Parliament and also for having given me an advance copy of what the Attorney-General was going to say in the House of Lords, which has been repeated here.

Will the Solicitor-General confirm that the decision to discontinue the investigation was made by the director of the Serious Fraud Office and not by anybody else? Secondly, can he amplify a little on the way in which the phases in the investigation were divided. In particular, will he explain a little more the impact of any investigation in so far as it related to events before the passing of the Anti-terrorism, Crime and Security Act 2001? As I understand what he has said, it is effectively that no criminal offence would have been committed prior to the coming into force of that Act in any event.

As to phases 2 and 3 of the investigation, which the Solicitor-General identified, will he amplify or make it clear that the obstacles to a successful prosecution lie, as I understand his statement, in the nature of the case itself rather than in any public interest considerations—a matter on which he placed considerable emphasis? Will he also reassure the House that in so far as public interest considerations have been taken into account, it is the director of the SFO himself who has taken them into consideration in coming to his overall decision?

Finally, the Solicitor-General will be aware—he has made it clear—that the company and individual deny any wrongdoing, yet it is clear from the occurrence of the investigation and the Solicitor-General’s points that there appears to be a potentially difficult area of interpretation—let me put it that way—of what may fall inside or outside the scope of criminality as determined by Parliament’s passing of the Anti-terrorism, Crime and Security Act 2001. If it is to be clear in future what is in conformity with the law and what is not, will the Government look carefully into providing guidelines or other explanations so that the sort of problem that may have arisen post-2001 does not occur again? If it does occur again, it must be quite clear to any company or any individual transgressing the Act that prosecution will follow.

I thank the hon. Gentleman both for the way in which he has responded to the statement and for his compliments to the Attorney-General, which I will pass on to him.

The decision was taken by the director of the Serious Fraud Office. There were discussions with the Attorney-General and myself, but during those discussions, the director informed us that he had a view on the issue. That view was his view. He told us that yesterday. He wanted to reflect on it further overnight, and he confirmed it to us about midday today. We have therefore taken the decision that we should inform Parliament of that view as soon as possible.

The hon. Gentleman asks me to amplify some of the issues in relation to the phases of the investigation. He is right to say that the Anti-terrorism, Crime and Security Act 2001 is an important dividing point. It is arguable whether the corruption of foreign officials was an offence before the 2001 Act, and it would be unsafe in this context to undertake a prosecution. It is unlikely in our view that one would be successful. On that phase, a clear view has been formed therefore that a prosecution is not likely to succeed.

On the obstacles that relate to phase 2 and, indeed, to some extent to phase 3 of the investigation—those are the periods after the 2001 Act had come into effect—there are various legal issues, quite complex ones in relation to principle and agency, and in relation to how a prosecution might be undertaken and in what circumstances, given the nature of the Government in Saudi Arabia. We would have to take those into account, and they might affect the ability of a prosecution to succeed. There are also various issues in relation to the evidence. I have indicated in the Attorney-General’s statement that some of the payments that were made immediately post the coming into effect of the 2001 Act may well have been made in particular circumstances that would not justify a prosecution.

On subsequent matters, it is clear that there is very limited information or evidence in relation to the third phase, and there is a particular problem in that obtaining that would take a very long time, in our view.

On the public interest, the hon. Gentleman asks me whether it was the director of the Serious Fraud Office who took those issues into account. I can confirm that it was the director. Of course the Attorney-General and, indeed, myself also subsequently considered whether we concurred. On the public interest, we certainly concur. On the evidence issues, the Attorney-General formed a view, which was that he thought that there were some serious problems in respect of the likelihood of a long-term prosecution being undertaken in any event.

Finally, the hon. Gentleman makes a very good point: we ought perhaps to look at how we better advise companies in relation to what are some difficult and complex issues. He will understand that we have had little time since making the decision to consider his point—indeed, he has put it to me this evening. We will have some discussions with the Department of Trade and Industry on how we might best perhaps guide companies, and perhaps come back to him later, to find out whether we can deal with some of the issues that he has quite rightly identified.

The Liberal Democrats are grateful for the early statement following the director’s announcement, but we are not going to be nearly as welcoming about the content. Will the Solicitor-General confirm several points in relation to the burden of his statement? The first is that the inquires have not been completed—indeed, they may potentially have up to 18 months to run. The second is that the balance of probabilities test, which is always the proper test, has not yet even been applied in relation to whether there is a more than 50 per cent. chance of conviction in this case. The third is that, in a case involving a £20 million slush fund allegation in relation to a £10 billion Eurofighter contract with Saudi Arabia, the public interest judgment has been arrived at after representations by the Saudi Government to the British Government and our ambassador in Saudi Arabia, and from our ambassador, our Prime Minister, our Foreign Secretary and our Secretary of State for Defence to Law Officers and the Serious Fraud Office. The director of the Serious Fraud Office is having to balance the public interest within hours or days of the most heavy pressure and advice from a foreign Government, as well as from the head of the Administration in the United Kingdom.

Given that Parliament, led by the Prime Minister, said how important it was that we passed the Anti-terrorism, Crime and Security Act 2001 to ban international bribery and corruption, is not the predominant justification for a decision that the rule of law needs to follow that Act’s implications and intentions? Even if it would have been difficult to go back before 2001 and 2002, when the Act came into force, should not all activities since 2002, at the latest, be investigated to a conclusion? That would give confidence that when we vote for something and say something in this Parliament, we mean it and we do not change our minds when there are suddenly political difficulties. Will the Solicitor-General confirm that there was an ultimatum from the Saudi Government, that they mentioned 10 days for us to make a decision and call off the investigation, that they told us that if we did not, they would not continue with conversations—indeed that they have stopped talks already—and that the British Government are clearly influenced by the fact that the French want to compete for the contract?

Lastly, whatever the answers to those detailed questions, is not the truth that the balance between the rule of law and the public interest—in a country where we have already made one recent decision that is arguably against the rule of law: to invade a foreign country—must be that we stand by the rule of law and that our defence industry stands by it so that it is not just seen to be acting without corruption, but is in no way able to be suspected of acting with corruption? The best principle for British foreign policy and defence policy is that we act according to the rule of law, and that investigators investigate to a conclusion and are allowed to make an unpressured decision about whether a company, however important—and however important our international interest—has broken the law. Is that not the key point and have not the Government clearly failed on that today?

I object to the tone of the hon. Gentleman’s comments in relation to the implication that the director of the Serious Fraud Office has somehow made a political decision. He has made a judgment based on the rule of law and the balancing test that he is required in law to use in relation to the public interest and the prosecution of a case.

The hon. Gentleman asked me a number of questions and I will try to deal with each of them. It is the case that the director and, subsequently, the Attorney-General and I, had to balance the issue of national security, and the damage that might be caused to national security if we took a particular decision, against the importance of dealing with the serious allegations that were made. There is also the fact that the investigation of those allegations could take 18 months and that during that period considerable damage might be caused.

At the end of the 18 months, it might well have been likely—indeed, the Attorney-General reached the view that there were obstacles to a successful prosecution—that, in any event, no prosecution would have taken place. In such circumstances, weighing the importance of national security in this case against the allegations, the 18-month period and the fact that there would have been no guarantee that a prosecution would have taken place at the end of the 18 months, a proper decision had to be made by the director of the Serious Fraud Office. I would defend both the way in which he made that decision and the decision that he made. The public interest requires the director of the Serious Fraud Office to make a balanced judgment—he has done that. He is independent and he has made his decision in accordance with the rule of law and his obligations.

The hon. Gentleman seems to take the view, for various reasons of principle, that no matter the consequences or the damage to national security, he would favour continuing the investigation. I have to tell him that I support the decision of the director of the Serious Fraud Office and the Attorney-General. This is a matter not of political difficulties, but of making proper decisions according to the rule of law.

It was right that the Serious Fraud Office commenced the investigation and I am grateful to the Solicitor-General for telling the House why the matter has been brought to a proper conclusion. Will he tell me what steps will be taken to advise the Ministry of Defence, as the United Kingdom partner in the negotiations with the Saudi Arabian Government on defence contracts involving Eurofighter Typhoon, of the conclusions that have been reached? Will a similar communications exercise be conducted with the Saudi Arabian Government? Will he confirm that the outcome of the announcement that he has made vindicates the statement of BAE Systems that it had conducted its business relationships correctly? Will he also say—

Order. With all respect to the right hon. Gentleman, he has already asked two questions, and other hon. Members wish to speak.

The right hon. Member for Fylde (Mr. Jack) is quite right to say that it was proper for the Serious Fraud Office to commence the investigation, because allegations had been made. I supported the decision that it made to initiate the investigation. To the best of my knowledge, it has been conducted properly. The team that has been looking into the matter has done so diligently and deserves our thanks. However, it was also right, at the appropriate stage, for the director to take a view about the continuation of the investigation.

The director, the Attorney-General and I have excluded commercial matters from our considerations. It was proper that we did that. I do not wish to make any comments about other contracts or whatever. Indeed, I deliberately took the view that we did not want to be informed about them in any detail because they should not have affected our decision—and they did not.

I am bound to say that I regard this whole episode as a sorry one. The Serious Fraud Office has been on a lengthy fishing expedition that has proved abortive. Although I accept entirely what the hon. and learned Gentleman has said about the director of the Serious Fraud Office, the office has had to restrain itself from extending the fishing expedition for an extra 18 months. That suggests that the most important point that the Government need to address is that raised by my hon. Friend the Member for Beaconsfield (Mr. Grieve). Will the Solicitor-General reiterate that we need a thorough review of the way in which this law is operating? If national security is to have a bearing on the activities of the Serious Fraud Office in this field, that should be much more clearly stated as such. The Serious Fraud Office should not be tempted to go on these fishing expeditions unless it is absolutely clear that prosecutions are both likely and in the national interest.

I do not agree with the hon. Gentleman. When serious allegations are made, it is right that the prosecuting authorities undertake the appropriate investigations and make appropriate decisions according to the evidence before them and the public interest. He pejoratively described the investigation as a fishing expedition. I do not take that view, having had detailed briefings from the SFO team that has looked into the matter. I think that they have behaved with diligence and as good public servants.

I know that the Attorney-General would want me to convey his view to this House, which is that he has absolutely no criticism to make of the way in which the SFO has acted; indeed, its staff have carried out their duties as they should and they have made decisions in an appropriate way. I am sure that my right hon. and learned Friend would want me to place on the record his defence of their actions.

I am sure that on reflection the hon. Gentleman, too, will agree that the approach taken by his hon. Friend the Member for Beaconsfield (Mr. Grieve)—that we need to strike a balance—is the correct one. I hope that he will read what his hon. Friend said and be educated by it.

The Solicitor-General has told the House that the Prime Minister, the Foreign Secretary and the Defence Secretary have expressed the view that the continuation of the investigation would be damaging to UK-Saudi co-operation and that the Attorney-General and the SFO are unable to take into account potential effects on relations with another state. Does he not recognise that the distinction between UK-Saudi co-operation and UK-Saudi relations is a very fine one? What weight and significance was placed on the representations made by the Prime Minister, the Foreign Secretary and the Defence Secretary?

Let me say that the issue was national security—our national security—and our foreign policy objectives and the extent to which those might be damaged as a result of the continuation of the investigation, rather than, as I made clear in my statement, relations with another country. The issue was our national security and the extent to which it depends on these matters.

It is appropriate under the 1951 so-called Shawcross convention, in a Shawcross exercise, for the Attorney-General to obtain the views of other Ministers on a decision such as this. I have taken the trouble to ensure that I have in front of me the classic statement of that convention, made by the then Attorney-General, Sir Hartley Shawcross, in 1951. He said that

“the true doctrine is that it is the duty of an Attorney-General, in deciding whether or not to authorise the prosecution, to acquaint himself with all the relevant facts, including, for instance, the effect which the prosecution…would have upon public morale and order, and with any other consideration affecting public policy.

In order so to inform himself, he may…consult with any of his colleagues in the Government and indeed…he would in some cases be a fool if he did not.… The responsibility for the eventual decision rests with the Attorney-General, and he is not to be put, and is not put, under pressure by his colleagues in the matter.”

I confirm in relation to informing the director any representations that he was able to be aware of the representations that were received. When he made the decision, he saw the written representations himself. He was able to take a view, without undue pressure. He formed a view, quite properly, and he expressed that view. He reflected on it overnight and he confirmed that it remained his view. The Attorney-General and I had, in the meantime, formed a view that was the same, or broadly the same. Therefore, the decision-making process was conducted entirely properly.

Will the Government now support the Public Accounts Committee or its Chairman having access to the National Audit Office report on a confidential basis? If not, why not?

The hon. Gentleman should properly take the matter up with the appropriate House authorities, rather than with me.

Every one of the considerations on which the statement is based would have been apparent to a competent investigator within weeks of commencing the investigation. Why was the Serious Fraud Office permitted to continue with its investigation, and why has the necessary analysis only now been conducted, in circumstances that make a laughing stock of the Government and the rule of law?

I do not accept the intemperate way in which the hon. and learned Gentleman chooses to present his question. The director of the Serious Fraud Office took the decision in the proper way, and he took into consideration the evidence presented to him. Some of that evidence, particularly that relating to public interest, was more recent, and it is right that he made his decision after hearing it, and after having the chance properly to consider it. I think that he made the decision at the appropriate time, and I have no criticism whatever, so I do not share the hon. and learned Gentleman’s view.

Is the Solicitor-General aware that news of his statement sent a frisson of excitement through the fisheries debate? Some people thought that the Prime Minister himself was about to come and tell us about police inquiries. Does the Solicitor-General understand that even if the decision was made for the best of reasons, it will look very dodgy? Will he at least give us an assurance that the phrase,

“necessary to balance the need to maintain the rule of law against the wider public interest”

is not being used as a precedent for balancing the need to maintain the rule of law with narrow political interests involved in any other investigations with which the police are engaged?

A serious decision has been taken by the director of the Serious Fraud Office and the Attorney-General, both of whom considered the matter very carefully. In the context of that difficult decision, if the hon. Gentleman chooses to make cheap points, that is a matter for him; others will judge him.

Has the Solicitor-General had an opportunity to estimate the costs of the investigation to the public purse so far, and what would the additional costs have been if it had run for another 18 months?

I have not yet had the opportunity to estimate the costs, but I will ask the director of the Serious Fraud Office whether he can do so in due course, although it may take some time to get those statistics. I shall ask my officials to make a note of the hon. Gentleman’s question, which is a legitimate one, and I shall see whether I can get him an answer in due course.

Is this not a sad day for the cause of good governance and the rule of law, coming as it does just two weeks after news of pressure from the Saudi Arabian Government? Given that there was every indication that the inquiry was making substantial progress, is it not scandalous that the criminal investigation has been brought to an end? Is there not a case for—

Order. The hon. Gentleman has had his two questions.

The hon. Gentleman claims that there was substantial progress, but I am not sure how he justifies that claim. The Attorney-General and I met the SFO team, and its view was that it would take 18 months to make what the hon. Gentleman thinks amounts to substantial progress. It would take a considerable time just to get to the point at which the SFO could consider whether to undertake a prosecution. He may just dismiss that, but the director of the SFO and the Attorney-General had to balance national security interests, the length of time involved, the implications, and the question mark over whether a prosecution would take place. A decision had to be made, and it was made properly.

Is it not clear and incontrovertible that the representations—indeed, the pressure—of a foreign Government were crucial in determining the course of a criminal investigation in this country, and that if the Government concerned had not threatened to withdraw diplomatic co-operation and to withdraw contracts, and had expressed no views on the subject and made no moves, the investigation would have continued?

The hon. Gentleman may have his view. It is entirely a matter for other Governments whether they express a view, but it is a matter for the director of the Serious Fraud Office and the Attorney-General to take a view on the law in relation to the public interest and the evidence before them. A view was taken, quite properly, on that public interest and on the evidence, and a view was taken that the investigation ought at this point to conclude.

Does the Solicitor-General accept, from one who does not for a minute impugn the integrity of the Attorney-General and who believes that the decision is the inevitable one, that there are many of us who think it should have been made far earlier?

The hon. Gentleman may take the view that it would have been preferable to be able to arrive at the decision earlier. The difficulty is that the director of the Serious Fraud Office was entitled to undertake appropriate inquiries and investigations to establish the nature of the case, and to make a decision when he had sufficient information before him to make that decision. It was not the case, in his view, that he had that information before yesterday. Therefore, when he had the information, he was able to make the appropriate balancing tests that are required of him under the law and under the obligations of a prosecutor. He made that balancing test when he was able to do so. The Attorney-General and I agreed with the decision that he took, after we had spent considerable time—particularly the Attorney-General; on Tuesday at least, I was engaged elsewhere, as the hon. Member for North Southwark and Bermondsey (Simon Hughes) knows—going into the detail of the case. The Attorney-General spent Tuesday, yesterday and some considerable time before that studying the detail, and has formed a view that the decision of the director of the Serious Fraud Office is the right one.