BAE at centre of accounts inquiry.
Defence firm BAE Systems has found itself embroiled in an investigation into suspected false accounting over with contracts in Saudi Arabia.
Two people have been arrested, the Serious Fraud Office announced yesterday.
Its probe is focused on two agencies BAE is believed to have used when selling the Saudis defence equipment.
Eight locations across London and the south of England were searched by around 80 personnel, including Serious Fraud Office investigators, and officers from the Ministry of Defence Police.
The agencies - Robert Lee International and Travellers World - had been at the centre of attention over their role in securing lucrative defence contracts for BAE.
BAE has close ties to Saudi Arabia, supplying fighter jets and other equipment under government deals dating back decades.
But the arrest of a 73-year old and a 66year old will add further fire to what could develop into a slow burning corporate scandal, dating back years.
A BAE spokesman yesterday said: 'I am unaware of any BAE Systems sites being searched.'
BAE Systems later said it may have been the victim of fraud.
A BAE statement said suggestions it was currently the target of the investigation were incorrect.
'There is a possibility that BAE Systems may itself have been the victim of a fraud,' it said.
The SFO confirmed none of the eight locations searched yesterday were BAE Systems' premises.
The Royal Embassy of Saudi Arabia said the Kingdom 'does not condone fraudulent behaviour of any kind'.
Travellers World closed last year while Robert Lee International was not immediately available for comment.
Of the two agencies, Robert Lee had been engaged by BAE to arrange visas for Saudis in connection with a defence contract in the 1980s.
An ex-employee spoke out last November, saying it had not been possible to do business with the Saudi Arabian government without providing it with bribes.
The Saudis countered the claim and BAE last month denied further reports that said it had used a 'slush fund' to influence Saudi officials togrant the company defence deals almost ten 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.
Last month a television programme alleged that BAE had a pounds 60 million slush fund designed to facilitate defence contracts.
It claimed that Prince Turki bin Nasser, of the Saudi royal family, was the principal beneficiary of the fund and it added luxury was lavished upon him through Travellers World, which became the conduit for BAE's money.
Peter Gardiner, who ran the travel agency, told the programme BAE had provided the family with a wealth of benefits. 'This is way beyond the lifestyle of most film stars,' he said. Travellers World's association with the defence giant started in 1988 and the programme said it lavished pounds 7 million per year on the royal family - from BAE.
Its largesse included a pounds 170,000 Rolls-Royce for the Prince's wife as a birthday present, the programme claimed.
It identified Steve Mogford as the BAE executive who authorised the slush fund invoices and said he signed off invoices worth pounds 3 million in the last four months of 1995 alone. He is now a director of BAE and a chief operating officer.
BAE said last month it was disappointed the channel was repeating nineyear-old allegations that were 'ill informed and wrong'. It added there was no slush fund and the company had not been involved in any false accounting.
However police arrested a former employee at the Ministry of Defence last month as part of its investigation into whether BAE did give 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.
BAE Systems is based in Farnborough, Hampshire, and designs and makes civil and military aircraft, surface ships, submarines and a range of defence products including guided weapons systems.
It owns Land Systems, which incorporates RO Defense and Alvis and has plants in Telford and Coventry.
At news of the announcement, which was released by the SFO to the stockmarket's Regulatory News Service, BAE stock fell.