Spencer Ackerman July 16, 2007, 4:13 PM

This is going to be messy. According to the Guardian, the Justice Department’s corruption investigation into British defense giant BAE — accused by the U.K’s Serious Fraud Office of lining the pockets of Prince Bandar, the former Saudi ambassador to the U.S., with $2 billion over 20 years — threatens to strain ties between Washington and Gordon Brown’s nascent government:

The department of justice in Washington has formally demanded that Britain hand over all evidence of secret payments the company made to members of the Saudi royal family to secure huge arms deals.

The department has taken over the corruption investigation after British prosecutors were forced by the then prime minister, Tony Blair, to halt it late last year on alleged grounds of national security.The Serious Fraud Office in London spent £2m and more than two years amassing documents which showed BAE had transferred £1bn to Washington accounts controlled by Prince Bandar of Saudi Arabia, and another £1bn to Swiss bank accounts linked to agents acting for Saudi royals. The records include highly classified Ministry of Defence files detailing the government’s involvement in the al-Yamamah arms deal payments. …

If British ministers defy the justice department, this could go on to endanger reciprocal cooperation and intelligence-sharing with the US. Britain depends far more heavily on Washington than it does on Saudi Arabia. One senior source close to the US department of justice told the Guardian: “Britain’s definition of national security might have to change under these circumstances.”

Be skeptical of that. The U.S.-U.K. intelligence relationship is one of the most prized of the CIA’s global partnerships. It would take extraordinary pressure on the part of the Justice Department — and probably the intervention of President Bush — for the U.S. to withhold intelligence cooperation from the British, especially as the FBI is trying to run down ties between Muslims in the U.S. to the London and Glasgow bombings. Even so, a diplomatic row between the U.S. and its closest ally over a huge, well-connected defense contractor is probably the last thing either country wants.

Prince Bandar