The Blair Government was kidding itself a few months ago when thought it would put a lid on the fallout from BAE's shenanigans.

The UK Government had pulled the corruption probe into BAE's massive defence deal with Saudi Arabia, something I had examined here and here.

Now, The Guardian reports that the US Department of Justice is about to launch a criminal probe into the world's fourth largest arms dealer. The probe will look at allegations that BAE used the US banking system to transfer quarterly payments to accounts controlled by Prince Bandar at Riggs Bank in Washington, something that would put it in breach of the America's Foreign Corrupt Practices Act.

This would cause problems for BAE's attempts to make the Pentagon its biggest customer.

More importantly, however, it is a devastating epilogue to the Blair administration. The British Government is in this right up to its neck, says Simon Jenkins at The Sunday Times.

"All this was to appease an outlandishly corrupt, authoritarian and brutal dictatorship, embodying everything that Tony Blair claims to detest in his 'war of values' and against which his soldiers are dying in Iraq. By his lights Riyadh should be bombed, not sold bombers," writes Jenkins. "If the legal position of the British government as complicit in the bribery is untenable, its moral position is laughable. It has inflated the price of an export to win a contract by corruption. It has been forced to use the dictator's defence, that resulting embarrassment should be shrouded by "national security". And it must tell African and Asian regimes that its much-trumpeted stance against corruption is meant to apply only to the poor and the weak. Such hypocrisy in Britain's name is outrageous."

Concerns have already been expressed about BAE trying to set up an independent committee to probe its ethics, a move seen as an attempt to head off a US investigation. There's already talk about the company being hauled before Congressional hearings to answer questions about whether it made illegal payments to win a multi-billion dollar deal, known as Al-Yamamah, with Saudi Arabia in the 1980s, reports The Telegraph.

No doubt, America's defence industry will be moving to capitalise on BAE's woes.

This is going to be a big headache for Blair's successor, Gordon Brown, who takes over as prime minister at the end of this month.