Britain's High Court has been told the Serious Fraud Office (SFO) took security fears into account when deciding to drop a corruption investigation into a BAE Systems' arms deal with Saudi Arabia, despite allegations the decision was based on commercial reasons.
The investigation, which related to the £43bn al-Yamamah deal for fighter jets and other equipment in 1985, was called off after two years.
Campaign groups Campaign Against Arms Trade and Corner House Research, which brought the case to the High Court, say the decision was unlawful.
They allege the decision was commercial, not based on security, as a new multi-billion pound order for BAE was under discussion.
Lawyers for the SFO told the court SFO Director Robert Wardle had considered security fears "in light of the Islamist terrorist threat" and possibility of attacks on Britain when making the decision, The Times reports.
BAE maintains it acted within the law and says the arms deals were handled by the governments concerned.
The High Court cannot force the SFO to resume its investigation, but can rule whether the decision to abandon it was legal.
It can also order the SFO to reconsider its decision.
By Elizabeth Clifford-Marsh