LONDON — BAE Systems, Europe’s biggest weapons maker, said yesterday the US justice department had started a probe of the company’s compliance with anticorruption laws in connection with its arms business in Saudi Arabia.

BAE shares fell as much as 10%, the most in four-and-a-half years, after the London-based company said that it had been notified by the justice department of a formal investigation into its operations in Saudi Arabia. BAE gets about 60% of sales from the US and is the largest foreign supplier to the Pentagon.

UK Prime Minister Tony Blair said on June 7 that he had intervened to stop a UK investigation of BAE’s £43bn Al-Yamamah arms contract with Saudi Arabia because it would have made a “complete wreckage” of relations with the kingdom. BAE has been expanding in the US to benefit from spending in the world’s largest defence market and for the Iraq war.

“This is a serious issue for BAE executives. They could be prosecuted,” said Nick Cunningham, an analyst with Panmure Gordon in London with a “buy” rating on the stock. Executives should be worried , he said.

The shares fell as much as 44p to 398,25p and were down 9,3% yesterday in London. They have fallen 5,8% so far this year.

BAE said it was not commenting beyond confirming an investigation had begun.

Credit-default swaps based on € 10m of BAE debt rose by € 11000 to € 28000 , according to Deutsche Bank, their biggest one-day rise yet. Credit-default swaps are used to speculate on a company’s ability to repay debts. A rise indicates worsening perceptions of credit quality.

The Guardian newspaper and British Broadcasting Corporation reported earlier this month that BAE had made secret payments of £1bn to Prince Bandar bin Sultan of Saudi Arabia. BAE denied wrongdoing, and Bandar called the reports “false”.

The UK’s Serious Fraud Office dropped a probe of alleged corruption in December tied to the Saudi contract after a review by attorney-general Peter Goldsmith and intervention by Blair.

The probe threatened to have “devastating” consequences for national security, Blair said on January 16.

In March, the Organisation for Economic Co-operation and Development criticised the decision to drop the probe. “There are investigations but no prosecutions,” Mark Pieth, a spokesman for the organisation, said on March 14.

BAE has been shedding assets in Europe to expand in the US, where it is the Pentagon’s eighth-largest supplier. In October, the company sold its 20% stake in Airbus SAS, the biggest maker of commercial aircraft, for € 2,75bn .

BAE acquired Armor Holdings, a US military vehicle maker, for $4,14bn in May to win Pentagon contracts for armoured vehicles used in Iraq and Afghanistan. The company provides equipment to the navy, army and space agency Nasa.

“BAE is trying to win further business in the US, which may be put on hold,” said Jeremy Batstone, an analyst with Charles Stanley in London .

In the past 20 years, BAE has supplied aircraft, defence systems and training to Saudi Arabia and 4600 of its employees work in the kingdom. The UK and Saudi governments are in discussions about a contract expected to include supplying 72 Eurofighter Typhoons to the Middle Eastern country.

With acknowledgements to Emmet Oliver and Business Day.