BAE Systems faces the threat of substantial fines, criminal prosecution of managers and the forced appointment of an independent monitor to oversee its American business after the US Justice department launched a corruption probe into the company.

Europe’s biggest arms manufacturer told the London Stock Exchange on Tuesday that the DoJ is to investigate the 20-year-old Al-Yamamah arms deal with Saudi Arabia. The news caused the company’s shares to plunge 8 per cent as investors took fright at the possible damage to BAE’s crucial US business.