The attorney general had denied allegations that he concealed the existence of secret payments made to Saudi Arabia from the anti-bribery watchdog OECD.
According to the Guardian, Lord Goldsmith instructed British investigators not to disclose information related to the existence of alleged payments totalling more than £1 billion to Saudi Arabia during an investigation from the international watchdog.
The Serious Fraud Office (SFO) had been carrying out an investigation into claims that money was paid to the Saudi Prince Bandar for setting up an arms contract with BAE Systems, but this was halted by the government at the end of last year.
The OECD then launched its own investigation and during meetings between the watchdog and the SFO, the Guardian claims British investigators were ordered to hold some details back.
A source close to the watchdog told the paper: "We suspected that the British were holding some secret back."
During the original SFO investigation, Saudi Arabia became so concerned by the issue that it was felt the BAE contract was at threat.
Prime minister Tony Blair said at the G8 summit yesterday that the decision to call off the investigation was made to prevent the risk of the contract being pulled and consequently "thousands" of British workers losing their jobs.
The attorney general's office issued a bullish rebuttal of the claims, saying the Guardian article was "untrue".
"No such orders were given by the attorney general," a spokeswoman said.
Both BAE and Prince Bandar deny any wrongdoing related to alleged improper payments and any illegality is in question due to the timing of any money transfers - bribery of foreign officials only became an offence in 2001.
The BBC's Panorama programme has carried out its own investigation into the case and claims that £120 million a year was sent to two separate accounts in Washington which were then used for Prince Bandar.
The prince said that payments were made to the Saudi ministry of defence and were regularly audited by the country's finance ministry.
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