Three people were arrested in the City of London yesterday after police smashed an alleged £470 million fraud ring involving US Treasury bonds, City of London police said.

The police, aided by the US Secret Service, swooped after suspected fraudulent bonds with a face value of $800 million were deposited into a City bank, police said.

The people arrested outside the bank, including an American, a Taiwanese, and an English businessman from the Leicester area, were being questioned at Bishopsgate police station tonight.

Detective Inspector Ken Stewart, of City of London fraud squad, said the arrests, outside the unnamed bank at about midday, came after an "extremely successful" 10-day sting involving around 40 officers.

"A significant amount of fraudulent paper has been taken away from the financial markets," he said.

"Although these $800 million were deposited in a bank, quite often the reason will be to obtain smaller sums from investors unaware of the authenticity of the documents.

"I cannot say where the intended fraud would be, but this was potentially the beginning of a large number of frauds in the UK and abroad."

Det Insp Stewart said checks were being made to confirm that the bonds, which date from the 1940s, were indeed fraudulent - although it was strongly suspected they were.

The bonds appeared to have been part of an elaborate attempt to defraud international finance houses.