Metropolitan Police said John Irving, 52, was detained in central London on a U.S. extradition warrant. He was due to appear in court later Thursday.
Irving was one of three oilmen charged in New York in 2005 with cheating the United Nations of at least US$100 million (EUR75 million) that should have gone for humanitarian aid to Iraqis.
The other two Texas oil executive David Chalmers and Bulgarian oil trader Ludmil Dionissiev deny the charges.
The extradition warrant accuses Irving of colluding with Chalmers and others to defraud the U.N. and pay "illegal and secret commissions and surcharges to officials of the government of Iraq" between January 2000 and March 2003.
Irving, who was an employee of Chalmers' Bayoil firm, has previously denied any wrongdoing.
The oil-for-food program, which ran from 1996 to 2003, was created to help Iraqis cope with U.N. sanctions imposed after Saddam Hussein's 1990 invasion of Kuwait. Under the program, money from Iraqi oil sales was to have been used for food and medicine.
But Saddam chose the buyers of Iraqi oil and the sellers of humanitarian goods. In a bid to end the sanctions, Saddam allegedly gave former government officials, activists, journalists and U.N. officials vouchers for oil to be resold at a profit.
An investigation led by former U.S. Federal Reserve chairman Paul Volcker concluded in 2005 that 2,200 companies from some 40 countries had colluded with Saddam's regime to bilk the humanitarian program of US$1.8 billion.
Saddam was deposed by the U.S.-led invasion of Iraq in 2003 and executed last December.