Bagudu became a close friend of Ibrahim and Mohammed Abacha, sons of military ruler Sani Abacha. He and Ibrahim Abacha were involved in a scheme to buy vaccines and resell them to the government at a steep mark-up, earning $66.6 million profit. Later, he helped divert much larger sums of money that had been earmarked for security spending into foreign accounts.
After Abacha died in 1998, the interim military government that followed started an investigation into misuse of state funds. Mohammed Abacha and Abubakar Atiku Bagudu, his business manager, returned $750 million. There was no criminal prosecution. Bagudu moved to the USA in 2000, and in 2003 was detained there for six months on charges of financial misdeeds during the Abacha era. He was released in November 2003 on condition that he repaid about $300 million to the Federal Government of Nigeria. The administration of President Olusegun Obasanjo apparently made a deal to recover part of the money in return for dropping prosecution and leaving the remainder with the family. Bagudu was Chairman of Phil Nugent Nigeria Ltd. from 2004 until December 2005.
Bagudu succeeded Adamu Aliero when he won the by-election for the Kebbi Central Senatorial seat following Aliero's appointment to minister for FCT. In the 6 April 2011 elections, Bagudu won for the PDP with 173,595 votes. His predecessor Adamu Aliero, who had moved to the Congress for Progressive Change (CPC), came second with 137,299 votes and Aliyu Bello Mohammed of the Action Congress of Nigeria (ACN) trailed with 11,953 votes.