France's prosecutors are looking into kickback allegations involving three allies of President Nicolas Sarkozy in a widening scandal that threatens to taint his bid for reelection.
Known in France as the "Karachi affair," the scandal is a tangled story of corruption that dates back to 1995, when France sold three submarines to Pakistan. French investigators are now probing allegations of kickbacks in the sales that theoretically helped finance the presidential campaign of France's former prime minister Eduard Balladur. French President Nicolas Sarkozy was budget minister at the time and close to Balladur. Magistrates also suspect the contract was linked to a bomb attack in Pakistan that killed 11 Frenchmen.
Now, three men close to Sarkozy are implicated in the alleged kickbacks. Police arrested two of them this past week, releasing both after questioning them. Prosecutors also announced they were investigating allegations that a third - former interior minister Brice Hortefeux - had illegally obtained access to the investigation and tipped one of the men off about confessions to police by his estranged wife, Princess Helen of Yugoslavia.
In an interview on France's Europe 1 radio, Princess Helen said she stood by her claims that her husband returned home from trips with suitcases of money. She said she didn't know where it came from.
A statement by the French presidency this week denied any involvement by Sarkozy in the affair, denouncing what it described as slander and political manipulation.
His center-right government has also closed ranks around him.
In an interview on French radio, Sports Minister Chantal Jouanno would not comment directly on the affair. But she also slammed what she called political manipulation just seven months before presidential elections.
Sarkozy has been struggling with low popularity ratings for months and his political rivals have been quick to capitalize on the scandal. Far right presidential candidate Marine Le Pen denounced ongoing political corruption, as did members of the main opposition Socialist Party.
Socialist party head Martine Aubry, another presidential hopeful, described the affair as among the most serious in recent French history. She called for a thorough investigation.
Sarkozy ran for the French presidency in 2007 promising a clean government. His predecessor, Jacques Chirac, was dogged by a series of corruption allegations during his marathon political career. He is currently on trial in connection with some of them. Prosecutors however have asked the court to dismiss the Chirac case for lack of sufficient evidence.