Sarkozy embroiled in arms sale scandal

[sonicboom]

Sarkozy embroiled in arms sale scandal

By Peggy Hollinger and Ben Hall in Paris

Published: November 22 2010

Nicolas Sarkozy, the French president, has become embroiled in a fresh political funding scandal involving alleged kickbacks on a 1994 arms sale to Pakistan and the death of French naval engineers in a bomb attack.

The so-called Karachi affair threatens to plunge Mr Sarkozy’s centre-right UMP party into civil war 18 months before the presidential election.

The government faces allegations of a cover-up from the socialist opposition after it denied investigators a warrant to search France’s security services in connection with the corruption affair.

Dominique de Villepin, a former prime minister and Mr Sarkozy’s political arch-rival, is to testify this week before a judge who is investigating the claims that money from the sale of three submarines to Pakistan in 1994 was illegally channelled to the presidential campaign of Edouard Balladur, the then prime minister.

Mr Villepin triggered a political storm on Friday, and an usually lengthy denial by the Elysée palace, when he said there had been “very strong suspicions of illegal kickbacks” on a contract to sell the submarines to Pakistan in 1994.

Mr Villepin was careful to name neither Mr Balladur nor Mr Sarkozy and later insisted that he had no hard evidence of kickbacks or illegal party financing. But his comments revived old enmities among centre-right politicians.

Mr Sarkozy was a close ally of Mr Balladur and spent two years as budget minister in his government. He became spokesman for Mr Balladur’s 1995 presidential campaign. Mr Villepin backed Jacques Chirac in the race and later became his chief of staff.

After beating his rival to the presidency in 1995, Mr Chirac stopped the payment of commissions on the submarine contract – part of which, he suspected, had been used to fund Mr Balladur’s campaign.

Investigators are also looking into whether Mr Chirac’s decision to halt the commissions was behind a bomb attack in Karachi in 2002 which killed 11 French naval engineers working on the submarine contract. The attack was initially blamed on al-Qaeda, but investigators now suspect it could have been an act of revenge.

Neither Mr Sarkozy nor Mr Balladur have been formally accused of wrongdoing and both have denied the claims of illegal party financing.

Within two hours of Mr Villepin’s bombshell, Claude Guéant, Mr Sarkozy’s chief of staff, issued a lengthy statement accusing unnamed individuals of making trying to “involve the head of state, through a succession of insinuations, in an affair which does not concern him at all”. He said “slanderous allegations, sometimes presented as so-called truths” against Mr Sarkozy, were totally without foundation.

However, Mr Villepin is not the only one to make the claims. Charles Millon, who was defence minister, from 1995 to 1997, said he had “an intimate conviction of kickbacks” on the contract.

Michel Mazens, a senior defence official who was in charge of the submarine contract, confirmed the kickbacks but denied any connection with the Karachi bombing.

The row comes at a sensitive time for Mr Sarkozy, who faces re-election in just 18 months with a party that remains fractious and divided. Centrists have been deeply angered by the government’s shift to the right in a reshuffle last week and Mr Sarkozy’s popularity remains at record lows.

Mr de Villepin harbours hopes of becoming a political force in the next presidential election and has been one of the president’s fiercest critics on the right. His comments on Friday marked a clear shift in his position on the Karachi affair. Mr de Villepin said, in an interview with the Financial Times a year ago, that though he had heard rumours of kickback at the time, “I had no specific information”.

Some Chirac allies have come to Mr Sarkozy’s aid. Alain Juppé, new defence minister and prime minister under Mr Chirac in 1995, said there was “no proof that would lead one to think” there had been any illegal kickbacks paid on the contracts.

But Mr Chirac is himself under fire.

The families of those killed have accused him of stopping the payments soon after he was elected president in an attempt to settle a score with Mr Balladur, whose decision to challenge the presidency was regarded as an act of treachery by his one-time ally.

The president came under pressure from the opposition socialists on Monday. “The government owes the truth to the families,” said Benoît Hamon, socialist spokesman.

FT.com / Europe - Sarkozy embroiled in arms sale scandal