In what could prove to be a major embarrassment to Nicolas Sarkozy, police in Paris on Wednesday detained for questioning two senior officials known to have close ties to the French President.

The arrests have been made in connection with the investigation into the 2002 Karachi bombing case in which 11 French engineers working at the Karachi shipyards on Agosta submarines supplied by France were killed in a bomb blast.

Anti-terrorism judges are enquiring into allegations that the attack, initially blamed on the Taliban, was engineered by the ISI and elements within the Pakistan armed forces because the totality of commissions on the sale of six Agosta type submarines were not paid by the French as promised. A part of those commissions found their way back to France as reverse kickbacks and were used to finance the 1995 electoral campaign of Eduard Balladur who was then a presidential hopeful with Nicolas Sarkozy as his spokesperson.

Mr. Balladur lost the election and President Chirac stopped the payment of the commissions. Increasingly desperate ISI agents and armed forces personnel sent messages warning of dire consequences. The refusal by France to release the money resulted in the death of the engineers, it is alleged.

The two men detained by the French police are Nicolas Bazire, former chief of Cabinet of Eduard Balladur and Thierry Gaubert, a former close aide of Mr. Sarkozy. Mr. Bazire, who is now the managing director of the luxury goods group LVMH, has remained close to Mr. Sarkozy and was one of the witnesses at the President's wedding to Carla Bruni. Mr. Gaubert, who has been Mr. Sarkozy's friend for over 30 years, is awaiting judgment in another case of frauds and misuse of public funds.

On 13 September, the police arrested the arms dealer and middleman Ziad Takieddine who pocketed millions of dollars in commissions. Both Mr. Bazire and Mr. Gaubert are accused of having transported money “in voluminous bags” from Swiss banks to Paris. Princess Helen of Yugoslavia, former wife of Mr. Gaubert, has told financial inspectors that her ex-husband went with Mr. Takieddine to Switzerland to withdraw cash from secret accounts and that Mr. Bazire carried back large quantities of cash to Paris.

Police received several leads and secret documents from Ms. Nicola Johnson, former wife of Ziad Takieddine. The two went through a bitter divorce and Ms. Johnson has not hesitated to betray her former husband, the newspaper Journal du dimanche reported.

These arrests come at a particularly difficult moment for Mr. Sarkozy. With presidential elections just seven months away, he has failed to deliver any solutions to France's economic woes. Last week a former lawyer who worked on Franco-African ties said he delivered millions of dollars in cash from African dictators to Mr. Chirac and the former Prime Minister Dominique de Villepin. Though the lawyer Mr. Bourgi says Mr. Sarkozy did not accept African slush funds, there are very few people in France who believe him, especially since Mr. Bourgi too is known to be close to Mr. Sarkozy.

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