Sarkozy hit by more leaks about allies' arms deals

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The Elysee Palace was said yesterday to be in a "state of panic" after an extraordinary day of leaks and counter-leaks on a deepening financial scandal involving two of President Nicolas Sarkozy's long-time friends and colleagues.

Another of Mr Sarkozy's oldest and closest friends, the former interior minister, Brice Hortefeux, found himself dragged yesterday into the so-called "Karachi affair": allegations that millions of dollars in kickbacks on arms contracts were paid to the failed presidential campaign of the then Prime Minister, Edouard Balladur, in 1994-5.

The newspaper Le Monde published the transcript of a telephone conversation, recorded by police 10 days ago, in which Mr Hortefeux spoke to his friend, Thierry Gaubert, one of two Sarkozy associates arrested this week and accused formally of "receiving embezzled funds". In the conversation, Mr Hortefeux gave a warning to his friend, apparently based on inside knowledge of an independent judicial inquiry, that Mr Gaubert's estranged wife was "blabbing" to investigators.

"She is blabbing a great deal, apparently," Mr Hortefeux said. "It's awkward to talk to you about it on the telephone, but they have got a lot of stuff."

Mr Gaubert's estranged wife, Princess Hélène of Yugoslavia, had spoken to police investigating the alleged scandal on 8 September, six days earlier. She is reported to have said that she accompanied her husband to Switzerland in 1995 to pick up briefcases full of cash for Edouard Balladur's campaign.

In 1994-5, Mr Gaubert was assistant head of the ministerial office of Mr Sarkozy, who was then both Budget Minister and spokesman for the Balladur presidential campaign. Mr Hortefeux, a childhood friend of Mr Sarkozy, was then head of his ministerial office.

At the time of Mr Hortefeux's bugged phone call this month, according to Le Monde, the transcript of Mr Gaubert's wife's comments had not even reached the independent magistrate in charge of the inquiry, Renaud van Ruymbeke.

This week, Mr Van Ruymbeke arrested both Mr Gaubert and Nicolas Bazire, one of Mr Sarkozy's closest friends. Mr Bazire, who was Mr Balladur's campaign manager in 1994-5, was best man at Mr Sarkozy's wedding to Carla Bruni in 2008. Both men have now been "mis en examen" or placed under formal investigation – one step short of a charge – for receiving embezzled funds. They are accused of handling briefcases full of cash, which were allegedly "kick-backs" to the Balladur campaign from multi-billion dollar French arms sales to Pakistan and Saudi Arabia.

It is alleged that the later cancellation of "commissions" to Pakistani middlemen by President Jacques Chirac led to a bomb attack on a bus in Karachi in 2002 in which 11 French submarine engineers died. On Thursday, the Elysée Palace, unusually, issued a statement which said that Mr Sarkozy's name had not been mentioned at any stage of the independent investigation into the "affaire Karachi". Any suggestion to the contrary was "politically motivated calumny", the Elysée said.

The denial caused more problems than it solved. Various French newspapers pointed out yesterday that leaks from the inquiry had, in fact, included several references to Mr Sarkozy, although no concrete evidence to link him to the alleged illegal campaign financing. Opposition politicians also pointed out that the statement had in effect admitted that the Elysée was being tipped off on the contents of what was supposed to be an independent investigation.

The leaked transcript of Mr Hortefeux's phone call again implied that the Sarkozy camp was receiving leaks from within Mr Van Ruymbeke's inquiry. It was therefore doubly embarrassing to the Elysée. Mr Hortefeux insisted that his comments on the "blabbing" wife referred to "press rumours". The first media reports of Hélène Gaubert's testimony occurred six days after his call.

The president of the largest French magistrates' union, Christophe Regnard, said yesterday that Elysée had "clearly" violated what was supposed, under French law, to be a "secret" investigation. The fact that the Elysée had more or less admitted this fact "suggest, objectively, that there is panic aboard the ship," he said.