PARIS (Reuters) - A friend of French President Nicolas Sarkozy was arrested and another placed under investigation on Wednesday over their possible role in a corruption case linked to arms sales and a deadly bombing in Pakistan, lawyers and police sources said.
The development brings the so-called "Karachi Affair" back into the spotlight seven months before a presidential election that polls show Sarkozy would lose if it were to be held today.
Thierry Gaubert, a friend and advisor to Sarkozy for many years, was placed under investigation on suspicion that he carried cash kickbacks from the sale of submarines to Pakistan back to France in suitcases.
Nicolas Bazire, who was a witness to Sarkozy's wedding with Carla Bruni in 2008, was arrested and being held in police custody over allegations that he received delivery of the kickbacks from Gaubert in Paris.
Both Bazire and Gaubert deny the accusations.
"He disputes anything to do with political financing," Francois Esclatine, a lawyer for Gaubert, told Reuters.
Their legal troubles mark a twist in a complex case that aims to determine if a 2002 bomb attack in Karachi in which 11 French workers were killed was reprisal against France over its decision to stop paying commissions to Pakistan in arms sales.
It also envelops French politics because judges suspect that kickbacks helped to finance the presidential campaign of Edouard Balladur, a conservative and former prime minister, in 1995. Bazire was chief of staff for Balladur, who denies the accusations.
Victims' families have called for Sarkozy -- who was budget minister under Balladur and spokesman for his campaign -- to answer questions about the kickbacks and an elaborate financial setup allegedly designed to ferry home the money.
Sarkozy's office brushed off the accusations in November 2010, saying they "concerned him in no way", and the president is immune from prosecution while in office.
When questioned about the kickbacks in late 2010 Sarkozy erupted at journalists, telling a group in Lisbon that linking him to the case was as absurd as him calling one of them a paedophile without any proof.
"It is clear that if Nicolas Sarkozy was not currently president of the republic, he would be heard because the paths lead to his responsibility," said Olivier Morice, a lawyer for the victims' families.
Reporting by Thierry Leveque and Nicolas Bertin, writing by Nick Vinocur; Editing by Angus MacSwan and Robert Woodward