Paris prosecutors have launched a formal investigation into whether Najib Razak, Malaysia's prime minister, was paid bribes over a long-contentious $1.2 billion arms deal when he was defense minister.
A judge will probe whether Bernard Baiocco, former president of French defense group Thales International Asia, paid illegal kickbacks to Mr Najib via an associate of the prime minister to win a 2002 contract for two submarines, according to people close to the case.
Mr Najib, Mr Baiocco and Abdul Razak Baginda, the suspected middleman, have denied wrongdoing.
The affair adds to the storm of international investigations buffeting Mr Najib from the separate scandal swirling round 1MDB, the state investment fund whose advisory board he chairs, over alleged misappropriation of money.
The French arms deal generated intrigue in Malaysia because of the 2006 murder of Altantuya Shaariibuu, a young Mongolian woman who had a relationship with Mr Baginda. Civil society groups and Mr Najib's opponents alleged a link between the killing and the submarine deal. Both Mr Najib and Mr Baginda, who was cleared of involvement in Ms Altantuya's murder at a 2008 trial, deny there is any connection.
The Paris prosecutor's office confirmed — following a report by news agency AFP — that Mr Baiocco had been placed under formal investigation on suspicion of "bribery of foreign public officials" and "complicity in misuse of corporate assets".
The inquiry relates to the sale of the pair of Scorpene-class attack submarines from a joint venture between Thales and fellow defence company DCN, now called DCNS. Thales and DCNS both declined to comment on the French inquiry.
French prosecutors declined to name the Malaysian officials suspected of being bribed. But three people close to the investigation — including Jean-Yves Le Borgne, Mr Baiocco's lawyer — told the Financial Times that judicial documents named Mr Najib and Mr Baginda.
Mr Le Borgne also confirmed money had been paid by his client to Mr Baginda for lobbying work. But he said the prosecutors were attempting "judicial acrobatics" in trying to prove the cash found its way to Mr Najib or any government official.
"There was no corruption. The money paid by my client's company to Mr Baginda was for lobbying," he said. "They [the prosecutors] suspect the minister received some money but they have never had anything to prove that."
Mr Baginda told the FT he was paid about €30m to consult on the French deal, lobby for it and oversee the eight years of its execution. "It was a legitimate agreement. I did my job and I got paid for it," he said. "And I never paid any official."
Mr Baginda, now director of UK-based charity the Islamic Peace Foundation, said he had never been a paid adviser to Mr Najib. He said he had written speeches for the then defence minister and had accompanied him on foreign trips, but had talked only "rarely" to him about the submarine deal "over a cup of tea".
A Malaysian government spokesperson dismissed allegations of wrongdoing against Mr Najib in the submarine deal as "baseless smears for political gain", adding that the prime minister had not benefited from any payments linked to the contract. There had never been any communication from the French investigation judiciary to Mr Najib, the spokesperson said.
The submarine controversy comes as Mr Najib and his government face growing pressure from international investigators examining corruption claims around the 1MDB fund.
Swiss authorities investigating alleged bribery involving former 1MDB officials last week said there were "serious indications" that about $4 billion had been misappropriated from Malaysian state companies. Singapore said this week it had seized a "large number" of bank accounts over possible money laundering linked to international investigations related to 1MDB.
The foreign announcements came on the heels of a decision by Malaysia's attorney-general to clear Mr Najib of wrongdoing over the payment from an unidentified source of $680m into his bank account. The attorney-general said the money was from the Saudi royal family. The prime minister's supporters say the cash was a political donation, rather than for personal gain.
The French submarine case also refocuses attention on the killing of Ms Altantuya, which has long dogged Mr Najib — he says unfairly. The murder has continued to provoke allegations and theories thanks to Ms Altantuya's social connections, a perceived lack of motive on the part of two police officers convicted in 2008 of killing her, and the brutality of an execution in which her body was blown apart by explosives. The murder verdicts were overturned on appeal in 2013 then reinstated last year by the country's highest court.
Both Mr Najib and Mr Baginda have denied Ms Altantuya was killed because she worked on the submarine contract and wanted money from it. Mr Baginda has claimed Ms Altantuya blackmailed him but says she was threatening to expose their relationship rather than any misconduct in the arms deal.
Mr Najib knew nothing about Ms Altantuya's killing and never even met her, the Malaysian government spokesperson said. He added that no legal process had ever implicated the prime minister. The police officers convicted of Ms Altantuya's murder were not Mr Najib's personal bodyguards, as has been claimed, but members of a unit that provides rotating protection for government officials and visiting foreign dignitaries.
Mr Najib was the victim of political smears over the Altantuya case, the spokesperson said, adding: "There is absolutely no evidence of any wrongdoing and there never will be."