PARIS (AFP) - President Nicolas Sarkozy knew about a shell company used to channel arms sales commissions in the 1990s, French media said Monday, amid a probe into alleged illegal party funding in France.

The Liberation daily quoted testimony to a judge from a former senior civil servant that in 1994 then-budget minister Sarkozy authorised the creation of Luxembourg-based company Heine to pay intermediaries in arms deals, notably with Pakistan. “Clearly the budget minister necessarily gave his agreement for the creation of Heine,” Gerard-Philippe Menayas, former head of the DCNI defence ministry agency in charge of naval exports, was quoted as saying when interviewed on December 2.

“Given the importance of the matter, this decision could only have been taken at the level of the minister’s personal staff.”

Several people, including aides to Sarkozy, are accused of going to Switzerland to pick up cases of cash channelled through Heine to finance then prime minister Edouard Balladur’s unsuccessful 1995 presidential election campaign.

The payment of arms sales commissions was legal in France until 2000, but the payment of kickbacks back to France was and is illegal. The probe focuses on the 1994 sale of submarines to Pakistan and frigates to Saudi Arabia.

In 1995, Sarkozy was the campaign spokesman for his mentor Balladur, as well as his budget minister, and the complex case has threatened to derail the unpopular president’s re-election bid later this year.

Magistrates are also probing whether a 2002 Karachi bombing that killed 11 French engineers was revenge for the cancellation of bribes secretly promised to Pakistani officials in the submarine deal.

A Luxembourg police report already in January 2010 said that Sarkozy had given his agreement to set up Heine.

Sarkozy has repeatedly denied having anything to do with the affair, although two of his aides, Thierry Gaubert and Nicolas Bazire, have been already charged, as has former minister Renaud Donnedieu de Vabres.