What was the Karachi Affair and how it still haunting?

Karachi Affair refers to the commissions and kickbacks paid by France when it sold Agosta submarines to Pakistan and the May 8, 2002 terrorist attack in Karachi, Sindh, Pakistan. In 1994, France negotiated a deal to sell three Agosta-class submarines to Pakistan for a sum equivalent to €826 million (£684m, $996m). Commissions of 6.25% of the contract, approximately €50 million, were paid out. Some 50m Euros were paid as 'sweeteners' to various senior Pakistani military and political leaders. At the time, this was legal, because France signed an OECD convention outlawing commissions only in 2000.

These contracts are alleged to have financed the campaign of the then Prime Minister Edouard Balladur in the French presidential election, 1995. When his rival Jacques Chirac was elected, he cancelled the commissions and kickbacks, angering many officials in Pakistan. Some intelligence reports allege that the May 8, 2002 terrorist attack that killed eleven French engineers in Karachi was in retaliation for the cancellation of these commissions. Some intelligence reports allege that Pakistan Army's ISI intelligence used part of these commission to finance Kashmiri millitants in Indian-administered Kashmir. Other reports allege that Harkat-ul Mujahideen al-Alami, an ally of al-Qaeda, carried out the terrorist attack.

The payment of commissions and kickbacks to foreign public officials is common in the arms industry. It is intended to 'convince' political leaders and military officials and was legal in France until the signing of the OECD Convention against Corruption in 2000. The French government agency, Société française d’exportation de matériel militaire et aéronautique (SOFMA), channelled money to political and military officials through front companies in Pakistan and France. The names of the recipients are secret but the amounts are known and were reported to the French Ministry of Finance. These commissions are 6.25% of the contract amount. The French Libération newspaper revealed that payments of SOFMA continued until 2001, when they stopped by former French President Jacques Chirac.

According to Libération newspaper, the links between the attack and the activities of the DCN were raised by it and by United States investigators in 2002. Claude Thévenet, the former senior official of Direction de la surveillance du territoire, was recruited by the DCN to investigate the circumstances of the attack. His report "Nautilus", dated 11 September 2002, concludes that it was related to the discontinuation of payment of commissions. This report, although intended as confidential, was seized by the judges in the spring of 2008, in connection with another case, and forwarded to Judge Marc Trévidic. Another paper, written by Gérard Philippe Menayas (former CFO of DCNI) gave the same version of events

Mansurul Haq is a former admiral and now-disposed Chief of Naval Staff of Pakistan Navy. Mansurul Haq was retired in 1997 by the former Prime Minister of Pakistan Nawaz Sharif government. He was then-arrested on charges of corruption related to Agosta submarine commissions in 2001, but later negotiated a plea bargain and was released. Mansurul Haq was found to have received €33 million while the arms dealer, Amir Lodhi, share was €2.9 million. Amir Lodhi, the brother of a former Pakistani ambassador Maliha Lodhi to the United States, is a close friend of Asif Ali Zardari, who became President of Pakistan in 2008 one year after the assassination of his wife, former Prime Minister of Pakistan Benazir Bhutto.

Ziad Takieddine, a Lebanese and French citizen, received commission and then paid off officials in Pakistan and France. According to French judicial inquiry, part of the commission was used to finance presidential campaign of Edouard Balladur. On April 26, 1995 10,250,000 francs were donated to campaign account at the Crédit du Nord of former Prime Minister Edouard Balladur three days after the first round of presidential elections.

Former culture minister of France, Renaud Donnedieu de Vabres was detained for questioning about the kickbacks on Agosta 90B diesel attack submarines (SSKs) deal which may have funded the Edouard Balladur's failed 1995 presidential campaign.

Nicolas Sarkozy, then budget minister, was also Edouard Balladur's campaign spokesman. Both have denied any involvement in Karachi Affair. On 3 July 2012, French police raided Nicolas Sarkozy residence and office as part of their probe into claims that he was involved in illegal political campaign financing. The allegations are related to the Pakistan Agosta submarine commissions used in political campaigns.