Sharon linked to bribes allegations over funding for election campaign

Ariel Sharon, the Israeli Prime Minister, was linked yesterday for the first time to corruption allegations, deepening a scandal undermining support for his Likud party as it gears up for national elections later this month.

Mr Sharon and his son Gilad are suspected of deception, fraud, breach of trust and receiving bribes, according to the daily newspaper Haaretz, which cited a document obtained from the Israeli justice ministry.

A South African businessman, Cyril Kern, is alleged to have given Mr Sharon $1.5m (£900,000) to serve as collateral for a loan taken by his two sons to pay back a company from which Mr Sharon received illegal campaign contributions during his 1999 campaign for the Likud leadership.

Mr Kern, who is believed to have made a fortune from the fashion business in London before moving to South Africa six years ago, refused to comment.

Eyal Arad, an adviser to the Israeli Prime Minister, denied wrongdoing by Mr Sharon and warned against "an attempt to bring down a prime minister and change the regime by means of a campaign of leaks, lies and disinformation".

Mr Sharon and Mr Kern are understood to have met in 1948 during Israel's war against several Arab nations, after Mr Kern volunteered to fight in a unit in which Mr Sharon was a major, and the two have remained close friends.

Israeli authorities have since sought the help of the South African justice ministry in their efforts to investigate the claims.

The $1.5m was to serve as collateral for a loan taken out by Omri and Gilad Sharon to pay back a company from which Mr Sharon received irregular contributions during his leadership campaign in 1999, Haaretz said. The paper said Mr Sharon and his sons were suspected of "allegedly receiving bribes, fraud and breach of trust, as well as deceiving the state comptroller and police". In October 2001, the comptroller Eliezer Goldberg ordered Mr Sharon to repay most of the funds channelled through shell companies to pay campaign workers. Haaretz quoted a document sent to the South African authorities saying Gilad Sharon had obtained a loan to that end from an Israeli bank on condition he mortgaged the family-owned ranch in the Negev desert. But the bank discovered this was impossible because the ranch was leased from the Israel Lands Administration.

Mr Sharon and his sons then sought an alternative solution through Mr Kern, who pledged $1.5m as securities, which were transferred to an Israeli bank, via Austria and New York, Haaretz said. The money was collateral for a new loan to the Sharon brothers from another bank used to repay the first, it said.

Haaretz alleged that Mr Sharon was questioned by the fraud squad investigating the shell companies, but had covered up the details of how he obtained the money to repay the funds as ordered.