France's Fillon under formal investigation for fraud ahead of election

PARIS (Reuters) - Francois Fillon’s troubled election campaign suffered yet another blow on Tuesday when magistrates put him under formal investigation on suspicion of embezzling state funds, a first for a presidential candidate in France.

With less than six weeks to go until the first round of voting, Fillon has been unable to draw a line under allegations that he paid his wife hundreds of thousands of euros of public money for little work.

Tuesday’s decision put him one step closer to a trial and covered a wide range of grounds: suspicion of embezzling public funds, complicity in misappropriating funds, receiving the funds and not declaring assets fully, a judicial source said.

The former prime minister has refused to pull out of the presidential race and on Tuesday his camp and some party allies reacted defiantly to the magistrates’ move, saying the campaign would go on.

“I trust and support Francois Fillon more than ever. No one will steal from the French the change of power they want,” Eric Ciotti, a lawmaker from Fillon’s party, The Republicans, said on Twitter.

Fillon, 63, had already acknowledged he was likely to be placed under formal investigation. Even so, it is unprecedented in modern French election history and flies in the face of the image of probity that helped him win the center-right ticket.

“His campaign was already poisoned by the scandal but now he’s carrying a placard that reads ‘Put under formal investigation’ ... it makes things even more complicated for him,” said Frederic Dabi of Ifop pollsters.

Once the favorite to win the election, Fillon now lags behind independent centrist Emmanuel Macron and far-right leader Marine Le Pen in opinion polls. Only the two frontrunners go through to the head-to-head second round vote on May 7.

Fillon has denied wrongdoing and said he is the victim of a “political assassination”.

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France's 10-year government bond yield gave up earlier falls to trade flat on the day at 1.10 percent FR10YT=TWEB, while safe-haven German Bund yields fell from 14-month highs DE10YT=TWEB as the Fillon news refocused market attention on French election risks.

Fillon had been due to meet investigators on Wednesday but, in a surprise move, the meeting was brought forward by 24 hours - a move requested by Fillon’s lawyer to spare him the full glare of the media.

Fillon made no public comment and his lawyer did not respond to telephone calls. Embezzlement of public funds can be punished by up to 10 years in jail and a 1 million euro fine.

Conservative newspaper Le Figaro quoted Fillon as telling the judges: “You decided to call me for questioning hurriedly for things that date back, in some cases, 20 years,” re-affirming that his wife Penelope did genuine work as his parliamentary assistant.

Fillon’s campaign staff confirmed the comments.

Under French law, being put under formal investigation means there is “serious or consistent evidence” that points to probable involvement of a suspect in a crime.

It is a step toward a trial, but many investigations have been dropped without going to court.

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The announcement coincided with media revelations that Fillon’s children transferred back to him large amounts of taxpayers’ money that he also paid them, and news of a parallel inquiry by parliament’s ethics ombudsman into a 13,000 euro ($13,800) gift of two suits Fillon accepted in February.

“We’re cooked,” a senior politician close to Fillon told Reuters before the news he had been placed under formal investigation.

“There’s not a day goes by without more news. The suits saga is a disaster. It’s something people can relate to. And now there’s this story about reimbursements by the children.”

Fillon is not the only candidate facing judicial probes. Le Pen, who is campaigning on a nationalist, anti-immigration platform faces allegations she underpaid taxes on a mansion that she and her father own.

Fillon’s allies point to the steely far-right leader’s refusal to attend judges’ hearings. Le Monde newspaper reported on Tuesday that tax authorities were discussing with Le Pen a possible deal that would see her pay 63,000 euros in back taxes.

A lawyer for Le Pen declined to comment. Another lawyer was quoted by Le Monde as saying the deal was not done yet and that they still disagreed with tax authorities over its claims.

Unlike Fillon, however, opinion polls suggest Le Pen’s anti-establishment campaign has not been damaged by the allegations against her.

For a graphic on French election, click here

Additional reporting by Emile Picy and Sophie Louet; Writing by Ingrid Melander and Brian Love; Editing by Adrian Croft and Richard Lough