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German submarine deal hits the rocks after Israeli corruption probe

The deal has been under scrutiny since it emerged that lawyer for Netanyahu also represented Israeli agents of German vessel builder
German-made INS Rahav Dolphin 2-class submarine, the fifth Israeli Navy submarine, arriving at the military port of Haifa on January 12, 2016 (AFP)

Germany has delayed signing a deal with Israel advancing the sale of three submarines, an Israeli official said Tuesday as a corruption probe into the affair gained momentum.

The $2 billion deal has been under public scrutiny since 2016 when it emerged that Prime Minister Benjamin Netanyahu's personal lawyer also represented the local agent of the German conglomerate ThyssenKrupp Marine Systems set to build the vessels.

Germany and Israel were set to sign a memorandum of understanding over the sale in Berlin next week, Israeli media reported.

In the last few days several people connected with the deal were arrested on suspicion of offences including bribery and money laundering.

It has also emerged that Michael Ganor, an Israeli businessman who brokered the deal between Israel and ThyssenKrupp, and who police confirmed last week is being held in custody, was in discussions about becoming a state witness.

A source in Israel's National Security Council said on condition of anonymity on Tuesday that "Germany has put off the MOU signing for the time being," without providing further details.

Those detained include former navy commander Eliezer Marom, former deputy head of Israel's National Security Council, Avriel Bar Yosef, and the local representative for ThyssenKrupp, Miki Ganor.

David Shimron, a relative of Netanyahu and his family lawyer who also represents ThyssenKrupp in Israel, was taken for questioning but later released.

Israeli newspaper Yediot Aharonot, which first reported that the MOU signing had been delayed, said Germany had added a clause allowing it to back out of the deal if it was found to have been reached through corruption.

Israeli officials said Germany had not backed out of the deal but was waiting to see the outcome of the investigation, Yediot Aharonot reported.

German officials had no immediate comment.

In February, Israel's justice ministry said it had launched an investigation into the affair, stressing that Netanyahu himself was not a suspect in the case.

Netanyahu is being investigated separately, reportedly over allegations he and his wife accepted improper gifts from Israeli businessman and Hollywood producer Arnon Milchan.

The Israeli premier is also being investigated over suspicions he sought a secret deal with Amnon Moses, publisher of Israel's top-selling newspaper Yediot Aharonot.

Netanyahu has rejected allegations of misconduct, saying he is the target of a campaign by political opponents. 

ThyssenKrupp said on Tuesday its own six-month investigation into Ganor had found "no concrete indications of corruption" but added that the results were provisional because the company could not carry out investigations in Israel.

"At the current moment in time, ThyssenKrupp is not the subject of German or Israeli investigations," the company said in a statement. "Nevertheless, it is very important to us to get to the bottom of the allegations in Israel."

It said it had offered cooperation to the Israeli and German authorities and was following developments "very closely".

The "submarines affair" involves not only Israel's decision to buy three new subs from ThyssenKrupp, the supplier of Israel's existing five-strong, nuclear-capable fleet, but the purchase of four patrol ships as well.