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Top Blair aide arrested in fund-raising scandal

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(CNN) -- Michael Levy, a top aide and close friend to Prime Minister Tony Blair, was arrested Wednesday in connection with a political fund-raising scandal in England.

The investigation that led to his arrest began in March, when police began looking into allegations that donors or lenders to Blair's Labour Party had been offered honors such as knighthoods and peerages in exchange for their financial support.

Levy, 61, is the chief fund-raiser for Labour and has served as an envoy to the Middle East.

"He was arrested in connection with alleged offenses under the 'Honors (Prevention of Abuses) Act 1925 and Political Parties, Elections and Referendums Act 2000,'" police said in a written statement.

He was released on bail "to a date in the future pending further inquiries," a separate statement said.

In a written statement, a spokesman for Levy said he "has made it clear that he is ready at all times to co-operate with the police investigation."

The statement said he was arrested "totally unnecessarily, apparently in order to gain access to documents that Lord Levy would quite willingly have provided" without being arrested.

"He vigorously denies any wrongdoing," it said.

Wednesday's move could prove embarrassing to Blair since the two are so close. In addition to being one of Blair's closest friends and tennis partners, Levy is Blair's highest-profile fund-raiser.

Levy, who made his money in the music industry during the 1960s and 1970s, moves in rich circles.

His arrest comes at a tough time for the prime minister, who faces mounting pressure to quit as party leader for his unwavering support of U.S. President Bush and the U.S.-led war in Iraq.

Blair's reputation was further blemished by revelation of the fact that his party has exploited a loophole in laws passed by his own government in what was then described as an move to clean up British politics.

The new laws require the disclosure of gifts given to all political parties. But, because the laws did not require the disclosure of loans, fund-raisers for all political parties encouraged their backers to give them loans instead.

After that loophole was made public, the lenders were either identified, or those who wanted to remain private were repaid.

The scandal goes beyond Labour to include opposition parties -- the conservatives and the liberal Democrats.

CNN's Robin Oakley contributed to this story from Paris

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