An undeclared $3.5 million (£1.8 million) payment from a corrupt Iraqi-British businessman has landed Barack Obama’s former fundraiser behind bars.

The payment, disclosed in court papers, is the first time that Mr Obama’s long-serving bagman Antoin “Tony” Rezko, a Syrian immigrant to the United States, has been linked to Nadhmi Auchi, the Iraqi-born billionaire who is one of Britain’s richest men. The relationship is a potential embarrassment for Mr Obama, who has made his opposition to the Iraq war a central plank of his campaign.

Court papers describe Mr Rezko as a close friend of Mr Auchi. The two are involved in a large Chicago land development together. But it is unclear how long the two men have known each other or whether they were linked before the 2003 Iraq war. Neither side would discuss their relationship.

The Times has, however, discovered state documents in Illinois recording that Fintrade Services, a Panamanian company, lent money to Mr Obama’s fundraiser in May 2005.

Fintrade’s directors include Ibtisam Auchi, the name of Mr Auchi’s wife. Mr Auchi’s spokespeople declined to respond to a question about whether he was linked to this business.

Mr Rezko, to be tried for corruption this month, had his bail revoked on Monday after he disobeyed a court’s instructions to keep it informed of changes to his finances. Prosecutors feared that he could try to flee abroad.

The property developer has been condemned by Hillary Clinton as a “slum landlord”.

According to prosecution documents Mr Rezko tried to persuade unnamed Illinois officials to help Mr Auchi to get a US visa after he was convicted of fraud in France. Mr Obama’s aides deny that he was approached.

Mr Rezko has been indicted for pressuring companies seeking state business for kickbacks and campaign contributions, although none for Mr Obama. He was granted bail in October 2006. He told a judge that he had no access to overseas money. But in April 2007 Mr Auchi’s business, General Mediterranean Holding (GMH), wired $3.5 million to Mr Rezko from a bank account in Beirut via a law firm.

The Chicago businessman has already been an embarrassment to Mr Obama’s campaign. The presidential challenger has tried to dampen criticism by paying $150,000 to charity to make up for donations from Mr Rezko. The Illinois senator has said that he made a “bone-headed mistake” to get involved in a property deal with Mr Rezko at a time when he was known to be under investigation.

Mr Auchi has attracted attention at Westminster because of his closeness to politicians and the Establishment. He says that his brother was executed by Saddam Hussein’s regime.

His business partners in Britain have included Lord Steel of Aikwood, the former Liberal leader, and Keith Vaz, the Labour MP and Home Affairs Committee chairman.

On the 20th anniversary of his business in 1999, Mr Auchi received a greeting card signed by 130 politicians, including Tony Blair, William Hague and Charles Kennedy, who were then leaders of their respective parties.

Norman Lamb, the Liberal Democrat MP, went on to table parliamentary questions asking why the Blair Government appeared slow to respond to a French extradition request.

Mr Lamb said last night: “It’s a matter of public interest to understand why the payments were made. This deserves thorough investigation.”

Mr Auchi founded GMH in 1979, a year before he left Iraq. He says that he did business with his native country when it was considered a friend of the West but ceased to trade with Saddam’s regime once sanctions were imposed after the invasion of Kuwait.

US prosecution documents recall Mr Auchi’s suspended jail sentence and €2 million fine for corruption in France five years ago.

Defence lawyers said that Mr Auchi lent the $3.5 million for legal and family expenses. Most of the money had gone directly to law firms and there had been no attempt to flee. “While the Government attempts to besmirch Mr Auchi’s character,” they said, “he is one of Britain’s wealthiest men, has been a guest at the White House and met with two of the last three presidents, was Co-Chair of the Kennedy School of Government at Harvard, is President of the

Anglo-Arab Organisation, and has received numerous awards and honorary positions from heads of state, including Queen Elizabeth II, Pope John Paul II, and King Abdullah II of Jordan.”

Mr Auchi’s lawyers added: “Mr Auchi flatly and categorically denies any wrongdoing in relation to the matters that led to his conviction in France and he is pursuing an appeal against it.” Mr Auchi is also suing the oil company Elf in France for dragging him unwittingly into the scandal.