An examining magistrate is questioning Nicolas Sarkozy over claims his 2007 election campaign received illegal donations from France's richest woman.
The former president, who is being questioned in Bordeaux, is suspected of accepting thousands of euros from L'Oreal heiress Liliane Bettencourt.
Police raided his home and offices in July as part of an inquiry ordered by the magistrate, Jean-Michel Gentil.
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Mr Sarkozy, who in office had immunity from prosecution, denies wrongdoing.
Although he has stepped back from frontline politics since his defeat by Socialist challenger Francois Hollande, Mr Sarkozy is rumoured still to harbour ambitions of running for re-election in 2017, the BBC's Christian Fraser in Paris reports.
The outcome of the investigation could determine whether the former president will make his widely anticipated return, our correspondent says.
Mr Sarkozy avoided the media when he arrived at the heavily guarded courthouse in the south-western city, early on Thursday.
The questioning is expected to continue for most of the day and is reportedly taking place in a basement office, where the former leader is accompanied by his lawyer, Thierry Herzog.
Judicial sources have told AFP news agency he could be formally charged with taking advantage of someone in a position of weakness, although the magistrate also has the option of interrogating him as a witness under caution.
It is alleged that staff acting for Mrs Bettencourt gave 150,000 euros (£120,600) in cash to Mr Sarkozy's aides during his successful 2007 campaign to become president.
Individual campaign contributions in France are limited to 4,600 euros.
Mrs Bettencourt's former accountant, Claire Thibout, alleges Mr Sarkozy's campaign treasurer at the time - Eric Woerth, who later became budget minister - collected the cash in person.
She also revealed in a leaked police interview that Mr Sarkozy, while mayor of Neuilly from 1983 to 2002, paid "regular" visits to the Bettencourt house, our correspondent says.
The former president has dismissed as mere gossip claims that he took envelopes stuffed with cash.
Mr Woerth, who was forced to resign as UMP party treasurer in July as a result of the scandal, is already under formal investigation over the 150,000 euro payment allegations.
The allegations surrounding Mr Sarkozy and Mr Woerth first surfaced in connection with a trial over the estimated 17bn euro fortune of Mrs Bettencourt, 87.
Mr Woerth denies any wrongdoing, as does Mrs Bettencourt. - BBC