Being placed under "formal investigation" in France indicates that magistrates have found sufficient evidence of wrongdoing – in this case of illegal campaign financing, "passive" corruption and the misuse of Libyan public funds – that the investigation can go forward, possibly to trial.
Sarkozy was released earlier in the day after facing a second day of questions in the investigation,which is exploring allegations that Gaddafi's regime secretly gave Sarkozy €50 million for his inaugural presidential campaign in 2007. The allegations were first made by one of the late dictator’s sons, Saif al-Islam, in 2011.
Sarkozy arrived just before 8am on Wednesday at the offices of judicial investigators specialising in corruption, money laundering and tax evasion in the western Parisian suburb of Nanterre. He was first taken into custody on Tuesday morning and left around midnight.
The case drew heightened scrutiny in November 2016 when Franco-Lebanese businessman Ziad Takieddine said he delivered three suitcases stuffed with Libyan cash to Sarkozy's former chief of staff and campaign director, Claude Guéant, between 2006 and 2007.
In January, British police detained French businessman Alexandre Djouhri at Heathrow Airport as part of the long-running investigation into Sarkozy’s suspected Libyan financing. A spokesman for London's Metropolitan Police confirmed Djouhri's arrest was executed "under a European arrest warrant" for fraud and money laundering.
Sarkozy has always denied the allegations.
>> Read more: Gaddafi relations haunt Sarkozy in 2007 campaign financing case
The former French president had a complex relationship with Gaddafi. Soon after his election to the presidency, he controversially invited the Libyan leader to Paris for a state visit and welcomed him with high honours. But Sarkozy then put France at the forefront of NATO-led airstrikes against Gaddafi's troops that helped a hodgepodge of rebel fighters topple his regime in 2011.
The Libyan investigation is just one of several legal probes that have dogged the former head of statesince his one-term presidency ended in 2012. Investigating magistrates have recommended he face trial on separate charges of illegal campaign financing over his failed re-election bid.