German prosecutors declared today they will conduct a criminal investigation of former chancellor Helmut Kohl for breach of trust after he admitted taking illicit cash donations and operating a system of secret slush funds during his 16 years in power.

The decision to press a criminal inquiry against one of Europe's leading statesmen and the architect of German reunification represents a dramatic escalation in the political funding scandal, which has already inflicted serious damage on Kohl's reputation and the political standing of his party, the opposition Christian Democratic Union (CDU).

State prosecutors in Bonn notified the German Parliament of the pending investigation because Kohl's immunity from prosecution--which he enjoys as a sitting member of the legislature--would have to be lifted before any charges could be filed. If convicted, Kohl could face a maximum sentence of five years in prison, or a hefty fine.

Wolfgang Thierse, the head of Parliament and a member of the governing Social Democratic Party, said he would consult with party leaders over the next two days to see if there are grounds to block the investigation. But since Kohl has admitted breaking party financing laws, Thierse said he believed it was important that justice run its course so that public faith in Germany's political system can be restored.

"This whole affair is a deep scar in German history," Thierse said. "We all have to work together now to clear up what happened so that we can limit the damage that this affair has caused for democracy."

Kohl, 69, guided Germany through the fall of the Berlin Wall in 1989 and the country's subsequent reunification before being voted out of office last year. He was the longest-serving German chancellor since Otto von Bismarck, who ruled from 1871 to 1890.

Kohl, who ran the Christian Democrats for a quarter-century and fended off all challengers to his control of the party with his autocratic style, acknowledged this month that he employed a system of secret bank accounts to handle undeclared cash donations, which are illegal in Germany. The money was distributed to local party chieftains to ensure their loyalty.

The prosecutors said after a three-week review they found "sufficient suspicion" of a breach of trust to warrant a full-scale criminal investigation. They said they looked into charges of perjury, money laundering and fraud but decided against pursuing them.

The former chancellor was not available for comment, but a spokesman said he accepted the prosecutors' decision "with regret" and promised that "he will support the work of the investigating authorities with all means at his disposal."

Kohl insists the sums involved amounted to less than $1 million, but he has refused to reveal the names of the donors, other than to say they are "upstanding German citizens" who made contributions from their own accounts, and that he promised to honor their wishes to remain anonymous.

Kohl's silence has drawn harsh criticism, including from erstwhile supporters who insist that unless he comes clean and reveals the donors' names, there will always be a cloud of suspicion over the party. After making a comeback in local elections early this year, the Christian Democrats have dropped precipitously in recent public opinion polls.

"Kohl has damaged our party," said Angela Merkel, the CDU general secretary who, like other members of the party hierarchy, owes her ascendancy to the former chancellor. "It may be acceptable to honor your word when a legal activity is involved, but not when it involved an illegal matter. The credibility of Kohl, the CDU and all political parties are at stake."

Chancellor Gerhard Schroeder, who along with the Social Democrats has enjoyed a resurgence in public esteem not least because of Kohl's fall from grace, said his predecessor's troubles could be attributed, at least in part, to an arrogance bred by his long years in power.

"In a democracy, it is not permissible for someone like Kohl to say that his personal relationships are more important than the law," Schroeder said. "This applies to a chancellor more than anyone else, because he must respect his own laws, otherwise one cannot expect the public to do likewise."

The mystery over the sources of the money has intensified because of various revelations suggesting that donations were made to Kohl's party in return for favors provided by his government. Kohl insists he never accepted any payments that could be construed as bribes linked to his decisions as chancellor.

Officials from the French oil company Elf have said they funneled large sums of money to Kohl's party after they took over a large chemical complex in the eastern city of Leuna in 1992. CDU records show a Hamburg businessman gave $1.8 million shortly before winning a contract to take control of some real estate owned by the state-owned railroad.

The scandal erupted several months ago when a German-Canadian arms dealer acknowledged delivering $520,000 in cash to the CDU party treasurer in a Swiss parking lot in 1992. That payment has been linked to approval by the Kohl government of the sale of German-made Leopard tanks to Saudi Arabia at the time of the Persian Gulf War.

CAPTION: Helmut Kohl has admitted taking illicit cash donations for his party.