Molcho was taken in for questioning about two months ago on suspicions of breach of trust. The police said he had worked to advance the submarine deal with Germany.
David Shimron, Molcho's partner and Netanyahu's attorney, was also detained at around the same time, and the two were confronted with state witness Miki Ganor.
The police are investigating suspicions of corruption surrounding the procurement of submarines and patrol ships for Israel's Navy from German conglomerate ThyssenKrupp, a deal mediated by Ganor, who was represented by Shimron. Molcho confirmed that he had met Ganor several times when the latter visited Shimron's office.
Molcho's lawyer, Zvi Agmon, said in response to the allegations against his client that "He was an envoy for many years, and never took care of his own interests, only those of the country. He has no connection to the submarine affair."
Molcho, 72, maintains he and Shimron are innocent and believe the allegations against them are another attempt to harm Netanyahu.
The two are among the senior partners in the E.S.Shimron, I.Molcho, Persky & Co. law firm, which has been representing the Netanyahu family for many years.
Molcho further maintains that he had no hand in the submarine deal, and that he and Shimron kept their affairs completely separate, with one not knowing about the other's sensitive missions on behalf of the prime minister.
Shimron has been serving as Netanyahu's personal consigliore and has been entrusted with the Netanyahu family's personal legal affairs.
Molcho has been Netanyahu's diplomatic envoy since his first term in 1996. He has negotiated on behalf of the prime minister, primarily with the Palestinians, the United States, Turkey and Egypt.
The two are close personal friends of the Netanyahu family and also have familial ties to the prime minister—Shimron is Netanyahu's second cousin and Molcho is married to Shimron's sister.