The charges also include lying to investigators who were auditing $500,000 in income which Kerik has been accused of hiding. Much of the money allegedly came from firms offering bribes in order to do business with New York city.
The 16-count indictment is unlikely to help Giuliani, who leads the race for the Republican nomination in the 2008 US presidential election, according to opinion polls.
Kerik stood by Giuliani's side on worldwide television following the September 11 attacks and the two became business partners after his mayoral term ended.
"It's a sad day because Bernie Kerik was a hero police officer," Giuliani said as he campaigned in Nevada. Financial dealings
Kerik, a former detective, was Giuliani's driver before becoming head of the city jails and, in 2000 and 2001, the head of the largest police department in the United States, the New York Police Department (NYPD).
Prosecutors allege he conducted the illegal business while in charge of the jails and concealed it while he was in charge of the NYPD.
Michael Garcia, US Attorney for the Southern District of New York, said: "Time and again Kerik was asked specific questions about his financial dealings, and time and again he lied."
In 2004, disclosures about unpaid taxes for a nanny undermined Kerik's nomination for US homeland security secretary, which George Bush, the US president, had made on Giuliani's recommendation.
Kerik withdrew from consideration. According to the indictment, Kerik lied to White House officials about his financial dealings when being vetted for the job. Judgement
Giuliani said on Friday that he should have done a better job of vetting Kerik before backing him for the homeland security position.
|"Time and again Kerik was asked specific questions about his financial dealings, and time and again he lied"|
US Attorney for the Southern District of New York
Analyst have said that the indictment could be a problem for Giuliani if his political opponents used it to question his judgement and management decisions.
John McCain, one of Giuliani's rivals for the Republican presidential nomination, has already done just that saying that that Kerik acted irresponsibly during his time in Iraq helping train the police ahead of the homeland security nomination.
"One of the reasons why we had so much trouble with the initial training of the police was because he came, didn't do anything and then went out to the airport and left," McCain said in New Hampshire.
Howard Dean, a Democratic National Committee Chairman also said that Kerik's indictment meant a "culture of corruption would be the norm in a Giuliani White House". Indictment
The indictment accuses Kerik of receiving $255,000 worth of renovations to his apartment from a construction firm that was suspected of organized crime ties and attempting to win city contracts.
It alleges Kerik took steps to convince city regulators the contractors were free of mob ties and should be approved to do business requiring city permits.
Kerik also is accused of falsely claiming $80,000 in charitable donations he did not make, creating a company to hide taxable income and failing to pay taxes on the nanny.
Last year, Kerik pleaded guilty to state charges over the work on his apartment but the federal investigation goes much further.
David Cardona, the agent in charge of the New York FBI office, said: "A beat cop accepting a free cup of coffee ... is properly viewed by the public as wrong. ... If a free cup of coffee is wrong, Kerik's long list of alleged crimes is repugnant."
If convicted, Kerik faces a maximum aggregate sentence of 142 years and US$5 million in fines.