A fresh ethics controversy threatened to further complicate Barack Obama's White House transition yesterday as his cabinet neared completion with the nomination of his Education Secretary.

After a week in which Mr Obama's team has been sidetracked by the scandal over the Illinois governor's alleged attempt to sell his Senate seat, it emerged that a federal grand jury is investigating donations made to political action committees belonging to Bill Richardson, the New Mexico governor and the president-elect's pick as Commerce Secretary.

The grand jury in Albuquerque is trying to determine whether a financial firm was improperly awarded over $1.4 million in work from the state of New Mexico shortly after donating $100,000 to two of Mr Richardson's organisations.

One of the committees, which received $25,000 from CDR Financial Products, was focused on registering Hispanic and American Indian voters. The other, given $75,000, paid for expenses at the 2004 Democratic National Convention. Shortly after the donations, the firm won a lucrative contract advising the New Mexico Finance Authority.

A spokesman for Mr Richardson said he was "aware of questions surrounding some financial transactions at the New Mexico Finance Authority" and expected state employees to cooperate fully.

Even as Mr Obama announced Arne Duncan, the head of the Chicago school system, as his Education Secretary, he was again faced with a question about Illinois Governor Rod Blagojevich's alleged attempt to auction his vacant Senate seat to the highest bidder.

Mr Obama cut off a reporter who asked whether his incoming White House chief of Staff, Rahm Emanuel, has been heard on a federal wiretap talking with an aide to Mr Blagojevich - and whether Mr Emanuel ever handed over a list of preferred replacements.

On Monday, Mr Obama said his team had completed an internal review of contacts with Mr Blagojovich. He said none of his staff did anything "inappropriate", or related to the charges brought against Mr Blagojevich. He added that he had been asked by federal prosecutors to delay the release of his internal review, but pledged that it would made public soon.

He answered questions as the Illinois legislature began efforts to impeach Mr Blagojevich, who is refusing to resign.

The incoming Education Secretary is a 44-year-old Harvard graduate and basketball player, who once played professionally in Australia. He has a track record of raising student performance in the tough environment of Chicago schools and is an advocate of higher pay for teachers, as well as pushing them harder.

Mr Obama declared that failing to improve classroom instruction is "morally unacceptable for our children". Mr Duncan said education was "the civil rights issue of our generation".

The President elect is expected to name Ken Salazar, a Democratic Colorado senator, as his Interior Secretary. On Monday, he named his Energy team. He chose Steven Chu, the 1997 Nobel Prize winner in physics who in recent years has devoted himself to the cause of inventing alternative fuels, as his Energy Secretary.

Mr Obama has also created a new post, a White House overseer of energy, environmental and climate policy, who will be responsible for driving his agenda on Capitol Hill. For this he has picked Carol Browner, a former legislative director to Al Gore.

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