U.S. officials refused to move against fraudulent American-based charities -- that allegedly channeled money from the government of Saudi Arabia to terrorist organizations -- for fear of damaging the country's delicate relationship with the Middle East power, says a former prosecutor with the U.S. Department of Justice.

Planned raids and arrests against terrorist-related targets have been halted and criminal investigations into Saudi-backed charities, which allegedly fund terrorist cells and foundations promoting violence, have been interfered with, according to John Loftus, a lawyer representing disaffected members of U.S. intelligence agencies.

Mr. Loftus claims to have classified information from his confidential clients backing his claims.

He intends to file a lawsuit today in a Florida court designed to expose the use of specific state-registered charities to launder money for terrorism, the National Post has learned.

The alleged interference allowed known terrorists and terrorist supporters to fraudulently raise money in North America to fund attacks in the Middle East, back hate groups in Canada, support the families of suicide bombers and plan attacks against NATO powers, Mr. Loftus claims.

"The Saudi relationship is so sensitive that, for more than a decade, federal prosecutors and counterterrorist agents have been ordered to shut down their investigations for reasons of foreign policy," Mr. Loftus told the National Post.

U.S. federal agents were ordered to drop several investigations since 1995 that were probing links between Saudi funding and terror-related organizations, including one raid that has been ready since January, 2002, but has inexplicably been delayed, he said.

That case includes a Canadian connection that should be of concern to Canada's intelligence and law enforcement agencies, he said.

A spokesman for the Royal Embassy of Saudi Arabia in Washington, D.C., did not return telephone calls yesterday. Likewise, calls to the office of John Ashcroft, the U.S. Attorney-General, were not returned.

The allegations come at a time when Crown Prince Abdullah bin Abdul Aziz is proposing a peace deal for the Middle East that would see Arab countries normalize their relations with Israel in exchange for an Israeli withdrawal from Arab land it occupied in 1967.

The U.S. relationship with Saudi Arabia is fragile.

The oil-rich kingdom served as a command centre for the 1991 Gulf War in which U.S.-led coalition forces drove Iraqi forces out of Kuwait.

However, the Saudis did not allow its air bases to be used for bombing missions in the U.S.-led war on Afghanistan and this weekend a Saudi newspaper reported that King Fahd, the Saudi leader, told Dick Cheney, the U.S. Vice-President, that U.S. forces will not be allowed to use the kingdom's territory to launch renewed military action against Iraq.

Mr. Loftus resigned his position in the Department of Justice in 1981 and is the author of several books, including The Belarus Secret, which chronicles the flight of Nazis from Eastern Europe to the West, and The Secret War Against the Jews, which chronicles claims of hostile acts against Jews and Israel by Western powers.

A lawyer by training, Mr. Loftus is not a member of the Florida bar.

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