Abd al-Rahman al-Amoudi appeared at the US District Court in Alexandria, Virginia, on Monday, a day after his arrest at Dulles International Airport after he flew in from an overseas trip.
"He received, transferred and otherwise dealt in, funds from the Libyan permanent mission at the United Nations, an instrumentality (sic) of the government of Libya," said Brett Gentrup, a special agent of the US immigration service, before the judge.
A former executive director of the American Muslim Council and the president of the American Muslim Foundation, al-Amoudi is such prominent figure on the Washington political scene, the controversy is bound to hit the US Muslim community hard.
He was a guest at the White House a number of times during the Clinton years and donated money to several politicians during the 2000 election campaign. More recently, he has also met President George Bush.
US citizens are banned from any financial dealings or travel to Libya under sanctions imposed by former president Ronald Reagan in 1986. The bans were in response to bombings in Italy and Austria, for which the North African state was controversially blamed by the US.
Earlier this month, the United Nations lifted sanctions imposed on Libya following the bombing of a Pan American airliner over Lockerbie, Scotland in 1988. But the Bush administration has kept the US sanctions in place.
Al-Amoudi's case was handed to US law enforcement officials by British colleagues, who searched the 51-year-old as he prepared to leave for Syria from London's Heathrow Airport on 16 August and found $340,000 in his luggage, AFP reported.
According to an affidavit filed by the investigators, al-Amoudi told British investigators he had received the money from a man "with a Libyan accent" and, in order to avoid US Customs, was planning to deposit it in Saudi banks and then "feed it back" into the United States in smaller amounts.
He also recalled a 1997 conversation with a Libyan ambassador to the United Nations, who expressed readiness to pay al-Amoudi a commission if he succeeded to win release of some of the Libyan funds frozen in the wake of the Lockerbie bombing.
The probe has uncovered that in addition to his US passport, al-Amoudi, born in Eritrea but a naturalised US citizen since 1996, had a Yemeni travel document, which he used for flights to Tripoli.
"The stamps indicate al-Amoudi has been travelling to and from Libya regularly since May 2002 through July 2003 with the length of stay averaging approximately five days," Gentrup pointed out.