Pakistan gave $4m to illegal Kashmiri lobby group in Washington

Pakistan's powerful spy agency is under renewed pressure after an investigation by the FBI revealed that it ploughed over $4m into an illegal pro-Kashmiri lobby outfit in Washington.

Two Americans of Pakistani origin have been charged with failing to register as agents of a foreign government, as required by law. Syed Ghulam Nabi Fai, a doctor who lives in Virginia, has been arrested. A second man, Zaheer Ahmad, has also been charged but is believed to be living in Pakistan.

There are no suggestions that Mr Fai was a spy. But Neil MacBride, the US attorney for Eastern Virginia, said that he is accused of "a decades-long scheme with one purpose: to hide Pakistan's involvement behind his efforts to influence the US government's position on Kashmir."

The arrests mark the latest in a series of blows for the Inter-Services Intelligence (ISI) agency, Pakistan's leading military spies. Since the 2 May raid in Abbottabad that killed Osama bin Laden, the ISI has been suspected of being either complicit or incompetent. It has also been widely accused of murdering Saleem Shahzad, a Pakistani journalist.

An FBI affidavit submitted in support of the criminal charges says that Mr Fai received up to $700,000 each year from the ISI and the Pakistani government. The money is said to have been used to make campaign contributions to politicians, fund conferences and other public-relations efforts. The Pakistani embassy in Washington denies any involvement. "Mr Fai is not a Pakistani citizen and the government and embassy of Pakistan have no knowledge of the financial arrangements that are at the heart of the FBI case against him," said a spokesman.

But a Pakistani official told The Independent that the funding was part of a clumsy lobbying effort directed through the ISI. Mr Fai, the official said, had been unable to raise money from American-Pakistanis and turned to the Pakistani government for support. Instead of acquiring a legitimate grant and declaring that he worked independently but receives money from Pakistan, the lobbying effort was kept quiet. "It was handled by rotating colonels with little or no knowledge of lobbying and the laws in the US," the official added.

American-Pakistanis familiar with Mr Fai's activities in Washington say he was a very visible political operator, and very close to the Pakistani embassy there. Mahmud Ali Durrani, a retired general and former ambassador to Washington, says that he knew Mr Fai "fairly well". "I am surprised," Mr Durrani said. "I didn't know he was [receiving funding from the ISI]." The former ambassador added: "I interacted with him as ambassador. He was committed to the Kashmiri cause. I attended a number of conferences he organised."

US election records show that, since 1997, Mr Fai has given $23,500 in contributions to US political candidates. The largest sum, $7,500, was given to the Republican congressman Dan Burton of Indiana. In a statement, Mr Burton said he was "deeply shocked" by Mr Fai's arrest and had no knowledge of any foreign intelligence involvement. Mr Fai also donated $250 to Barack Obama's election campaign.

In Pakistan, the timing of Mr Fai's arrest is being viewed with suspicion. "The arrest comes at time when the US is applying pressure on Pakistan," said Mr Durrani. "Some are saying that the Indian lobby has done this. How is that after 20 years this thing has sudden come to light?"