WASHINGTON [MENL] — The United States has determined that Saudi Arabia continues to allow citizens to finance Al Qaida, including its insurgency campaign in Iraq.

U.S. officials said that despite numerous appeals the Saudi kingdom has not arrested financiers of Al Qaida or related groups. They said the kingdom has also failed to freeze the assets of leading Saudi financiers of Islamic insurgency groups.

“Wealthy Saudi financiers and charities have funded terrorist organizations and causes that support terrorism and the ideology that fuels the terrorists’ agenda,” Treasury Undersecretary Stuart Levey said. “Even today, we believe that Saudi donors may still be a significant source of terrorist financing, including for the insurgency in Iraq.”

It was the first time a senior Bush administration official asserted that Saudi nationals have been financing the Sunni insurgency in Iraq. Over the last two years, the Bush administration has blamed Syria for the flow of insurgents and funding into Iraq.

[In an unrelated development, the Bush administration announced on Thursday the freezing of any U.S. assets of a London-based Saudi opposition group alleged to be linked to Al Qaida. The target was identified as the Movement for Islamic Reform in Arabia.]

Officials said Levey’s assertion came in wake of increasing U.S. frustration over Riyad’s failure to stem the flow of private Saudi funding to the Al Qaida-aligned insurgency in Iraq. They said the Saudi government has not directly funded the Sunni insurgency.

Instead, much of the funding to Al Qaida and related groups has been relayed through three Saudi government-sponsored charities. Officials cited the International Islamic Relief Organization, the World Association of Muslim Youth and the Muslim World League, which despite decrees by the kingdom continue to finance Al Qaida-aligned activities in Africa, the Palestinian Authority, the Balkans, Chechnya and Kashmir.

“Saudi Arabia-based and -funded organizations remain a key source for the promotion of ideologies used by terrorists and violent extremists around the world to justify their hate-filled agenda,” Levey said on July 13.

In testimony to the Senate Banking Committee, officials said Riyad has ordered a halt to charity collection at mosques and retail shops. But the officials added Saudi authorities have not enforced these orders.

The Senate committee was told that the administration has pressed Gulf Cooperation Council states, which include Saudi Arabia, to lower their reporting thresholds for international cash transfers. The administration said Saudi nationals have relayed cash through couriers to Iraq.

“We continue to stress in our discussions with the Saudis the need for full implementation, including a fully functioning charities commission,” Assistant Secretary of State Anthony Wayne said.