More than $45 million has allegedly been stripped since 2000 from the nation’s largest Islamic school by the peak body representing Australian Muslims in a brazen series of transactions chalked up as inflated rent charges, interest-free loans and payments for “past services”, according to court documents.
In a rift that threatens to engulf senior members of Australia’s Muslim community, Sydney’s Malek Fahd Islamic School is taking legal action against the Australian Federation of Islamic Councils, demanding it repay tens of millions of dollars in “gratuitous” withdrawals made during the past two decades.
The school, which has about 2400 students and 300 staff, is battling desperately to keep $19m in annual federal funding that was cut when the school’s strong financial links to AFIC were revealed. In documents tendered to the NSW Supreme Court and obtained by The Australian, the school alleges AFIC took $45.14m from its accounts over 15 years from 2000.
During that period, the school received more than $184m in federal and $45.5m in state government funding.
The Sydney school and two others controlled by AFIC in South Australia and the ACT have had their federal government funding cut due to concerns about the administration of funds.
While Malek Fahd has appealed to the Federal Court to reverse the government’s decision to halt its funding, in a separate action in the Supreme Court it is seeking to recover the funds AFIC allegedly withdrew.
AFIC was last week accused by the school’s lawyers in a Federal Court appeal of using it as a “milking cow that never runs dry” to siphon funds to other projects. At one stage, AFIC raised the rent paid by the school’s main campus in Greenacre, in southwest Sydney, more than tenfold in one year.
The court documents list former AFIC presidents Ikebal Patel and Hafez Kassem as having signed documents related to the transactions, but the claim by the school is made against AFIC alone.
Both Mr Patel and Mr Kassem were directors of Malek Fahd at the time they were president of AFIC.
There were more than a dozen alleged transactions in which the school contends it paid AFIC millions more than was necessary, or should not have paid anything at all.
The school, which was founded in 1989, paid between $24,000 and $67,500 in rent each year to AFIC in its first 10 years of operation. Between 1999 and 2000, that figure rose by more than 13 times — from $67,500 to $900,000.
According to court documents, the rent rise came as AFIC demanded an interest-free $1.42m loan to fund the purchase of a $7.1m property at Condell Park, in Sydney’s southwest.
“The loan was not documented, the loan was unsecured ... AFIC breached the fiduciary obligations it owed to MFIS,” the school claims. In 2003, AFIC sold the property for $10.35m, but did not repay the loan, reduce the rent, or account for the $3.25m in profits of the sale.
In April 2010, AFIC asked Malek Fahd to pay $2.2m — plus GST — for “services claimed as having been provided by AFIC to MFIS since 1989". In May, the school paid AFIC $2.42m.
“It was not in MFIS’ interests, but in the interests of AFIC, for MFIS to make a gratuitous payment of $2,200,000 plus GST in recognition of services purportedly provided by AFIC to MFIS over the preceding 21 years,” Malek Fahd’s lawyers stated.
AFIC has vigorously defended the claims, saying the Commonwealth tried to “attack” the school by cutting funding last year.
“The defendant (AFIC) did not owe or breach the alleged duties to the plaintiff (Malek Fahd),” AFIC’s statement of claim says. “The relevant transactions were appropriate in their terms, and well suited to the particular and novel interests and practical realities facing the parties at the time.”
Mr Patel and Mr Kassem did not respond to requests and calls for comment.
Keysar Trad, who was ousted earlier this month as president of AFIC when West Australian Rateb Jneid was elected, said while he did not take sides, the school’s claims were “grossly inflated”.
“The school’s claim includes massive amounts of money in interest,” he said. "... there are large elements that would be in breach of the Islamic ethos as unconscionable.”
Malek Fahd appealed to the Federal Court after a judgment by the Administrative Appeals Tribunal late last year upheld the government’s decision to cut funding.
The government has agreed to continue the school’s funding, pending a decision.