Mohammed Al Ghabra was a trustee of the Al Ikhlas Foundation, which provides advice, guidance and financial support to Muslim prisoners and their families.
Last summer he was named by the UN as having suspected links to Al Qaeda and was banned from handling funds. This meant he would be unable to fulfil his legal duties as a trustee without committing a criminal offence.
A commission inquiry criticised the charity's trustees for allowing Al Ghabra to continue as a trustee on the proviso that he was given no access to funds. It worried that the charity's funds might be frozen by the Treasury and rejected the trustees' argument that they would be considered hypocrites by the Muslim community and their beneficiaries if they removed Al Ghabra.
The inquiry report reads: "The commission believes there are no mitigating factors when a trustee is designated."
The commission also criticised the lack of financial controls at the charity and the trustees' failure to consider the damage to the charity's reputation that could be done by events such as one at which Al Ghabra was due to speak after he had been designated.
It said the trustees could also have been deemed to have committed a criminal offence by breaching financial sanctions against Al Ghabra.