But the inquiry says the commission can take no action other than publishing its report because the appeal was not on the register of charities. An earlier inquiry concluded that the appeal was in fact a charity and should have been registered.
“Whether or not, under national or international law, there is illegality in these transactions and breaches of the sanctions are matters for other agencies and regulators to determine,” the report said. “The commission has fulfilled its statutory duties in this regard by liaising with other relevant agencies.”
According to the report, the fund, named after an Iraqi child Mariam Hamza, had received £1,468,000 by the time it ceased operating in early 2003. Its objects were providing medical help to Iraqi children in Iraq and other countries.
Mr Galloway, Respect MP for Bethnal Green and Bow, said the new report was "sloppy, misleading and partial" and its conclusions “palpably false”. He added: “We are treating these allegations with the contempt we believe they deserve.” He and other trustees deny any wrongdoing.
The latest inquiry said that the “improper sources” were the commissions paid by oil companies to intermediary companies that were allocated rights by the Iraqi government to sell oil, the income from which was used to buy food and medicines under the terms of the UN sanctions.
Fawaz Zureikat, a Jordanian businessman and friend of Galloway, was connected with two such such intermediary companies, which received commission when oil rights were sold on to an oil company, the inquiry found.
Zureikat was a major funder of the appeal as well as being a trustee and, at one point, its chairman. He donated more than £448,000, of which the largest donation was about £225,000 in August 2000, the inquiry said. That donation, it said, derived substantially from payments received as a result of oil sales, and at least £190,700 donated by Zureikat came from contracts under the Oil for Food programme.
The inquiry said Mr Zureikat therefore knew of the connection between the appeal and the Oil for Food programme and that Mr Galloway, “may also have known of the connection between the Appeal and the Programme”. It added: “Mr Galloway has continued to deny that he was aware of any such connection.”
The Commission report pointed out that the Independent Inquiry Committee appointed by the UN to look into the affair concluded in 2005 that commission payments on oil allocations amounted “illicit income”.
The commission report said: “As Mr Zureikat made his donations to the appeal from commissions and other payments derived from the programme, the commission has concluded that these donations came from improper sources.”
Andrew Hind, chief executive of the commission, told the BBC: “We are not saying that Galloway personally benefited, but he did not properly discharge his legal duties. This is an issue, as much as anything else, about public trust and confidence in charities.”
An earlier commission report found that, although some charity trustees had received unauthorised benefits, the funds of the appeal had generally been applied in furtherance of its charitable purposes. It also found some activities of the appeal were political, in particular a campaign to end UN sanctions on Iraq.