The principal of a Sydney Islamic school that has been paying millions of dollars in rental and management fees to Australia's peak Muslim body was given advice three years ago that the practice was likely to be in breach of government guidelines.
In a 2008 letter to Malek Islamic School principal Intaj Ali, lawyers advised that the movement of millions of dollars from the school to the Australian Federation of Islamic Councils may have contravened legislation governing the use of federal and state grants.
AFIC president Ikebal Patel said yesterday the legal advice "did ring a bell" but he "could not recall" what his reaction was when presented with it.
The Australian understands Dr Ali sought the advice from Minter Ellison in a bid to stop AFIC borrowing money from the school and charging the excessive rents and management fees that allowed the Muslim body to buy further properties that it would, in turn, lease back to the school as campuses for more rent.
Last month The Australian revealed that AFIC had charged the successful Sydney school $5.2 million, including $3.2m in current and backdated "management fees".
In 2009, AFIC changed the lease agreement to increase the school's rent from $1.3m to $1.5m, forcing an immediate backdated payment of $2.59m.
Malek Fahd is a predominantly government-funded school, receiving $19.6m from taxpayers last year, with public funding accounting for 75 per cent of the school's total funding.