Charities worldwide responded to the Sudan's famine
The UN donated more than $1.4m to a consortium of charities working in the Sudan in 1997, one of which was the Muwafaq (Arabic: blessed relief) Foundation.
The US Treasury believes wealthy businessman Yasin al-Qadi set up the charity.
In a crackdown following the 11 September plane attacks on the US, Mr al-Qadi's assets were among those frozen by the Treasury for alleged links with terrorism.
'Charities vulnerable'
According to Treasury officials, the charity was used by wealthy Saudi businessmen to transfer millions of dollars to Bin Laden.
Bin Laden is the number one suspect for the 11 September attacks.
His London lawyers, Peter Carter Ruck, said: "Our client is horrified and shocked that his name has been included in this (Treasury) list."
If the US allegation is true, it will underline the vulnerability of many charities to militant influence, but also jolt the reputation of the UN.
Charles Shoebridge, a former British anti-terrorist intelligence officer, believes that it is easy for terrorists to infiltrate charities, if not set them up themselves from the outset.
"For over a decade the government has been aware that a number of refugee support groups, relief organisations and charities do act, in fact, as fronts for the raising of finance for terrorist organisations," he told the BBC.
"They appear to be ordinary, credible charities."
'UN duped'
An investigation by Angus Stickler of the BBC's Today programme, shows that the UN donated money to Muwafaq to "promote educational and social development programmes" in Sudan.
The UN, Mr Shoebridge believes, should be ideally placed to judge the credentials of the charities it supports with public money.
"You would have thought that an organisation like the UN would have access to a certain amount of information from its constituent members' intelligence services," he said.
If the US Treasury is right about "Blessed Relief", it is a serious blow to the UN's reputation.
"The fact that the UN has been so easily duped will no doubt cause great unease within the international community," says the BBC's correspondent.
"Not only would it have allowed terrorists to masquerade under a cloak of decency - it actually provided hard cash with which they could fund their cause."
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