President Karzai’s younger half-brother, long accused of links to the narcotics trade, was embroiled in fresh controversy yesterday after an American newspaper reported that he had been on the CIA’s payroll for much of the past eight years. Ahmad Wali Karzai was paid for services including arranging contacts with the Taleban and helping to operate an Afghan paramilitary force in the southern city of Kandahar, where he lives, The New York Times reported.

He was also paid for allowing the CIA, US special forces and local paramilitaries known as the Kandahar Strike Force to use a large compound outside the city that used to be the home of Mullah Omar, the founder of the Taleban, the newspaper said.

A CIA spokesman refused to confirm or deny the claims, which will embarrass President Karzai and the US Government before the presidential election run-off that they hope will enhance US credibility in Afghanistan.

One former US official in Afghanistan told The Times that he was not surprised by the report as the CIA had a long history of paying off or working with local strongmen, regardless of war crimes or their involvement in the drugs trade.

The former official said that he thought the allegations had been deliberately leaked to try to influence either the election, the continuing White House review of its Afghanistan strategy, or both.

Wali Karzai, who heads the Kandahar provincial council, confirmed that the CIA, US special forces and the militia used the compound, but denied receiving payment from the CIA. He admitted, however, that he received money for “expenses” from his brother, the President, and said that he did not know where the funds came from originally.

Hamed Elmi, a spokesman for the President, told The Times that the funds were from the Afghan Finance Ministry and were for legitimate purposes such as development and security. “This is a baseless allegation,” he said. “It is propaganda against President Karzai ahead of the election.”

The report is damaging to Mr Karzai as critics often accuse him of being an American puppet and of allowing his brother to run Kandahar like a personal fiefdom. It is also embarrassing for the US Government as it appears to expose a fundamental conflict in US policy in Afghanistan.The CIA favours co-operating with local strongmen and hopes that some could act as middlemen in talks with militants.

Senator John Kerry, the chairman of the Senate Foreign Relations Committee, urged the Obama Administration last night to brief Congress about any alleged “entanglements” between Wali Karzai and the CIA.

Mr Kerry said that top US officials had repeatedly assured him that there was no hard evidence linking Wali Karzai to drug-trafficiking.

“However, after reading press accounts which allege that Mr Karzai has been on the payroll of the CIA, one of the agencies gathering intelligence about narcotics trafficking in Afghanistan, I have serious questions about the information that Congress is receiving,” he said.

Ronald Neumann, the US Ambassador in Kabul from 2005 to 2007, advised the President to remove his brother, calling him a “political embarrassment”, but was forced to back down when Mr Karzai challenged him to provide evidence.

Counter-narcotics officials say that they still have insufficient evidence to convict Wali Karzai but are certain that he controls most businesses and roads around Kandahar, a major drugs trafficking hub.

Mr Neumann told The Times yesterday that he was unaware of Wali Karzai’s relations with the US Government. He said that the US should be wary of simply replacing him with a similar figure.

“Ahmad Wali is part of the problem, but you need a solution that is better than what you already have,” he said.

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