Austrian court unfreezes assets of ex-US diplomat suspected in Iraq oil scam

An Austrian court has unblocked assets owned by the wife of former U.S. diplomat Zalmay Khalilzad, ruling that Vienna prosecutors overstepped their authority by having her bank accounts frozen, the couple and their lawyers said.

Khalilzad -- U.S. ambassador to Afghanistan, Iraq, and the United Nations under President George W. Bush -- and his wife, author Cheryl Benard, had fought the seizure, which came to light after Profil magazine reported U.S. authorities were investigating him for suspected money laundering.

Their lawyers have stressed that no charges have been filed against either of the pair.

"We are pleased to have been informed that the regional high court in Vienna has ordered all of our assets to be unfrozen and returned to us immediately," the couple said in a statement from Vienna law firm Wolf Theiss and U.S. law firm Hogan Lovells.

"The court further ruled that there was no authority for Viennese prosecutors to seek the bank information regarding our accounts in the first place, much less be given the ability to unlawfully restrain us from accessing our accounts."

A court spokesman confirmed the Sept. 3 ruling.

Citing legal documents a blogger found in a dumpster outside a Vienna justice facility, Profil said Vienna prosecutors had acted on a U.S. request for legal assistance in 2013 to get a court in February to freeze seven accounts owned by Benard, who is a citizen of both the United States and Austria.

Profil said Khalilzad, 63, was suspected of collecting large sums from construction and oil companies in Iraq and the United Arab Emirates and sending $1.4 million dollars of this to Benard's bank accounts in Vienna.

The U.S. Department of Justice has declined comment.

Khalilzad is now head of Khalilzad Associates, a Washington-based business consultancy. Benard, a novelist, is a researcher with the RAND Corporation and heads an advocacy group that supports cultural activism in areas marred by war.

(Reporting by Shadia Nasralla and Michael Shields; Editing by Jeremy Gaunt)