In a sharp blow to the government, a judge refused Thursday to add as much as a dozen years to the sentence of an Islamic charity director linked to Usama bin Laden, saying his racketeering offense was not a crime of terrorism.

Enaam Arnaout (search), 41, would have been sentenced to 20 years under federal guidelines calling for tougher prison terms for those convicted of terrorism offenses.

Judge Suzanne B. Conlon (search) ruled, however, that the terrorism guideline does not apply in Arnaout's case.

He was not convicted of a terrorism offense, "Nor does the record reflect that he attempted, participated in, or conspired to commit any act of terrorism," Conlon said.

For a simple racketeering conviction he could be sentenced to eight to 10 years in federal prison. Conlon has leeway to give him more or less at sentencing, scheduled for Aug. 18.

Defense attorney Joseph Duffy said the decision "pretty much vindicates what the defense has claimed from the inception, and that is that neither he nor his charity had anything to do with terrorism."

U.S. Attorney Patrick J. Fitzgerald issued a brief statement saying his office disagreed with Conlon's ruling.

Arnaout headed Benevolence International Foundation (search), a charity in suburban Chicago that funneled millions of dollars in humanitarian aid to Muslim countries for a decade. The charity is now all but defunct.

In his plea agreement, Arnaout admitted defrauding donors who thought the money went only to widows, orphans and the poor by sending some to Muslim military units in Bosnia and Chechnya.

He also admitted that bin Laden had befriended him in Pakistan in the 1980s. Arnaout denied that he has funneled money to the Al Qaeda terrorism network and insisted he does not support terrorism.

Prosecutors said Arnaout has many links to Al Qaeda and bin Laden. Among other things, they said the minutes of the founding meeting of Al Qaeda were found on Arnaout's computer at a Benevolence office in Bosnia.

Conlon said, however, that the law specifically lists crimes involving terrorism, ranging from use of biological weapons to attacking airports.

She said racketeering was not among them.

"The government has not established that the Bosnian and Chechen recipients of BIF aid were engaged in a federal act of terrorism," she said. She said boots, blankets, uniforms and other goods donated to the Muslim fighters by the charity were not shown to be for terrorist uses.

Arnaout, a Syrian-born U.S. citizen, has been held without bond since his April 2002 arrest.