Former Iraqi Governing Council member Ahmad Chalabi (search) and his nephew Salem Chalabi (search) say the Iraqi government is partaking in a political conspiracy against them and their family.

The two dismissed charges filed against them Saturday by Iraq's chief investigating judge. Ahmad Chalabi, once a Pentagon favorite to take leadership of the new Iraq, was charged with counterfeiting.

Salem Chalabi, head of the tribunal trying Saddam Hussein, was charged with murder after having been named as a suspect in the June murder of Haithem Fadhil, director general of the finance ministry.

Meanwhile, a homicide car bomb exploded northeast of the Iraqi capital on Monday in an apparent attempt to kill the deputy governor of Diyala province, Aqil Hamid al-Adili. Officials said he was wounded, while seven others were killed.

Al-Adili was in stable condition and was being treated at a U.S.-led coalition medical facility, military spokesman Maj. Neal O'Brien said.

The warrant for Chalabi's arrest also brings up the issue of his releasing classified information to Iran. The warrant also pushed Chalabi further from the center of power, in which he seemed to have a firm place until he fell out of favor with the Americans in the weeks before the U.S. occupation ended in June.

The one-time Iraqi exile opposition leader was in Tehran, Iran, for an economic conference and said that despite his doubts about the Iraqi criminal system, he would return to confront what he called "lies."

Calling the charges "deplorable" and "outrageous," Chalabi told FOX News' Rita Cosby that the currency in question was in the possession of the Governing Council's finance committee, of which he was chairman.

"He [the judge] attacked the court that is trying Saddam, he attacked me personally, he attacked my family. If there is any justice at all, he should recuse himself from seeing this case because he has a personal quarrel with me."

Chalabi said the judge should focus on other matters, such as charging terrorists in Iraq and people who have killed new officials there.

"With all the things going on in Iraq right now, he's found nothing else to do?" Chalabi said. "This is outrageous and anyway, I'm going back to Baghdad to confront these lies."

Salem Chalabi said he didn't fear conviction.

"I don't think ... that I had anything to do with the charges so I'm not actually worried about it," he said in a television interview from London. "It's a ridiculous charge, that I threatened somebody ... there's no proof there."

If convicted, Salem Chalabi, 41, could face the death penalty, which was restored by Iraqi officials on Sunday, judge Zuhair al-Maliky said. His uncle, who is in his late 50s, would face a sentence determined by trial judges.

"They should be arrested and then questioned and ... if there is enough evidence, they will be sent to trial," al-Maliky said about the warrants against each, which he disclosed Sunday.

Since the transfer of sovereignty, Ahmad Chalabi has worked to reposition himself as a Shiite populist. At the helm of the war crimes tribunal for Saddam, the Ivy League-educated Salem Chalabi remains a central figure in Iraq.

In Washington, the Bush administration had no comment about the charges against the Chalabis.

"This is a matter for the Iraqi authorities to resolve and they are taking steps to do so," White House spokeswoman Suzy DeFrancis.

Former coalition spokesman Dan Senor echoed that sentiment on Monday, telling FOX News that the independent Iraqi judicial system — separate from the government — will determine the Chalabis' fate without the influence of other countries, including the United States.

"It's a sovereign nation; they're going to deal with it on their own," Senor said.

Ahmad Chalabi is accused of counterfeiting old Iraqi dinars, which were removed from circulation after the ouster of Saddam's regime last year.

Iraqi police backed by U.S. troops found counterfeit money along with old dinars during a raid on Chalabi's house in Baghdad in May, al-Maliky said. He apparently was mixing counterfeit and real money and changing them into new dinars on the street, the judge said.

U.S. Keeps its Distance

The State Department, long at odds with Ahmed Chalabi, is taking a hands-off approach to the Iraqi government's new charges.

"This is an internal Iraqi matter. It is something that the Iraqi courts and investigating authorities have responsibility for," State Dept Deputy Spokesman Adam Ereli said Monday. "They are making the decisions. They are determining what needs to be done. And they are the authorities to talk to for information about why they've done and what they're going to be doing."

Ereli rejected a suggestion that years of support, first from State and then from the Pentagon, for Chalabi and his Iraqi National Congress should engender some sympathy from the U.S. government.

"This is not a question of past associations or friendships," he said. "This is a question of the Iraqi justice system at work. And we're going to play the appropriate role, which is to let that process take its course."

Ereli did say, however, that he had no indication the United States itself had suspicions about Chalabi's handling of the U.S. money given to him and his organization.

"These charges are certainly new to us," Ereli confirmed. "I'm not aware that we had any notion of wrongdoing in the past. I think our dealings were as transparent as they could be."

The State Department worked closely with Chalabi in the years after the first Gulf War, but eventually came to distrust him. By the time the Bush administration took office, Chalabi had found a new set of benefactors at the Pentagon, which continued to subsidize him until May of this year.

Ahmad Chalabi has been wanted in Jordan for since 1991, following a conviction in absentia for fraud in the collapse of Petra Bank (search), which he ran. He was sentenced to 22 years in jail, but has denied all allegations.

Born in Baghdad, the younger Chalabi studied at Yale, Columbia and Northwestern, and holds degrees in law and international affairs. He served as a legal adviser to the interim Iraqi Governing Council and was a member of the 10-member committee framing the basic transitional law for the new interim government.

Ahmad Chalabi's network of Iraqi exiles in the Iraqi National Congress provided the Bush administration and some news organizations with reports on Saddam's purported weapons of mass destruction programs before the war.

Chalabi also was accused recently of informing Iran that the United States had broken its secret intelligence codes, a charge he branded as "stupid." And around the time of the raid on his house, U.S. officials privately complained that Chalabi was interfering with a U.S. inquiry into money skimmed from the U.N. oil-for-food program (search) by pursuing his own probe.

He has tried use the fallout to enhance his stature among Iraqis, many of whom saw him as an American puppet.

"I've risen higher in the esteem of my people and I'm now much better positioned politically in the country, because I'm in sympathy with my people. This is what it is all about," Chalabi said Sunday.

Among his campaigns to win favor with Iraqis have been purging Baath party members from the Iraqi government and attempting to set up an exclusively Shiite political party. He recently played peacemaker in ending violence in the Shiite holy city of Najaf in June.

FOX News' Teri Schultz and The Associated Press contributed to this report.