An Israeli lawyer was arrested this week on suspicion of defrauding two Egyptian banks for NIS 19 million and laundering the money.

Attorney Jaser Asraf, 38, of Baka al-Garbiyeh, allegedly received the money from the Egyptian banks to file a suit on their behalf against the Custodian General and Jerusalem's King David Hotel. The Krayot Magistrate's Court, near Haifa, on Wednesday extended his custody by five days.

Another lawyer from Asraf's office was also arrested, but released later in the day when it transpired he had not knowingly participated in the alleged swindle.

In 2007 Bank Misr and the National Bank of Egypt hired Asraf to file a law suit of over NIS 660 million, claiming they had documents attesting to ownership shares in the King David Hotel in Jerusalem.

The police said the suspect did not file the suit, but took some NIS 19 million, which he charged the two banks in fees and expenses.

The Egyptian connection to the hotel dates back to 1929, when the Mosseri family, wealthy Jewish bankers from Egypt, decided to build a luxury hotel in Jerusalem. The family established the Palestine Hotels company and purchased, together with other wealthy businessmen, a plot of some 18 dunams from the Greek Orthodox Church on Julian's Way (today King David Street) in the city at a cost of 31,000 lirot, a huge sum at the time.

Attorney Hala Hamdan of Jaffa, today legal adviser for NBE, told Haaretz that in order to build the hotel the company took loans from two Egyptian banks, NBE (then Bank Mosseri) and what is today Bank Misr.

When the State of Israel was established the contact between the banks and the hotel was severed. Meanwhile the hotel, whose name changed from Palestine Hotels to King David, changed hands several times and is today part of the Dan Hotel chain. However, throughout the period, the banks kept their ownership shares of the property in Israel.

In 1979 the peace agreements between Israel and Egypt stipulated that each state may file property claims against the other. On the basis of this the Egyptian banks started looking into the possibility of claiming rights in the King David Hotel.

Several years ago NBE appointed Asraf as its legal adviser. The bank says Asraf told bank officials that in June 2007 he had filed a huge suit at the Tel Aviv District Court against the Custodian General and the hotel's owners for more than NIS 660 million.

Superintendent Aharon Galor, head of the fraud division investigating the case, said the lawyer was obliged by law to pay a NIS 4 million court fee.

However, he allegedly gave the court a fraudulent check for this amount and took a receipt. The check bounced, but the lawyer changed the amount on the receipt to NIS 8 million and sent it to Egypt for payment.

The bank allegedly paid him the money and added one million dollars and a few hundred thousand shekels for expenses and lawyer's fees. Altogether Asraf allegedly got NIS 15 million from NBE and NIS 4 million from Bank Misr.