Prince Charles, the heir to the British throne, accepted $1.2 million from Osama bin Laden's family, The Sunday Times reported.
The prince, 73, took the payment from two of bin Laden's half-brothers, Bakr, the patriarch of the family, and Shafiq, following a meeting at British royal residence Clarence House in October 2013, the paper said.
The meeting occurred two years after US forces killed the Al-Qaeda leader in Abbottabad, Pakistan.
The money was donated to the Prince of Wales Charitable Fund (PWCF), which awards grants to UK-registered non-profit organizations.
Clarence House told the BBC that PWCF confirmed that "thorough due diligence" had been conducted and that the decision to accept the money was down to the trustees.
"Any attempt to suggest otherwise is misleading and inaccurate," Clarence House told the outlet.
The Sunday Times reports that multiple advisers pleaded with the United Kingdom's future king to return the money, warning that there would be national outrage if news of the donation leaked.
"The fact that a member of the highest level of the British establishment was choosing to broker deals with a name and a family that not only rang alarm bells but abject horror around the world… why would you do this? What good reason is there to do this?" a source told the newspaper.
"I just didn't feel any member of the British royal family should be involved in that sort of undertaking."
However, Charles, Prince of Wales, allegedly decided against returning the money, as he felt it would be "too embarrassing" to give it back as the brothers would suspect the reason, the paper reported.
The bin Ladens, a wealthy and well-connected family with Yemeni origins based in Saudi Arabia, disowned Osama bin Laden in 1994. No other members of the family have ever been accused of links to terrorism.
Sir Ian Cheshire, chairman of PWCF, told The Sunday Times that the donation was agreed "wholly" by the five trustees at the time.
A source close to the charity told The Guardian that trustees concluded that the actions of one family member should not tarnish the whole family.
The paper also reported that a royal source disputed several points in The Sunday Times article, including the suggestion that Charles had personally brokered the deal and ignored advisers' objections.
Last month The Sunday Times also revealed that Prince Charles had accepted a suitcase containing more than $1 million in cash from Sheikh Hamad bin Jassim bin Jaber Al Thani, the former prime minister of Qatar.
The Prince of Wales was handed the cash in Fortnum & Mason carrier bags, an upmarket London department store, as well as a suitcase and a holdall, The Sunday Times reported.
Charles accepted more than $3 million in total from the controversial Qatari politician, the report said.
