Asma Khanam, 46, of Newbury Park, east London, who is involved with relief organisation Families for Survival UK, was among 13 people arrested as part of the investigation.
The racket is said to involve fraudsters making one-day trips from Italy to attend interviews at Jobcentres for National Insurance numbers.
Families for Survival’s offices in Ilford, east London, were searched by investigators and documents and computers were seized.
The arrests follow an investigation by the Department for Work and Pensions and Redbridge Council into a scam which is thought to have cost taxpayers millions of pounds.
It could be one of the largest organised benefits frauds ever uncovered in Britain.
Bangladesh-born migrants alleged to be involved in the racket have arrived in the UK over the past three years after getting EU citizenship in Italy.
They are accused of making false housing benefit claims to local councils after obtaining national insurance numbers and moving into new homes. Bogus wage slips were allegedly produced to help with their applications.
Last year Essex Police reported a significant number of Bangladesh-born migrants with Italian passports arriving at London Stansted Airport from Italy.
They were armed with appointment letters to attend interviews at job centres in London to obtain National Insurance numbers and had return flights tickets for the same day.
The DWP later identified up to 400 applications for National Insurance numbers had been received from the same address in Bow, east London.
The address was one of a number visited during last Tuesday's police operation.
Families for Survival UK is alleged to be one of at least five organisations which provided fraudsters with fake employment details.
Two directors of other companies, including a recruitment firm, were also arrested. A number of the companies are alleged not to be trading.
Under Government rules, EU nationals are only allowed to claim housing benefit in Britain if they can prove they work here.
Redbridge Council, which has worked alongside the DWP and the Metropolitan Police’s financial investigation unit, is the first council whose probe into the fraud has led to arrests.
The authority’s housing benefits investigation team was first alerted to the alleged fraud last summer after a large number of benefit applications were received from Italian nationals of Bangladesh origin, all claiming they earned around £156 a week.
According to the charity's annual report, it was last year chosen by Sainsbury’s as a support charity and declared income of £316,000 in grants and donations.
Nobody from Families for Survival UK was available for comment.
Two of those arrested, Khanam and 35-year-old KM Habibur Rahman, a former director of a company called Crystal Job Limited, were charged with conspiracy to defraud.
They appeared at Redbridge Magistrates’ Court last Wednesday. Both were released on conditional bail.
Eight other suspects arrested are alleged to have made fake housing benefit claims and have been charged with offences under Section 2 of the Fraud Act.
They are due to appear in court this week. Other migrants alleged to be involved in the scam are expected to be questioned over the coming weeks.
Councillor Kam Rai, Redbridge Council’s cabinet member for finance and resources, said: ‘This fraud was detected late last year.
‘Since then our own benefit fraud team has been painstakingly investigating to collect the evidence and this success is a direct result of their very hard work.
‘When people commit fraud against the council, they steal from you, your friends, family and the community. Fraud takes money away from vital services and impacts on us all.’
A council spokesman said it expects thousands of pounds in housing benefit will be saved each week thanks to the investigation.
A DWP spokesman told MailOnline this morning: ‘Our fraud investigators have powers to track benefit cheats around the world and bring them before the courts.
‘We are determined to crack down on people who abuse the system, so that benefits only go to those who really need this help.
‘In addition to any sentence imposed by the courts, fraudsters must pay back all the money they falsely obtained and face a criminal record for life.’
DailyMail
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