Anti-terrorism laws were used to freeze the human rights campaigner’s assets before he was cleared of seven terrorism charges in October 2014.
But now his legal team say HM Treasury should pay for the financial losses and inconvenience he endured.
Begg from Birmingham, insists he has “never been involved in terrorist-related activity” and that the “unnecessary” freezing order violated his human rights.
He was held at the notorious US base in Cuba between 2002 and 2005 and was never charged with any offence.
But he was arrested by West Midlands Police in February 2014 and charged with Syria-related terrorism offences.
He was accused of attending a terrorist training camp in Syria in 2013 and of arranging delivery of a generator to the war-torn country.
His assets were frozen – with “drastic consequences” for Mr Begg – and he was remanded in custody for seven months to await trial.
But in October 2014, the CPS made the announcement that the charges had been dropped.
He was acquitted and freed as a senior West Midlands Police officer told the press on the steps of the Old Bailey that he was “innocent”.
The very next day, his lawyers demanded that the freezing order be overturned on the basis that it should never have been made.
However, the Treasury – whilst accepting that the order should be “revoked” – refused to “quash” it, a crucial distinction when it comes to compensation.
Government lawyers said they had their reasons for the decision – but refused to disclose what they were, a senior judge said today.
Mr Begg, who is not entitled to legal aid, is now challenging the decision in a case which it is estimated will cost more than £300,000.
His legal team is representing him on a “no win, no fee” basis, but Begg says his access to justice could be stymied by the high legal costs he would face if he loses.
Yesterday, the Master of the Rolls, Lord Dyson, directed the High Court to consider whether he should be granted special protection against having to pay Treasury lawyers’ bills.
If Mr Begg succeeds in proving that the freezing of his assets breached his human rights, he could be in line for substantial compensation.