The Electoral Commission last night confirmed it was conducting an inquiry into whether donations from 5th Avenue Partners had complied with laws banning political parties from taking foreign money.

If they find against the Lib Dems the party will be forced to return the money, triggering a financial crisis.

Michael Brown, the owner of the company, told The Times yesterday that he felt “totally let down” by the party.

He said it had failed to make more than cursory checks before taking his company’s money. “If the people who handled my donation were elected to run the economy, I would not be happy — it would be disastrous.”

In correspondence with party chiefs, copies of which he has given to this newspaper, Mr Brown complains that his company has been subjected to media scrutiny and the donation to the possibility of legal challenge.

“As a donor, I rely on the party to verify that the donation is proper. In the case of the donation made by my company, very little due diligence was undertaken,” he said.

The money dwarfs any previous donation to the Lib Dems and helped the party to quadruple its spending on the general election to about £6 million.

The law requires any company donating to a British political party to be registered in the EU and to trade within the UK. 5th Avenue Partners UK Ltd, which is wholly owned by Mr Brown’s Swiss company, was only established in Britain in June last year. It leased offices in London on March 11 this year, more than a month after making its first donation to the Lib Dems.

Lord Razzall, the party’s campaign chief, has claimed that the company was based in London and paid tax in the UK.

But Mr Brown’s spokesman said this week: “Comments by Lord Razzall are solely attributable to Lord Razzall. 5th Avenue Partners has employees and pays PAYE and NI in the UK. It is also VAT-registered.” The number of employees is said to be two or three.

Mr Brown, who is not a member of the party, said he believed his company was trading in the UK before it had established a “physical presence”.

It was set up to look after his investments and would be paying tax here, but he admitted that all money given to the Lib Dems had been transferred from his Swiss company.

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