An MEP from the UK Independence party (UKIP) is under investigation for fraud after embezzling tens of thousands of pounds of taxpayers’ money by pretending to be someone else.

Bank documents show that Tom Wise channelled nearly £40,000 of public funds into his personal account after claiming it was for an assistant’s salary. He is now being investigated by a European antifraud watchdog, which has asked to interview him and others in connection with the case.

This is potentially the most serious crisis to hit UKIP, which has always held itself up as the party opposed to the European Union “gravy train”.

The development comes as the Electoral Commission announced it was launching a full inquiry into UKIP’s finances after its repeated failures to keep within the rules. EU rules state that MEPs can claim up to £125,000 a year for assistants’ wages but the money must be paid either directly to the employees or through a third-party “agent”. To avoid fraud, MEPs are not allowed to handle the money themselves.

Instead Wise, a former policeman, pretended that his own bank account was actually that of Lindsay Jenkins, his researcher.

From November 2004 until October 2005 he funnelled £39,100 of taxpayers’ money into his own account with the Cooperative Bank from which he paid Jenkins just £13,555, according to bank statements obtained by The Sunday Times. They show that the only money coming into the account was from the EU, ostensibly for Jenkins.

In another breach of the EU rules, some of the £13,555 paid to her was actually for work done on behalf of other party members, including the UKIP leader Nigel Farage who had agreed to fund the publication of a Eurosceptic book written by Jenkins.

During the same timespan, more than £19,000 of the money was steadily paid out from Wise’s account to other destinations, some of them apparently credit cards. One disbursement alone, made via a transfer to somebody other than Jenkins, was for £6,500.

Last night Wise, who describes himself as a bon viveur and wine-lover, refused to reveal what the money had been used for. When questioned by The Sunday Times on the ultimate destination of the cash, he went silent before putting down the telephone. He failed to respond to further messages.

Wise, 58, an MEP for Eastern England since 2004, also applied for other assistants’ salaries to be paid through his bank account before the period involving Jenkins.

Despite an internal UKIP inquiry into Wise’s behaviour, launched after the EU became aware of his scam, no action has been taken against him and the results of the investigation have been kept secret.

Three days after the EU was alerted, and to head off a scandal, Wise began repaying £25,530.

If Olaf, the antifraud watchdog, establishes fraud, the evidence will be passed to British and Belgian police for a possible prosecution.

Last week the Electoral Commission said it was taking legal action to recover more than £360,000 in donations to UKIP, which allegedly breach rules governing party funding. The demand, which threatens to make the party bankrupt, comes after this newspaper revealed that the commission is also looking at donations totalling £118,000 which were not put through any of UKIP’s main bank accounts.

An e-mail, sent last April by Andrew Smith, then the party’s treasurer, to various senior members, reveals the degree to which it intended to mislead the commission.

“We need to give the Electoral Commission every reason to believe we are serious about compliance, in order to provide the next party treasurer with a good story to tell when we next fail to meet the statutory requirements,” he wrote.

The commission said: “We are going to launch a full review of UKIP’s internal systems for dealing with their financial affairs and handling their statutory reporting requirements. We are taking it very seriously.”

UKIP systematically flouts the spirit of EU rules, which forbid party workers from being paid with taxpayers’ money.

The party has been paying its regional organisers by designating them “advisers” and “assistants” to its 10 MEPs, thereby allowing them to draw salaries of up to £40,000 a year from the EU, while they do their actual jobs “in their spare time”.

Further details are set to be exposed because Denis Brookes, one of the party’s former officials, issued industrial tribunal proceedings against Mike Nat-trass, the party’s MEP for the West Midlands region.

It is understood that Brookes has stated in his claim for unfair dismissal that he was being paid to do one job while actually employed to do another one entirely, so that the party could secure EU funding for him.

“Some people in the party have a cavalier and even contemptuous attitude to taking what is actually taxpayers’ money and using it for their own ends,” a UKIP source said.

Within months of his election Wise was attempting to channel public funds into his own bank account. In October 2004 he applied to the EU payments office for Jenkins, a freelance researcher as well as a candidate at the time for selection to fight a parliamentary seat for the Conservatives, to be paid £36,000 a year.

He had, however, no intention of paying her such an amount. His actual agreement with her was that she would be given monthly “retainer” payments of £500 in return for her advice and statistical research, with any additional work being paid for on top.

Wise’s method was simple. He supplied the EU payments office with a contract, obtained by The Sunday Times, which included Jenkins’s name and details and stipulated that she apparently wanted her money to be paid into her account, entitled “Stags”.

In fact, this account, the full name of which was “T Wise trading as Stags”, was a business account run by the MEP himself.

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