The Conservative MEP charged by David Cameron with ensuring the probity of expenses claims admitted last night to breaking the rules by channelling thousands of pounds of allowances into a family company.

Giles Chichester paid more than £400,000 for office services to a company of which he was a director.

His admission caused alarm at Westminster by raising the spectre of sleaze for the Conservative Party just at it had reached a commanding lead in opinion polls over Labour.

It was especially embarrassing because Mr Chichester was put in charge of ensuring integrity in Tory MEP expenses after it was disclosed that the MP Derek Conway had paid his son more than £40,000 as a Commons researcher while he was a student at Newcastle University.

Mr Cameron has demanded a detailed account of the financial dealings of Mr Chichester, 61, the top Tory in Brussels and MEP for the South West of England and Gibraltar.

In a television interview last night, Mr Chichester appeared to make light of the situation, calling his transgression “technical”.

The MEP told ITV West Country: “It is embarrassing, not least because I have introduced a new code for my Conservative colleagues for expenses. Here I am leading that process for the last couple of months and – whoops a daisy – I am shown up to have made a mistake. OK, hands up, mea culpa, and I will put it right.” Mr Chichester, son of the yachtsman Sir Francis Chichester, breached European Parliament rules over a five-year period. Last night he refused to resign but issued a statement apolo-gising for “adverse publicity” that he had caused the party.

Chris Davis, the Liberal Democrat MEP, exposed a secret auditor’s report on expenses scams used by MEPs earlier this year.

He said: “It is astonishing the degree to which MEPs have grown out of touch with what would be regarded as normal standards of financial transparency now expected of British elected representatives. You would expect British MEPs to know right from wrong.” Neil O’Brien, director of the Euro-sceptic think-tank Open Europe, said: “These accusations involve very large amounts of money and are not about minor or technical breaches of the rules. Without a satisfactory explanation, it will not be possible for him to continue in his job.”

A senior Conservative source said that Mr Cameron wanted to examine the details rather than rush to judgment. “But he is insisting on his MPs acting in a transparent way and would expect the same of MEPs.”

A senior MP toldThe Times: “We do not know what has happened here, but watch Cameron move to sort this out if this turns out to be anything other than technical.” Since 1996, Mr Chichester has paid £445,000 to a company founded by his late father for services “in connection with secretarial and assistant services for the European Parliament, constituency and committee work”, according to documents obtained by The Sunday Times. Francis Chichester Ltd describes its activities as “the publication of maps and guides and the business of navigation”.

Some of the cash was paid through the company to staff, including his wife, Virginia, for secretarial services. In recent years Mr Chichester stopped paying staff through the company because he said that it attracted too much VAT, although he continued to make payments to the firm from the parliamentary allowances budget.

Since 1996, the company has received annual payments ranging from £23,057 to £52,745. Company directors have received £158,938, with £47,792 paid out since 2002, when Mr Chichester and his wife were sole directors.

Mr Chichester said that he heard from European Parliament authorities 18 months ago “suggesting there might be a conflict of interest”. He replied that he believed that he had complied with the rules and heard nothing back, he said. After meeting parliamentary officials yesterday, he said: “I was informed that there had been a change in the rules relating to service providers, a change that took effect in 2003. This had not been brought to my attention when I renewed the contract in 2004.”

Mr Chichester said: “At all times I have acted in good faith within the original parliamentary rules and what I believed the current rules of the European Parliament still to be. I recognise that it was my responsibility to have learnt about the change in rules. I confirm that there has been no misappropriation of any funds.”

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