THE Liberal Democrats have been criticised by the elections watchdog for failing to enforce a rigorous checking process on its biggest ever donation of £2.4 million earlier this year.

However, the party will be allowed to keep the donation after promising to tighten up its procedures.

The Electoral Commission investigated the £2.4million given by Michael Brown, a Mallorcan-based buisnessman, after The Times revealed that there were doubts over whether the company through which the donations were made was trading in Britain.

It was revealed that the money had come from a Swiss bank account, that Mr Brown was not registered to vote in Britain and that when the first donation was made his company did not have an office in the UK.

The Electoral Commission launched its investigation after concerns that the donation, made in February and March through a British-based company called 5th Avenue Partners, had failed to comply with laws banning political parties from taking foreign money.

The Times revealed that the cash had been transferred from a parent company in Switzerland to the London-based 5th Avenue Partners and then given to the party.

Receipt of the donation was regarded as a coup by the party’s chief executive Lord Rennard, and allowed the Liberal Democrats to increase their election spending to £6million.

Mr Brown, a Pony-tailed Scottish entrepreneur with a colourful past, said that he felt “totally let down” by the party after it undertook “very little due diligence” to check that the gift was acceptable.

The businessman, who has confessed to being arrested for bouncing cheques and made his fortune in real-estate deals in Florida in the late Nineties, said that Charles Kennedy was not ready to lead the country.

The statement from The Electoral Commission said that, based on the evidence presented to it by party officials, the donation appeared to comply with party funding rules.

“The Electoral Commission met with the Liberal Democrats to clarify whether or not 5th Avenue Partners was, at the time of the donation, a permissible donor on the basis that it was a company that carried on business within the UK,” the Commission said in a statement.

“We have concerns about the extent of the initial permissibility checks carried out by the Liberal Democrats and we will be having further discussions with the party to ensure that they have a checking process for all corporate donations.

“However, the commission’s view is that...it is reasonable for the party to regard the donation as having been permissible”.

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