THE Liberal Democrats relied on a verbal assurance of propriety from a mystery millionaire with a police record before accepting the largest donation in the party’s history.

Lord Razzall, the party’s campaigns chief, took the word of Michael Brown that his company was doing business in this country as the basis for taking a £2.4 million corporate gift.

The Lib Dems did check that his company, 5th Avenue Partners Ltd, had not filed a dormant company resolution, a technical term for a mothballed firm, before deciding that the donation was legal. Mr Brown, who lives in Majorca and was not registered to vote in Britain, was revealed by The Times yesterday to have misrepresented his past and breached the terms of his probation in the United States seven years ago after bouncing 11 cheques worth $7,000 (£3,922).

A letter to the Lib Dems from the Electoral Commission, the political funding watchdog, discloses the private discussions between them after concerns about the donation were first raised in August. A copy has been leaked to The Times. It says: “Lord Razzall . . . has been assured verbally by the company that they did business in the United Kingdom . . . Lord Razzall subsequently confirmed this verbally with the company.”

It was not clear when this second check was made. When the donations were made, in four tranches in February and March this year, the Lib Dems checked that no resolution had been filed declaring the company dormant.

The letter adds: “I understand that the party took the view on the basis of this information that the company was a permissible donor . . . and you did not need to make any further inquiries about the permissibility of the donations at that stage.”

The letter was sent by the Electoral Commission’s chief executive, Peter Wardle, on October 6 to David Griffiths, the Lib Dems’ registered treasurer who is chairman of its federal finance and administration committee.

Lib Dem sources said that the party did make extensive further inquiries, including taking informal soundings in the City, to satisfy itself about Mr Brown before taking his company’s money but had not notified the Electoral Commission of these. It was only after the commission asked for more information that the Lib Dems made further checks and were told by solicitors for the company that it had a lease of Central London offices, two staff, had appointed auditors and intended to file accounts.

The Political Parties, Elections and Referendums Act 2000 requires a party to take all reasonable steps to verify whether a donor is permissible, which in a company’s case includes a condition that it must “carry on business” in Britain.

The disclosures will heighten unease among Lib Dem MPs and activists about the party’s handling of the donation. Party sources told The Times that it was never discussed by the party’s finance and administration or federal executive committees.

Charles Kennedy said yesterday that his party had acted within the law but added: “I am asking, obviously, the people involved for an explanation and an account. I want to be absolutely convinced myself that everything internal has been proper and up front as well.”

This appeared to go beyond the party’s official position that the Electoral Commission had effectively approved the donation but a Lib Dem spokesman said later that Mr Kennedy merely wished to be kept informed of any developments.

The disclosures coincided with a ball at which potential donors and other prominent supporters paid £200 a head to sit at tables with Lib Dem MPs at the ballroom of the Dorchester Hotel in London.

Before the 1997 election Paddy Ashdown, then Lib Dem leader, personally vetoed an offer of a £1 million donation from Mohamed Al Fayed, the owner of Harrods.

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