THE Labour party has secretly rejected a £500,000 gift because of concerns about the donation from a lobbyist with a colourful client list.

Party bosses initially decided in January to accept the money from Anthony Bailey, whose clients include members of the Saudi royal family; BAE Systems, the defence firm under investigation by the Serious Fraud Office; and businesses owned by Nadhmi Auchi, an Iraqi-born industrialist with legal problems in France.

However, the party — despite facing a £5m shortfall in its general election fund — has now decided to reject the donation after background checks on Bailey caused concern at Labour headquarters.

Although Bailey, 35, represents overseas millionaires, he does not appear to have the personal fortune typical of a donor making a gift of this size. Parties have been banned since 2000 from accepting overseas donations.

It is thought to be only the third time Labour has rejected a donation. Bernie Ecclestone, the Formula One tycoon, was repaid £1m after it emerged he gave the money in 1997 while the government was considering banning tobacco advertising at sporting events. In 2004 it returned a six-figure sum to Carl Cushnie, a businessman convicted of fraud.

A senior Labour party source said of Bailey: “Questions have been raised about this man and his wealth. We just weren’t happy to take his money.”

Yesterday Bailey said he was a “paid-up member” of the Labour party who had hoped to donate money to Blair’s election campaign. “I had been discussing making a substantial donation,” he said. Friends of Bailey claim he is the victim of a dispute with a leading member of the Labour party.

Bailey first came to public attention in the mid-1990s. He was arrested for allegedly working alongside Prince Michael of Kent’s then private secretary in an attempt to blackmail a man who claimed to be a Libyan prince. The charges were thrown out by the courts.

Bailey went on to set up his own PR company, Eligo International, specialising in representing African and Middle Eastern governments. According to his company website, he has also acted for exiled royals from Libya, Ethiopia and Greece.

Bailey is connected to the British royal family, including Prince Charles, and has organised overseas visits and exhibitions on the royals’ behalf.

He has expanded his business to offer corporate lobbying and public relations advice. His website says he represents General Mediterranean Holdings, owned by Auchi. Other clients named include King Mswati III of Swaziland; Shell, the oil firm investigated and fined for misstating its reserves; and BAE Systems, which is being probed over allegations that it bribed Saudi royals and politicians to win valuable defence contracts.

He offers clients help with lobbying governments. The website states: “We know how many key governments and parliaments work and who are the key decision-makers within them that influence policy decisions. We can often facilitate meetings for our client with government or parliamentary officials and advisers.”

He is friends with Sir Sigmund Sternberg, a leading Labour donor, who invited Bailey to a Labour fundraising dinner last week. He is a member of the executive of the Three Faith Forum, of which Sternberg is a founder, which works to promote tolerance between Christians, Muslims and Jews.

Bailey says he has spent the past three years working closely with government ministers on the development of the government’s city academies.

It is unclear how he became wealthy enough to afford such a large gift. His company’s last published accounts reveal Bailey made a gross annual profit of £126,685 in 2003. But he says he has other sources of income.

A Labour party source said: “We were concerned that Bailey might have been a conduit for the money, although we should stress there is no evidence this was the case.”

The loss of the money to Labour comes at a crucial time. It is increasingly reliant on a handful of large donors including Lord Drayson, the pharmaceuticals tycoon, and Christopher Ondaatje, the philanthropist. A spokesman for the Labour party declined to comment on Bailey’s planned donation.

Explore UK News

• Crime News

• Education News

• Health News

• Scotland News

Times Recommends

• Should Knox’s trial even have reached the courtroom?
• All that glitters is not sold in Wright’s world
• Believe it or not, Big Brother is your friend