A company controlled by Michael Brown gave almost £2.4 million in the first quarter of this year, the biggest donations in the party’s history.

The gifts were made through a British-based company, 5th Avenue Partners, whose registered address is in London and of which Mr Brown is director.

The news sparked a row last night as Charles Kennedy’s party was accused of exploiting a loophole in the law banning overseas donations to parties. The New Politics Network, an independent think-tank, said that Mr Brown’s company had been bought only a year ago, had yet to file accounts and used a law firm as its registered address.

Peter Facey, the network’s director, said: “Fundamentally, anyone can purchase a limited company off the shelf and start donating to political parties. This is a major loophole in the existing legislation to prevent anonymity of donors.”

Lib Dems insisted that the donations complied fully with the law and said that Mr Brown was a long-standing supporter who made an unsolicited approach to the party, saying he wanted to see a “more level playing field” in election spending.

Mr Brown, 38, is a Scot who is said to have made a fortune in computer-related trading in derivatives. He has been described as a high-rolling philanthropist who has given a colossal amount to Scottish and UK-based charities and whose ponytail and camel overcoat make him look like a member of The Sopranos.

His donations accounted for more than half of the £4.2 million given to the Lib Dems in the first three months of this year as final preparations for the election campaign were put in place.

They helped Mr Kennedy’s party to make widespread use of poster billboards and advertisements in national and local newspapers for the first time, reinforcing local Lib Dem pavement politics by campaigning with “air war” messages.

Overall the Lib Dems spent £5 million to £6 million on their election plans, before and during the registered spending period, compared with about £3 million in the 2001 election.

Much of the money was, however, received too late to invest in infrastructure to match the new direct mail and telephone call centre campaign techniques used extensively by Labour and, with particular effect in some seats, by the Conservatives.

Many Lib Dems are keen for the party to develop such techniques to match the sophisticated targeting used by the Tories, who won five seats from the Lib Dems but lost three in return.

Lib Dem sources said that Mr Brown approached the party at about the turn of the year, saying that he was a longstanding Liberal Democrat and Liberal supporter willing to make a substantial donation.

“His motivation, as expressed to us, was he had made a lot of money in the City and wanted to do something to level the playing field in British politics,” one source said. “He is a supporter who enjoys the cut and thrust of politics and wanted to help.”

Mr Brown had two or three meetings with Mr Kennedy, including one at a dinner for potential donors at the party’s spring conference at Harrogate in March when he arranged for the Lib Dem leader to have a private aircraft for a campaigning visit to Rochdale, on which he accompanied him.

Mr Brown held further meetings with Lord Razzall, a former party treasurer who chaired the Lib Dems’ election campaign, to discuss details of the donation.

His company made donations of £100,000 and £151,000 in February and, three weeks after the spring conference, a donation of £1.5 million. A final payment of £630,000 was made a week later.

During the same three months Labour received £9.1 million in donations, including another gift of £2 million from Lord Sainsbury of Turville, the Science Minister.

The Tories received £8 million, acording to declarations published by the Electoral Commission. That included donations totalling £285,000 from Lord Ashcroft, the former party treasurer, directly to 33 marginal constituencies. Candidates had to undergo an interview with a former Tory official, Stephen Gilbert, before receiving help with their campaign.

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