THE Liberal Democrat leadership is facing growing criticism from within its own ranks over a decision to accept £2.4 million from a company owned by a Swiss-based financial business.

As The Times disclosed yesterday, the donations are being investigated by the Electoral Commission, which is concerned that it may have breached laws banning political parties from taking foreign money. Michael Brown, the owner of 5th Avenue Partners, has told this newspaper that he transferred the money to his London-based company from another company of the same name in Switzerland. The Electoral Commission must decide if this breached its rules. He said that he felt let down by the party, which had shown “very little due diligence” in checking whether the donation was legal.

Lord Greaves, a senior Lib Dem peer, said yesterday: “We were on difficult ground accepting such a large donation. We are campaigning for a cap on donations and [then at the same time] accepting a donation which is considerably larger than the cap we are proposing. I think this was politically unwise.” He told Radio 4’s World at One programme that at the time most people in the party had not been aware of the details of the donation, which funded about half the Lib Dem election budget. “It was kept fairly tight amongst a few people at the centre of the party,” he said.

Charles Kennedy is on record during the election as saying that he was “kept insulated from the process” of fundraising, adding: “I genuinely do not get directly involved in that.” But Mr Brown, through his spokesman, said yesterday that the Lib Dem leader had discussed his first donation with him when they shared a flight, paid for by the company, this year. “He was impressed with Kennedy and decided to give him more money after that, but they did not talk about these later donations at any point.” But within the party, questions about how much Mr Kennedy knew about the donation were deemed to be missing the point. Critics are instead pointing the finger at a small circle of senior party figures, such as Lord Razzall and Lord Rennard, who surround the leader.

Gareth Epps, a member of the party’s federal policy committee, said: “Charles Kennedy cannot be expected to micromanage every detail of such issues, he must trust the word of those people around him who are appointed to give advice.”

Lord Razzall, the party’s campaign chief, has told The Times the party had been assured that 5th Avenue Partners was trading in Britain and therefore permitted to make a donation. He has dismissed Mr Brown’s criticism of procedures as a case of him “sounding off”. Lord Razzall and Lord Rennard, the party’s chief executive, have stated that they remain confident that the Commission’s inquiry will approve the donation.

The Labour and Conservative parties yesterday declined to make any comment on the controversy, partly because they have also been embarrassed by damaging disclosure about their donors.

Lord McNally, the Lib Dem leader in the House of Lords, said that his party would have to accept the consequences of any ruling by the Commission.

He called for an overhaul of the way parties are funded. “What has been central to our arguments over recent years is the need to get transparency and accountability and indeed some limits into the funding of political parties.”

The Liberal Democrats have long since been a lone voice among the main parties in calling for a strict limit on political donations, as well as increased state subsidies. But there are growing signs that Labour and the Tories may be willing to think again. Lord Levy, Labour’s chief fundraiser, said this month that it was now time for “the important issue of state funding to be explored”.

Jonathan Marland, the Conservative treasurer, has told The Times how he had discussed the subject of state funding with Mr Blair when they met at the Highland Games this summer. “The Prime Minister told me that he was all for it,” said Mr Marland. As for his own position, the Tory treasurer said he was forced “to toe the party line”, which was “currently against state funding”. He then added: “But as a fundraiser, I’m always keen to find ways of easing the burden and doing less work.”

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