Mr Ashcroft, a tax exile with a business and banking empire based in the Central American, Commonwealth state of Belize, will return to Britain and pay taxes here as part of a move to end the attacks on his role as Tory party treasurer.
The deal is certain to raise speculation that Mr Ashcroft sought to avoid a damaging court battle - even though he was expected to win it - to help secure the support of one of Rupert Murdoch's titles for the Tories before the next general election. There were hints that the Tories were keen to settle the deal in order to restore relations with the Murdoch press.
The deal isn thought to have been negoatiated personally by Mr Murdoch and News International chairman Les Hinton with Sunday Business editor Jeff Randall acting as an honest broker for the two sides.
William Hague, the Conservative leader, clearly hopes to end the criticism that the Tory party, by accepting Mr Ashcroft's cheques from foreign banks, is funded from overseas.
A friend of Mr Ashcroft said: "If this had gone to court, there is no doubt he would have won and he might have been granted pounds 2m or pounds 3m. Michael is sufficiently wealthy for that not to be a factor. Having a libel case dragged out through the year 2000 would not have been good for the Conservative Party and terribly distracting for Michael."
Each party is paying its own costs. Although there was no formal apology, Mr Ashcroft accepted the settlement because it removed the alleged question mark over his fitness to operate as the Tory party treasurer and a very substantial donor to the Conservatives.
Friends of Mr Ashcroft said there had been "give" on both sides. Mr Ashcroft accepted that there was public interest in the funding of British politics and said he intended to reorganise his affairs and return to Britain. But he made it clear that he would continue as treasurer of the Conservative Party.
Though the settlement was intended to draw a line under the affair, it leaves The Times free to investigate Tory party funding. In a statement last night, The Times said: "The Times is pleased to confirm that it has no evidence that Mr Ashcroft or any of his companies have ever been suspected of money laundering or drug-related crimes.... With this statement, The Times intends to draw a line under `The Ashcroft Affair'."Reuse content