Labour official blamed for secret donations will fight to clear name

Peter Watt, who resigned as Labour's general secretary over the party's secret donations, is to come out fighting in an attempt to clear his name.

Mr Watt has told friends that he is not prepared to be the scapegoat for the 600,000 in donations from the property developer David Abrahams through four intermediaries.

His determination to fight back will worry Gordon Brown, who hoped that his resignation last week would help to draw a line under the controversy. Allies of Mr Watt are furious that the Prime Minister admitted the law had been broken the day after he quit, which they believe made a police investigation inevitable. Scotland Yard announced an inquiry two days after Mr Brown's remarks.

A friend of Mr Watt said yesterday: "He was trussed up like a chicken. A lot of people in the party feel he was thrown to the wolves."

Allies of Mr Watt said he acknowledges he made a mistake but is adamant that he did not know he had acted unlawfully. He has engaged a lawyer and is determined to fight any charges brought against him under the Political Parties, Elections and Referendums Act introduced by Labour in 2000. This says that donations cannot be made anonymously through third parties and carries a maximum penalty of a year in prison.

Mr Watt is expected to argue that he inherited the arrangement under which Mr Abrahams used proxies to hand over his money to Labour so that his name would not be disclosed when the list of people giving 5,000 or more was published by the Electoral Commission. "Peter thought it was OK," said the friend. "It was a mistake not to question it but you can see how it happened."

Another ally said: "He has been cut adrift by the party in the most appalling way. He's a good guy who made one mistake. Gordon Brown did not have to say it was illegal."

The first donation from Mr Abrahams was made in 2003. Mr Watt, 37, did not become general secretary until 2005. But he did act as the party's finance and compliance officer from 2003.

There is sympathy for Mr Watt among senior Labour figures. One member of the party's national executive committee said: "He is carrying the can for someone else and something that started before he took over."

The two previous holders of the general secretary's post, Matt Carter and Lord Triesman of Tottenham, have both denied knowing about the Abrahams donations.

It was reported yesterday that two middle-ranking officials at Labour HQ knew about a scheme under which covenants were drawn up in 2003 allowing Mr Abrahams to make his proxy donations.

Other Labour figures says Mr Watt "jumped before he was pushed" because he should have known the rules inside out as a former compliance officer. The Labour "treasurers' handbook", which explains the 2000 Act, says: "If a person gives another person money, which the second person donates, the donation is from the first person; the second person is disregarded as an agent."

Labour sources are braced for disclosures that more party officials knew about the secret donations. One said: "The assumption is that only Peter Watt knew but we haven't said that."

Abrahams' warning to Labour

David Abrahams, the property developer who made secret donations to Labour, has threatened to retaliate if the Government seeks to undermine his reputation. In an interview with The Jewish Chronicle, he warned that he would make potentially embarrassing disclosures if Labour figures tried to discredit him. "If the Government starts hammering me, then it might take one or two dirty turns there as well," he said. Mr Abrahams said he gave money secretly to avoid accusations of being part of a "Jewish conspiracy". Mr Abrahams accused Mr Brown's chief fundraiser, Jon Mendelsohn, of trying to "alienate" him from the Labour Friends of Israel group, from which he was thrown out. He said some media reports about him had been "character assassination, conjecture and speculation". "The Daily Telegraph was saying that the money was not mine and that it came from Israel," he said. "That was patently untrue. The money was earned legitimately through hard work and it was totally wrong to say that it came from Israel."