The tycoon and the conversation that did for Liam Fox

Kim Sengupta reveals the fateful intervention by a wealthy donor who lifted the lid on the Defence Secretary and Adam Werritty

Liam Fox resigned on the day John Moulton told Sir Gus O'Donnell that the Defence Secretary had asked him to donate money to a company that was used to fund Adam Werritty's first-class travel and stays in luxury hotels.

The information provided by Mr Moulton, a venture capitalist, fatally undermined Mr Fox's stance that he had not used his official position for the benefit of his close friend. And it was expected to lead to criticism of the former minister's conduct in the Cabinet Secretary's report, due to be delivered to David Cameron today.

Yesterday Mr Moulton, 62, told The Independent that as well as handing over documents to Sir Gus's team there had been a "conversation" in which he gave his account of how Mr Fox had requested money for the not-for-profit company Pargav, which, he claimed, was dedicated to "security policy analysis and research".

It later transpired that the donations had been used instead to fund Mr Werritty's travels, often in the company of the Defence Secretary. It is believed that Mr Fox was informed of Mr Moulton's account of what had led him to make the donation of £35,000 to Pargav before he submitted his resignation to the Prime Minister.

Mr Moulton yesterday refused to go into further detail of his talk with Sir Gus, but stressed that his concerns had been taken extremely seriously. He added that police had said they may launch a fraud investigation into the activities of Mr Werritty, in which he would "of course help in any way" that he could.

City of London Police said it was considering a request by John Mann, the Labour MP for Bassetlaw, for an investigation into the activities of Mr Werritty, who gave contacts business cards emblazoned with the House of Commons Portcullis symbol and told them that he was an adviser to Mr Fox.

The MP said: "If that is not the case and he was getting money – for whatever purpose – by misrepresenting his relationship with the Defence Secretary, that cannot be right."

Another strand of any inquiry would be whether the self-styled adviser was using money donated to Pargav to pay for his travels and lavish lifestyle and entertainment, which included a trip to Larry Flint's Hustler Club, a topless bar in New York.

Mr Moulton had sought and obtained written assurances that the donations he gave to Pargav would be used for analysis and research as Mr Fox had told him. The document has been passed to the O'Donnell inquiry and will be made available to the police if necessary.

In February 2010 Mr Moulton's private equity firm, Better Capital, paid £60m for Gardner UK, which makes components for aircraft, including RAF fighter jets and troop transporters. But he stressed that he had not benefited in any way from Pargav and had no involvement with the company apart from providing money. He has not been sent Pargav's accounts to prove how the donations were spent.

In addition to funding Pargav, Mr Moulton twice gave £50,000 to Mr Fox's office when he was shadow Defence Secretary and contributed £125,000 to the Conservative Party. All of the donations have been declared and they do not form any part of the complaint he has made to the Cabinet Secretary.

Six questions O'Donnell must answer

1) Was Adam Werritty a lone wolf or is there any evidence that other ministers have informal advisers operating in the shadows?

2) Did Mr Werritty have any meetings or contact with any other ministers since last year's general election?

3) Are any advisers to other ministers funded by organisations or businessmen who might benefit from special access to them, or who might want to influence government policy?

4) Should the ministerial code be tightened so the rules on avoiding a conflict of interest between a minister's public duties and private interests cover the activities of friends, as well as a spouse or partner and close family?

5) Should there be new provisions to make it easier for civil servants to blow the whistle when they are concerned that a minister might be breaching the ministerial code?

6) Should Sir Philip Mawer, the independent adviser on ministers' interests, conduct a wider inquiry into the lessons to be learned from the Liam Fox affair?

Andrew Grice