Senior Liberal Democrat Ibrahim Taguri – who denies any wrongdoing – has quit the party pending an investigation into claims that he bypassed funding rules and accepted a 'potentially illegal donation'.
Mr Taguri, former chief party fundraiser, reportedly told an undercover reporter from the Daily Telegraph posing as a wealthy Indian businessman how to channel donations via family members and how to avoid appearing on public registers by backdating cheques.
The prominent Liberal Democrat, who was due to stand for MP in Brent Central at the general election in May, will now face a watchdog investigation.
He has also stepped down as the Lib Dem race equality champion.
Mr Taguri, who has denied any wrongdoing and is confident that he will be "exonerated of all claims", said he intends to fight the election as an independent – and hopes to return to the party after clearing his name.
He is alleged to have promised that big donations could "open doors" – and introduced the fake donor to key party figures, including Treasury chief secretary Danny Alexander and former leader and election campaign chief Lord Ashdown. The purported businessman was also said to have been taken to Nick Clegg’s office and attended a dinner for major party benefactors.
A party spokesman denied accepting any improper or illegal donations and said it had referred the matter to the Electoral Commission.
In a statement, Mr Taguri said: "Not only do I deny the allegations made against me, I am capable of demonstrating that I have gone above and beyond the legal requirements in the interests of transparency.
"I will continue my campaign to become the next MP for Brent Central as an independent candidate with the intention of achieving the one thing I entered politics to do, to end child poverty in the UK by 2020."
Speaking on BBC Radio 4's Today programme, Lord Ashdown said the party had “done absolutely nothing either illegal or improper”, and said it was “normal” for party donors to be offered meetings with senior party party figures.
But he conceded there were “serious questions” for Mr Taguri to answer.
The fake donor is alleged to have been told by Mr Taguri that he could channel a donation via a "cousin" because he wanted to be "discreet" about his support – and went on to hand over a cheque for more than £7,500.
Beyond that threshold, donations must be publicly registered with the Electoral Commission.
Guidance issued by the Commission in 2007 stipulates that giving money via a third party "must not be used as an attempt to evade the controls on permissibility and transparency".
Mr Taguri told the Daily Telegraph that he had not cashed the cheque and would have declared it according to the rules. He also said that he believed the "cousin" had been giving his own money – and insisted he had been "as transparent as I possibly can".
Mr Taguri was also reported to have boasted that the party could be “very, very helpful once they know you are helpful” and suggested useful contacts.
But he said he was only offering information to the reporter that was already available publicly –and would have withdrawn himself from any possible conflict of interest if elected in May.
A Lib Dem spokesperson said that the party has not accepted any improper or illegal donations, and said that it "firmly rejects any suggestion that Danny Alexander or any other Liberal Democrat parliamentarian has acted in any way improperly".
"Ibrahim Taguri has rightly stood down as the Liberal Democrat candidate for Brent Central and from any formal role within the party," the spokesperson added.
"We have now referred this matter to the Electoral Commission to determine whether any wrongdoing has been committed."
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