THE Liberal Democrats are facing a potentially ruinous bill of up to £4.8m after taking donations from a crooked Scots businessman, Scotland on Sunday can reveal.
Party funding watchdogs last night confirmed that the impact of Charles Kennedy's decision to accept £2.4m from Michael Brown could be doubled if the Lib Dems have to pay back the entrepreneur's former business associates, as well as a matching "fine
" imposed as a punishment for accepting the cash.
The Electoral Commission is set to order the party to return the 2005 donation amid suspicions that Brown's company was not doing business in the UK at the time of the payment, making it impermissible under funding rules.
But, rather than going back to Brown, the £2.4m would have to be paid as a "fine" into the Consolidated Fund, the government's Bank of England account.
To make matters worse, a group of millionaires who invested in the company, 5th Avenue Partners Ltd, insist the money is theirs and have demanded repayment- meaning the Lib Dems will have to find another £2.4m on top of the fine imposed for taking the cash.
A senior source at the commission last night confirmed they were considering using their full powers against the party, which is already more than £1m in the red.
The double demand could force Lib Dem chiefs to go cap- in-hand to the party membership for extra contributions of at least £50-£60 per person.
The Electoral Commission source said: "There is a double jeopardy element in this situation. If the commission rules that the donation must be returned, it clearly cannot go back to the donor himself, so it must be paid into the consolidated fund.
"The demands of creditors or investors would be completely separate to that and up to the party to settle independently."
The Brown donation, the biggest-ever received by the Liberal Democrats, has been subject to intense scrutiny since former leader Kennedy gratefully accepted it as a huge contribution to the £4.9m cost of running the party's 2005 election campaign.
Although little was known about the Majorca-based tycoon, it later emerged that he was born in a run-down part of Glasgow's West End and ended up in Majorca after making a £10m fortune from property deals and City trading.
But holes in Brown's story began appearing under closer inspection soon after details of his financial support were revealed. The High Court ruled that his company was fraudulent and had never traded, he was extradited from Spain and jailed for two years last September after admitting perjury and a passport offence. Lawyers for Martin Edwards, former Manchester United chairman, two Chinese tycoons and an American lawyer have since written to the party saying they believe that the money is theirs.
Last week, Brown was charged with 18 further offences including money laundering and theft. Brown will also face allegations of perverting the course of justice and fraud. The donation was part of an investigation by City of London Police into allegations of a £45m high-yield fraud. He is the subject of an international money-laundering investigation by police as well as facing civil action by the HSBC bank.
The donations have exposed the Lib Dems to ridicule and recriminations from opponents who believe Brown's intervention gave them an unfair advantage during the 2005 election.
Edinburgh MP Nigel Griffiths believes Brown's cash was pumped into marginal constituencies like his own to bolster the Lib Dem attack.
"The money should be returned immediately," he said. "The man who gave it to them is in jail and Ming Campbell and the Liberal Democrats used that £2.4m in seats like mine, tens of thousands of pounds to try and buy the seats."
A Lib Dem spokeswoman last night confirmed they had been made aware of the "double jeopardy" threat hanging over the party's head.
She added: "Our legal advice is robust and on the basis of this our auditors advised that we need not make provision for any repayments.
"The party acted in good faith at all times in relation to these donations, which were properly spent on the Westminster general election campaign two years ago."
