The following correction was printed in the Observer's For the record column, Sunday January 31 2010
In this article, we said: "Overseas residents can make donations to political parties if they are made through British-registered companies that conduct most of their business in Britain." We should clarify that individual overseas residents can donate to a UK political party as long they are on the UK electoral register at the time. If they ask someone to manage the process for them, the party must still be given the name of the true donor and these details provided to the Electoral Commission, which are then made public. For a company to make donations, it must carry on business in the UK, be registered under the Companies Act 2006 and incorporated in the EU
Labour is investigating legal action to block Tory peer Lord Ashcroft from funding the Conservative election campaign in a dramatic, last-ditch attempt to wreck David Cameron's push for Downing Street.
The party's high command, worried about being outspent by the Conservatives, believes it has a case to cut off the flow of Ashcroft's millions during the campaign because the peer is still subject to an inquiry by the official spending watchdog, the Electoral Commission.
Labour fears that investigations by the commission into Bearwood Corporate Services, an Ashcroft-owned company that has given more than £3m to the Tories, could drag on beyond the election. It argues that it would be wrong, and undemocratic, for the Tories to benefit from funds that could yet be judged inadmissible by the commission.
In a parallel attempt to thwart the Conservatives' key source of money, the Observer can also reveal that Gordon Brown has authorised the party's most senior official, general secretary Ray Collins, to write to the commission urging it to complete its inquiry before the general election.
The move will be seen as an attempt both to unnerve the Tories, by making them more reluctant to use the Ashcroft money, while also pressuring the commission to bring forward a decision that could have disastrous consequences for Cameron's campaign.
If the commission decides that Bearwood was not a trading company when the donations were made, the Tories could be asked to pay an equivalent amount to the Treasury. Labour is also examining what the consequences would be if the Electoral Commission ruled after the election that the donations were inadmissible.
"There would be a case to say the election in those seats had been bought with money that should not have been spent and that it should be rerun," said one Labour source.
In the letter, Collins urges the commission's chief executive, Peter Wardle, to "ensure this [investigation] is concluded well before the next general election".
Collins points out that the commission's "critical" investigation into Bearwood Corporate Services is already one of the longest it has conducted and argues that "the British people will want to see your findings before they cast their votes".
He also tells Wardle: "As you are aware, the next general election will be a crucial one for our country. Lord Ashcroft is not only the major Conservative party donor, funding a large number of their key seats, he is also running the Conservative marginal seats campaign. In this respect Lord Ashcroft is already a key figure in determining the outcome of the next general election."
The commission began making inquiries into Bearwood's donations in October 2008 after concerns were raised that it may not be a genuine UK trading company. Overseas residents can make donations to British political parties if they are made through British-registered companies that conduct most of their business in Britain. Bearwood gave the Tories £1,600,893 in 2008 alone, making it the party's biggest source of funds that year.
Ashcroft, the Tory party's deputy chairman, does not make donations to the Conservative party in an individual capacity, because to do so donors have to be listed on the electoral roll. He refuses to reveal whether he is registered to vote and he regards his tax affairs as private. Ashcroft is convinced that the commission will find nothing wrong with his donations to the Conservative party.
In his answer to Collins, Wardle says he understand the concerns but stresses that "thoroughness and accuracy" are paramount in any such inquiry and that therefore it is not possible to conclude when it will be concluded.
A Conservative party spokesman said: "This is a matter for the Electoral Commission. We are co-operating fully with their inquiries."
Separately, it has emerged that the Electoral Commission is to review the accounts of the British National party. The BNP submitted a revised set of accounts earlier this month, following concerns that the original set it had given to the commission had not been approved. Following an assessment of the revised accounts, the commission decided that it is "reasonable to assume" a breach of the Political Parties, Elections and Referendums Act has occurred.
The development is a significant credibility blow to the party's leader, Nick Griffin, who has attacked MPs for not being transparent in their financial affairs. Senior party members could face a fine or a custodial sentence if the commission proceeds to a formal investigation.
