A former head of fundraising for the Liberal Democrats has said he will step down as a party candidate after a newspaper claimed he had accepted a "potentially illegal donation".
The Daily Telegraph said an undercover reporter posed as an Indian businessman to approach Ibrahim Taguri.
It said Mr Taguri advised the fake businessman on how he could give more than £7,500 to the party but get around rules about publicly declaring it.
Mr Taguri denies any wrongdoing.
The Lib Dems said they had not accepted an illegal donation but the chairman of the party's election campaign, Lord Ashdown, said there were "serious questions to answer" and told the BBC they had referred the matter to the Electoral Commission.
End Quote Ibrahim TaguriI have gone above and beyond the legal requirements in the interests of transparency"
Electoral Commission rules mean any single donation to a political party of more than £7,500 must be declared, and multiple donations from an individual that exceed that amount within a year must also be reported.
The Telegraph claims Mr Taguri, who was appointed as the Lib Dem "race equality champion" earlier this year, tried to get around these rules.
It alleges that he told the undercover reporter he could make donations in the name of his cousins or backdate cheques so it appeared money had been given in different years.
The paper also says Mr Taguri arranged a private meeting between the would-be donor and Danny Alexander, Chief Secretary to the Treasury.
'Happy to co-operate'Mr Taguri had been selected to stand for the Lib Dems to replace departing MP Sarah Teather in the London constituency of Brent Central.
But in a statement, he said he would step down as a parliamentary candidate and from his Lib Dem race equality role while the claims against him were investigated.
"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," he said.
"I look forward to clearing my name and returning to the Liberal Democrats."
He said he was "happy to co-operate with any investigation" and "confident that I will be exonerated of all the claims made against me".
"I am capable of demonstrating that I have gone above and beyond the legal requirements in the interests of transparency," he added.
'Checks and procedures'According to the BBC's assistant political editor Norman Smith, the Lib Dems expect to put up a candidate to stand against Mr Taguri.
And the Lib Dems have said the party had "not accepted any improper or illegal donations".
The cheque from the undercover reporter had arrived at the campaign office in Brent but had not been handed to the party or banked, the party said.
A spokeswoman said the donation "would have been subject to a series of checks and procedures to ensure it met all legal requirements" if it had been received.
"We firmly reject any suggestion that Danny Alexander or any other Liberal Democrat parliamentarian has acted in any way improperly," she said.
"Ibrahim Taguri has rightly stood down as the Liberal Democrat candidate for Brent Central and from any formal role within the party.
"We have now referred this matter to the Electoral Commission to determine whether any wrongdoing has been committed."
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