Nigel Farage’s use of PayPal to raise huge numbers of small donations for his Brexit Party allows foreign donors to “evade the rules”, a watchdog has warned.

The Electoral Commission said its investigation of the party’s fundraising methods is “ongoing”, after visiting its headquarters amid the growing controversy.

After the visit, the Brexit Party claimed the commission had found “no evidence of any electoral offences”.

But, in a statement, the watchdog said seeking small sums via online donations “opens up additional risk in relation to compliance with UK political finance law”.

“This risk is that it increases the potential for individuals or organisations to evade the permissibility rules, which primarily seek to prevent significant sums entering UK politics from overseas,” it explained.

The commission stressed that it was the Brexit Party’s “responsibility” to “ensure it has the systems in place to maintain its compliance with the law”.

“Our review of the systems in operation by the Brexit Party is ongoing,” it added.

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“This will inform our regulatory work following the European parliamentary elections and any recommendations we make to the party.”

Earlier this week, the Brexit Party’s chairman admitted he did not know whether its PayPal account was taking foreign cash, saying: “I don’t know what currencies people are paying in.”

Gordon Brown led the criticism in a major speech, warning: “Democracy is undermined when we have undeclared, unreported, untraceable payments being made to the Brexit Party.

“We have the potential for underhand and under-the-counter payments being made.”

The PayPal method seeks sums of less than £500 because they are not recognised as official donations – which means the giver does not need to be identified.

Only gifts of £500 or more must be given by a “permissible donor”, who should either be somebody listed on the UK electoral roll or a UK-operating business registered at Companies House.

However, parties are expected to use methods that guard against foreign donors making multiple small donations that, in total, exceed the £500 limit.

On Tuesday night, the Brexit Party claimed the commission had “confirmed at the end of the inspection that it has not seen any evidence of electoral offences”.

“We are pleased, but not surprised. We are keen to be as transparent as possible,” a spokesman said.

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In his protest, Mr Brown pointed to the ongoing investigations into Leave.EU, Mr Farage’s campaign group during the 2016 referendum, and his key funder Arron Banks.

Last week, it was revealed that Mr Banks had bankrolled his ally’s “lavish lifestyle” to the tune of £450,000 in the year that followed.