The LSE is under scrutiny by Lord Woolf for accepting money from the Libyan regime

This article is more than 9 years old

This article is more than 9 years old

The director of the LSE, Sir Howard Davies (right), quit last month after admitting that the institution's reputation had been damaged by the acceptance of a £1.5m donation from a foundation controlled by Muammar Gaddafi's son, Saif al-Islam.

Davies also admitted a "personal error of judgment" in travelling to Libya to advise the Gaddafi regime on how to modernise its financial institutions.

An independent inquiry headed by Lord Woolf, a former lord chief justice, will examine the LSE's relationship with Libya and with Muammar Gaddafi's son Saif. It will also establish guidelines for international donations to the university.

The LSE's reputation was tarnished by its links with the Libyan regime. This includes the £1.5m donation – of which £300,000 has been received – to set up a north Africa research programme. The research programme has now been suspended.

Woolf's inquiry will look at a range of connections with the Gaddafi regime, including a £2.2m contract to train Libyan civil servants and professionals, of which £1.5m has been received; a payment of £20,000 for tuition for the head of the Libyan investment authority; and a payment to the university of $50,000 after Davies gave advice to Libya's sovereign wealth fund in 2007.

Woolf will also look at an award from Gaddafi's charity of £22,857 to cover costs for academic speakers to travel to Libya.

The LSE has agreed to put £300,000, equivalent to the cash it has received from the Gaddafi foundation, to set up the research programme into a scholarship for north African students.

Davies's successor has not yet been appointed. Professor Judith Rees, who was deputy director of the LSE from 1998 to 2004, has been appointed interim director and will take up the post in May.