Image caption Ibrahim Taguri said he was "confident" he would be "exonerated"

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.

'Nothing illegal'

He said: "I have reviewed this evidence as the chairman of the general election campaign. It is partial evidence, we haven't seen all the tapes, we haven't seen the context. But it is quite clear there are serious questions for Mr Taguri to answer.

"It would be quite improper for us... if we investigated this ourselves. It must be done by an independent third party."

But Mr Ashdown insisted that the Lib Dems as a party had not done anything wrong.

"The Liberal Democrat party has done absolutely nothing either illegal or improper. We have not received any cheques. We have not accepted any cheques. We have not banked any cheques and before any of those things would have happened the most rigorous checks would have been carried out as required by law and as we've consistently done on every other occasion," he added.

I have gone above and beyond the legal requirements in the interests of transparency Ibrahim Taguri, Former Lib Dem head of fundraising

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.

Proxy donations - giving money to a party via a third party - are also against the rules.

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.

Lib Dem leader Nick Clegg said on LBC Radio that the inference made by The Telegraph that Danny Alexander had done anything wrong was "categorically untrue". A clip played on the radio allegedly of Mr Alexander speaking to the fake donor simply showed him being a "polite guy", Mr Clegg said.

'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 he will would exonerated of all the claims against him.

"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'

The Lib Dems expect to put up a candidate to stand against Mr Taguri, according to the BBC's assistant political editor Norman Smith.

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."

An Electoral Commission spokesperson said: "We are aware of what's been reported this morning and are establishing the facts before determining what further steps to take".