CBI's blacklist now includes Lib-Dem donor figures

The Lib-Dems accepted donations from Choudhrie as recently as November 2013

The Liberal Democrats, a partner in Britain's ruling coalition, finds itself in a controversy after it has emerged that one of its donors is an international arms dealer who figures in a blacklist of "undesirables" drawn up by India's Central Bureau of Investigation (CBI).

Sudhir Choudhrie, who has donated more than 500,000 pounds (over $837,000) to the Lib-Dems via his family company since 2010, was named by CBI as one of 23 "unscrupulous persons" in 2012, the Guardian reported.

The Lib-Dems, however, accepted donations from Choudhrie as recently as November 2013, when his C&C Alpha Group family company donated 30,000 pounds. His family and companies have donated more than £500,000 since 2010.

Choudhrie's activities drew spotlight this week when he along with his son Bhanu were arrested and questioned for hours by Britain's Serious Fraud Office, a probe agency for serious financial frauds, in connection with an investigation into allegations of multimillion pound bribery and corruption at Rolls-Royce, which supplies engines for military and civilian jets.

Choudhrie has always denied claims that he is an arms dealer.

The revelations about the Indian businessman come as a growing network of links between the Choudhrie family and the Lib Dems emerged.

Meanwhile, Lib Dem sources said their Nick Clegg-led party had no knowledge that Choudhrie was on the CBI list of people "suspected to be resorting to corrupt or irregular practices in their dealings with official agencies".

Nick Clegg and his wife Miriam hosted an event in 2011 for Choudhrie's charity, Path To Success, in Lancaster House, London, an official government residence.

The party sources said the party had done full due diligence on the Choudhries along with other donors before the last election in 2010. At this point, they were given documentation - a chit - showing that Choudhrie had been cleared of all allegations against him in India.

The party only found out about Choudhrie and his son's arrest Wednesday from newspaper reports, sources claimed.

"The Choudhrie family are long-term party supporters and donors. Sudhir Choudhrie has met Nick Clegg and other senior party figures on a number of occasions," an aide said.

The Indian-born businessman, who is in his 70s and lives in Chelsea, an affluent area in west London. He was named by Clegg as a potential future peer last year. Last autumn it was, however, reported that he had fallen off the prospective peer list.