Mayor's aide: Police move in

But Ken Livingstone's senior race adviser insisted he had known nothing of the payment. A Scotland Yard inquiry has now begun to determine whether Mr Jasper's denial is true.

The inquiry, into a project known as Ethnic Mutual, is the fifth separate police investigation to be launched into a City Hall project in as many weeks, but is the most dangerous so far for Mr Jasper.

Officers last week raided the Deptford offices of Ethnic Mutual, which has received more than £1million from the Mayor's London Development Agency and the Government.

Police also executed a search warrant at the Brockley home of Titus Boye-Thompson, Ethnic Mutual's secretary. It is not known whether Mr Jasper has been questioned.

Following enquiries by the Standard, Mr Jasper admitted today that the £18,000 of taxpayers' money was diverted from Ethnic Mutual to a private company, African Caribbean Positive Image Foundation, of which he is company secretary. ACPIF was recently dissolved without filing accounts. In a statement, Mr Jasper said: "I was informed in October 2007 that a fellow former director of ACPIF, Emerson Braithwaite, had without my knowledge arranged a loan of £18,000 from Ethnic Mutual to be paid to ACPIF.

"The loan was not agreed by me, nor was I formally or informally consulted or contacted about it as a director of the company [ACPIF.] I only became aware a loan was received by ACPIF as a consequence of an investigation conducted by the LDA and the Financial Services Authority."

As well as being a co-director of ACPIF with Mr Jasper, and a close friend of his, Mr Braithwaite is a director of Ethnic Mutual's parent body, the Ethnic Business Development Corporation.

A Scotland Yard spokesman said: "An investigation of fraud is continuing into organisations funded by public money. Search warrants were executed on Monday 21 January at a business premises in Deptford and a residential address in Nursery Close, Brockley."

Ethnic Mutual, which was launched by Mr Jasper at City Hall, received at least £350,000 in LDA funding in the last financial year alone, plus a further £713,600 from the Department of Trade and Industry over the last two years.

The £18,000 improperly transferred to ACPIF was to pay off its debts after it organised an event called the Black Plus Awards, hosted by LWT presenter Jacqui Joseph and actor David Harewood at the Grosvenor Marriott Hotel in October 2002.

Although GLA resources were used to support the event, with planning meetings held in Mr Jasper's office, the awards still lost ACPIF a substantial amount of money. Mr Braithwaite failed to return messages and the phone at his house appears to have been disconnected. Mr Boye-Thompson could not be reached for comment. Henderson Dalrymple, a former manager with ACPIF in charge of the Black Plus Awards, told us he resigned four weeks before the event. "Before the awards I had a split with [Mr Braithwaite] and Lee because I didn't like the way things were being done," he said. "There was money coming in and I certainly didn't know where it was going and how it was being spent. You need to follow the money. It will lead you to where the guilty parties are. There are loads of them."

Mr Dalrymple said that Mr Jasper was heavily involved in the awards. "Nearly every meeting took place in his office," he said. Mr Dalrymple also said that Mr Braithwaite was lying low because he was "afraid you [the Standard] would find him". He said that Mr Braithwaite was linked to two other associates of Mr Jasper, Clive Grey and Greg Nowell, whose project, the South London Green Badge Taxi School, is also being investigated by police.

Three other LDA-funded projects with close links to Mr Jasper are being investigated by police - Diversity International, the European Federation of Black Women Business Owners and the Deshbangla Foundation. A sixth project, Brixton Base, is likely to be in police hands soon.