The Glasgow-born conman was arrested in the Dominican Republic last week after three years on the run. He had been sentenced in absence to seven years in jail for fraud.
Brown emerged in 2005 as the Lib Dems’ biggest donor when he handed over the party’s biggest-ever cheque prior to that year’s general election.
He claimed at the time to be a philanthropist who wanted to back his party of choice while using his wealth to support children in the developing world.
However, it subsequently emerged he was a conman who had earned his money by stealing nearly £8m from the former chairman of Manchester United, Martin Edwards, posing as a successful bond dealer.
The Lib Dems, who spent his cash during the 2005 election campaign, were cleared of wrongdoing by the Electoral Commission.
However, with Brown’s victims now demanding they be repaid, Labour figures last night said the Lib Dems should act.
Michael Dugher MP, Labour’s shadow cabinet office minister, said: “The Lib Dems took a massive donation from this man – he should pay the money back out of decency.”
He added: “Nick Clegg likes to talk about the need to clean up politics, so the arrest of the Lib Dems’ biggest donor gives him an opportunity to put this dodgy money where his mouth is.”
A Lib Dem spokesman said: “The Electoral Commission inquiry in 2009 found that the party accepted the donation in good faith, and were in no way at fault. It cleared the party of all wrongdoing and accepted that, at the time of the donation, Michael Brown was a permitted donor.”
A City of London Police spokesman said yesterday: “We are pleased to hear that Michael Brown has been detained by authorities in the Dominican Republic, and are currently establishing contact with them to find out further details about his arrest.
“Clearly, at some stage we will look for his return to the United Kingdom, so he can serve the sentence for the fraud offences for which he has been convicted in this country.”
However, the Dominican Republic has no extradition treaty with Britain.