|There is no corruption in New Zealand. At least that’s what authorities want the public to believe. For decades now our system of political finance regulation has been portrayed as highly rigorous, ensuring our politicians cannot be bought.
Unfortunately, that’s just not true. Although politicians and officials have claimed tight rules around transparency of large donations prevent the selling of policy by politicians, it’s really just resulted in a false sense of security.
Scholars of political finance such as myself have been unconvinced that the system works. As I’ve pointed out, often donation loopholes exist but are undiscovered by authorities. In this regard, we’ve ended up with a worst-case scenario in which the rules to prevent corruption are ineffective, yet the public is encouraged to have illusions in the rules working.
The New Zealand First Foundation trial has exposed a giant loophole
Thankfully, in 2022 we now have two landmark High Court trials proving that our laws are an ass and need significant reform.
The first trial, involving large donations intended for the New Zealand First party, showed how donation disclosure rules were easily avoided by having a system set up where cheques are deposited into a bank account of a separate legal entity called the New Zealand First Foundation. In this case, the judge ruled that these large gifts – about $750,000 in total – did not qualify as “political donations” under the Electoral Act. Therefore, the donors weren’t disclosed, and although the Serious Fraud Office viewed this as a violation under the Crimes Act, the judge acquitted the defendants.
The public doesn’t know how much this technicality has been used by other political parties to evade disclosing their links to wealthy donors. This particular trial only came about due to a whistleblower inside New Zealand First. Otherwise, authorities had no idea about the donations and the use of the dodgy fundraising mechanism.
The Government is now proposing that the loophole can be easily fixed by adding two small amendments to the current Electoral Amendment Bill, which is currently being considered by select committee, and is intended to be passed into law by the end of the year. Effectively the Minister of Justice, Kiri Allen, is proposing to make an “amendment to an amendment”, which she says will be “urgent” and “quite succinct”.
Allan states that two changes are necessary – the creation of a new more expansive definition of what a “party donation” is, and making it a crime for those receiving party donations not to inform the party secretary who is responsible for disclosing large donations.
The problem, of course, is that this is piggybacking on an existing piece of legislation going through Parliament that is designed to deal with very different problems with the Electoral Act. And the changes being made in this existing amendment bill – particularly lowering threshold levels for disclosure of donations – are strongly opposed by the National and Act parties. This means the crucial closing of the “NZ First Foundation loophole” is being inserted into a contentious bill that won’t have cross-party consensus. So although all the parliamentary want to close the loophole, not all of them will be able to vote for it.
This is a muddled and dangerous way to carry out political donations reform. It would be much wiser to make the changes to the loophole in an entirely separate bill that isn’t muddied by partisan disagreement. While it might be convenient for the Government to piggyback the changes onto the existing bill, taking a shortcut on such a crucial and complicated loophole might actually cause more problems.
As Prime Minister Jacinda Ardern correctly said last week, there is a risk that by rushing the loophole fix through quickly there might be unintended consequences. Hence, this appears to simply be another case where the Government would be wise to heed the aphorism of: “legislate in haste, repent in leisure”.
The Labour and National donations trial is exposing more loopholes
A second trial, currently taking place in the Auckland High Court, concerns large donations to the Labour and National parties that were also hidden. We are hearing that, as with the NZ First trial, these large donations were easily disguised under the current law and were undisclosed.
As with the NZ First Foundation, the prosecution is arguing that people inside the Labour and National parties helped manipulate the rules to keep large donations secret from the public. We now know one wealthy individual is accused of giving both Labour and National very large donations, with the SFO alleging these were broken down into smaller amounts given by various “sham donors” so that they wouldn’t be disclosed to the public. The prosecution alleges that Labour and National MPs had lobbied for the wealthy donor to receive a royal honour and this was the motivation for hiding the donor’s identity from the public.
Also in common with the NZ First trial, the dodgy donations to both Labour and National only came to light via whistleblowers. In National’s case, it was due to an unusual meltdown in the usually tightly-controlled party, when MP Jami-Lee Ross fell out with leader Simon Bridges. It then turned out that the same donor had made large donations to Labour in secret.
In the case of the Labour and National donations, the loophole is simply that our donations regime is based on a “high trust model” in which authorities expect parties and donors to follow the rules. There is no policing of these rules as no authority is charged or resourced to monitor what is happening. Instead, the public only learns about dodgy donations when there is a whistleblower. One of the basic foundations of our democracy, that political power isn’t for sale, should not have to rely on the development of a guilty conscience or a desire for revenge inside a political party.
Governments continue to play catchup with piecemeal and poor reform
Governments often regard the reform of political finance as simplistic when in reality it’s always much more complicated than they expect. Furthermore, wealthy donors and party fundraisers will always try to find ways to get around the rules. Academic scholars of this regulation compare the money given to politicians by the wealthy to underground spring water trying to get to the surface – we can try to block secret money from getting through, but there is a strong hydraulic nature that pushes it through, and once authorities dam up one outlet, the water finds its way up through another leak. The problem should not be underestimated.
Hence there is no place for complacency about money and politics. And yet that’s been the official setting for many years. And authorities often come up with quick fixes to try and stem the latest discovered loophole. But inevitably there are then unintended consequences arising from those simplistic fixes, sometimes making matters worse or driving the political money through a different loophole.
The ultimate example of this was the Helen Clark Labour Government’s Electoral Finance Act 2008, which caused more problems than it sought to fix. Labour themselves voted to repeal the hated legislation, which had been rushed into power without proper scrutiny or care.
Governments continue to play catchup with political finance reform, and are obviously not motivated to have a proper investigation into how to run the system of money and politics – it might threaten their own interests. Working groups are put together, normally without proper scope to examine the problems, and fixes are inevitably put forward that avoid some of the big problems and the public is yet again assuaged that there is no corruption in New Zealand.
Government using a self-serving reform process
There’s also the problem that fixes are often also used to either improve the financial position of the parties in power, or to hurt opponents. Furthermore, reform can sometimes involve a cartel of parties in Parliament who increase their own financial advantage with new rules that also seek to disadvantage fledgling or outside parties trying to break into Parliament.
Self-interest is therefore the major flaw to watch for in the design of donations reform. Already, the National and Act parties have argued that Labour’s latest proposals to lower the threshold for disclosure of donations are designed to hurt opponents and favour the incumbents themselves. Of course, this argument probably also reflects the self-interest of the parties of the right.
Nonetheless, it’s never a good look in this area of reform for changes to donation rules to look like it’s being a partisan football game. This reduces public confidence in the changes, and also threatens to make them less enduring. When such laws are made on a partisan basis, and often without much consultation with the public or opponents it discourages consensus – which is highly desirable when working on the rules of democracy.
We need donations reform processes that are more removed from self-interested politicians. This is a good point made yesterday by an editorial in the Otago Daily Times which suggests a Royal Commission, and points to inadequacies in the Government’s plans for an independent panel to propose reform. Without a more rigorous and truly independent mechanism for donations reform, the newspaper warns that “we are left with piecemeal changes to the law designed to convince the populace that something is happening even if that something is not much.”
Nonetheless, the most pressing issue is that the Government needs to properly close the “NZ First Foundation loophole”. There now needs to be pressure applied on the Government so that they don’t carry this out in a way that makes the problem even worse.
The other risk is that in closing this one loophole, the Government gets to declare that the problems are mostly fixed, and the public might too easily believe that the problems identified in the current high court trial have also been dealt with.
There will be a temptation for the parties currently in the dock – Labour and National – to simply patch up the hole that the NZ First verdict has revealed, tweak a few donation thresholds and tick box forms and declare the problem fixed. Until a proper process is set up by a government that takes money in politics seriously, then we have no right to be complacent about corruption in this country.