Electoral commission makes a stand on Liberal breaches of NSW donations laws

The New South Wales Electoral Commission last week condemned the NSW Liberal Party for failing to disclose the identity of major donors in 2010-11. These donations, totalling more than A$690,000, occurred in the lead-up to the 2011 state election.

By the Liberal Party’s admission, these included donations in excess of the cap on donations to NSW parties, and prohibited property developer donations. As a result, the commission is withholding about $4.4 million in public funding to the party.

These findings are significant but not new. These issues, and others, were ventilated in the Operation Spicer hearings before the NSW Independent Commission Against Corruption (ICAC) in 2014. But the commission’s actions may yet imperil former NSW Liberal Party treasurer and finance director, federal senator Arthur Sinodinos, for the second time. Sinodinos continues to deny any knowledge of wrongdoing.

What is the legal basis and consequence of all this? And what might it say about the trajectory of political finance regulation and enforcement?

The legal background

Despite much public discussion in recent decades, political financing law has remained relatively laissez-faire federally. But innovation at state level has helped offset this.

NSW has generally been the leader in political finance law in Australia. It introduced the first public funding and donation disclosure laws in 1981.

And since 2009, state governments of both hues have erected Australia’s most comprehensive election finance regime. This includes limits on individual donations (now $5,800 per year to a party), limits on electoral expenditure by parties and others, and bans on donations from property developers and alcohol, tobacco or gaming interests.

It also includes increasingly regular disclosure of donations above $1,000. In comparison, the national disclosure threshold at the relevant time was $11,500.

Supporters of broad regulation – especially caps on donations or expenditure – argue that when money speaks, it sometimes screams. Policing money in politics is not just a matter of accountancy and disclosure. Unrestricted flows of money threaten the fundamental promise of equality of voice and respect that universal suffrage is meant to emblemise.

A trust to be trusted?

Into this web, in 2010, elements in the NSW Liberal Party appear to have tried to circumvent the law or game the system.

According to the NSW Electoral Commission and evidence before ICAC, one aspect of this involved the use of an existing trust, the Free Enterprise Foundation, as a conduit for donations. Paul Nicolaou was paid commission to solicit gifts to the foundation. Nicolaou was then a chief fundraiser for the NSW Liberal Party, including as chairman of the party’s Millennium Fund (a vehicle to attract business donors by facilitating access and networking with political figures).

A “major part” of the Free Enterprise Foundation’s activities, the commission found, was to seek to offer anonymity to those who wanted to donate to the party, and a means to wash developer donations through the system.

Through this, it was assumed that funds could be donated to the foundation on the understanding that they would be channelled to the NSW Liberal Party, but that there was no strict legal obligation to so do.

The foundation had opened the financial year in question, 2010-11, with just $3,443.23 in its coffers. Within six months, it had passed on $787,000 to the NSW Liberal Party. The NSW election was held in March 2011. In the same half-year, a further $294,000 was paid to the Liberal Party National Division – most of it just prior to the August 2010 federal election.

What are the consequences?

The NSW Electoral Commission is obliged to withhold all public funding payments to a party that is in breach of its disclosure obligations. The $4.4 million at stake includes a mix of funding outstanding from the Liberals’ successful 2015 election campaign and this year’s “administration” funding.

The Liberal Party had been banking on this money. In correspondence from its solicitors to the commission, it said the money was “critical [to] its operations” and flagged “emergency measures”, including “retrenchment of staff”. It even pleaded for $3.7 million to be released, reasoning that only around $700,000 of undisclosed donations were the issue. But the act clearly requires the commission to withhold all public funding.

Could the NSW Liberal Party challenge the commission in the Supreme Court? It might press a claim that promoting “free markets” or “individual freedoms” could be – at least on its face – charitable and that, on the basis of the High Court in the AidWatch case, political activities did not taint that status. But this is not an easy argument to mount given the facts.

The party might also seek to argue some ambiguity in the concept or agency or “intention” to benefit, in the definition of a state “political donation”. It might even seek to question aspects of due process or fact-finding by the commission.

However, NSW Premier Mike Baird has told the party’s state director to declare the donations and admit the party machine has “done the wrong thing”.

The Free Enterprise Foundation could take action. It might say it is protecting its honour, having led donors to believe it could keep their anonymity. If it does not take action, that will reinforce the impression that the foundation was never more than a wing of the party.

However common such administrative law gambits are when corporations confront governments, the regulator holds the upper hand here. NSW parties are heavily dependent on public funding. And the law – to its credit – now requires a significant level of disclosure and even probity in the financial affairs of parties.

The NSW Electoral Commission’s statement is important less for its findings of facts – most of which have already been ventilated – but for its forthright pursuit of the matter and willingness to act as a robust regulator.

In the past electoral commissions have seen their role as mere administrators of the law. For too long, electoral law in Australia has been subject to limited enforcement and minimal interpretive development. This is because commissions tend to lack the resources or powers to pursue infringements, and referrals to police or prosecutors meet a dead-end of time limitations and low penalties.

But in pursuing this matter, and using clean public funding as leverage to an outcome where parties will think twice about resorting to formalities of trust law to hide donations, the NSW Electoral Commission is to be congratulated.

This piece was adapted from an earlier article on the Auspublaw blog.