Two recently concluded court cases highlight the inadequacy of New Zealand’s political donation laws, writes Max Rushbrook.
ANDDavid Zhang donated $8,000 to the Labor Party after buying an overpriced artwork at auction, according to official figures. So it was somewhat of a surprise when he stood up in court and said: “I don’t like the Labor Party. I’d rather burn the money than give it to Labour.’
Zhang’s comments were just one of the darkly comic moments in a long winter of cases in which people associated with National, Labor and New Zealand First have gone on trial for trying to hide the parties’ funding sources from the public. And now that the cases are over (pending appeals) and some of the defendants have been convicted, it’s time to take stock of a political funding system that seems open to abuse and think about how it can be reformed.
The first court case, which ended in July, concerned the New Zealand First Foundation, set up as a fundraising vehicle for Winston Peters’ centrist party. He solicited large sums from wealthy New Zealanders and received almost $700,000 in what appeared to be donations. Most of the amounts exceeded the $15,000 threshold, after which the identity of the donor must be disclosed under the Elections Act. Many donors thought the money would go to New Zealand first, and the fund used that money to pay the party’s bills. Essentially, these were donations: amounts that the New Zealand public needed to know about so they could see who was funding the party and monitor the favors received in return. This is the basic premise of our transparency laws.
In that case, however, the defendants — who are withholding their names — were acquitted, in part on a technicality that by law donations are amounts given directly to the party or to people “involved in the administration of the party’s affairs.” According to the judge, the defendants managed the fund, not the party itself. This solution allows unlimited sums to be sent anonymously to parties through related entities: a loophole so large that you can manage Winston Peters bus right through it.
To further highlight the weakness of the law, the defendants were not even charged under the Elections Act, which lacks sufficiently severe penalties and, in some cases, types of offenses to cover such activities. Instead, confusing charges were laid under the Crimes Act. What else, many donors admitted to the Serious Fraud Office (SFO) that they split their very large donations into tranches of up to $15,000, channeling these amounts through the bank accounts of friends, family members and companies and trusts they controlled to keep their (real donors) ) identity secret. (Since the foundation didn’t disclose donations anyway, this was an unnecessary precaution.) They were not prosecuted, however, for reasons that remain unclear.
Ip winter the second major political matterdecision in which landed earlier this month, the SFO finally got the verdict. The trial revolved around three Oakland residents: wealthy businessman Yikun Zhang and his accomplices, twin brothers Colin and Joe Zheng. All three were found guilty of concealing Zhang’s $100,000 donation to National by splitting it into tranches worth less than $15,000 and funneling them through other people’s bank accounts. Colin Zheng was also found guilty of concealing Zhang’s identity as a donor of another $100,000 to National, while Joe Zheng was convicted of lying to the Serious Fraud Office (SFO).
Why they were so keen to conceal Zhang’s identity has never been fully explained, although the SFO noted that he had diligently sought and received an official decoration (MNZM) from the national government at the time. Ironically, disgraced former National MP Jamie-Lee Ross, who solicited donations from Zhang and whose allegations of wrongdoing fueled the entire trial, was cleared of all charges due to the state of his mental health at the time.
However, when the SFO followed up on Ross’ allegations, they discovered that Zhang had also made donations to Labour. The investigation led to charges against him and the Zheng brothers, which were heard in court at the same time as the national charges, of conspiring to cover up another $35,000 donation. Zhang paid $60,000 for five works of art that Labor valued at $25,000, the SFO said, as a donation.
The payment was again disguised, this time by the Zheng brothers falsely claiming that five members of Oakland’s Chinese community had each bought a piece of art at a silent auction. One of these was David Zhang, mentioned above, whose anti-Labour views – and insistence that he had never bought a painting in his life – underscored the SFO’s arguments.
Despite this, the defendants were cleared of employment-related charges, largely due to an error by the SFO. The agency failed to independently appraise the artworks, raising the (very slim) prospect that the paintings could actually be worth more than $45,000, and so Zhang’s donation (the difference between his payment and the artworks’ market value) would be less than $15,000 , which had to be declared. Two of the accused in the Labor Party were also acquitted on the grounds that, although they clearly made false claims about donations, they could simply have been misled by Zhang and the Zheng brothers.
INhat can we draw a conclusion from these two cases? It is obvious that the law is inadequate. The government said it would close the loophole in the New Zealand First Foundation, but may have to go further. Penalties for violations may need to be increased, and the law may need a general “anti-speech” violation to capture donation scams that the law cannot specifically address.
It is also evident that concealing the identity of donors through distribution of donations is widespread. It’s hard to stop it at all, but more transparency will help. So the government may have to go above and beyond his current plan lower the threshold for donor disclosure from $15,000 to $5,000. Even at that level, a $60,000 donor could conceal his identity by splitting the amount between 12 people; at, say, $1,500, they would have to involve 40 people in the conspiracy, greatly increasing the chances of being talked into or otherwise discovered.
It’s also troubling that these cases have only been brought to light by whistleblowers – however odd, in Ross’s case – rather than rigorous, systematic scrutiny by regulators. Such haphazard detection methods leave plenty of room for other offenders to go unnoticed.
Indeed, the trials remind us of how weak our regulatory bodies are. The SFO, while basically right, made initial mistakes. The police seem to be generally reluctant to take on cases involving donations, perhaps because these cases are highly politicized. Meanwhile, the Electoral Commission, which should be the first to detect violations, has almost no ability to do so. It receives donation totals from political parties, but cannot verify whether the totals match the party’s own internal records, or whether the records themselves are reliable. It cannot demand either documents or witnesses.
As a result, party funding is often opaque; the public is kept in the dark. In these two cases, about $1 million was given to political parties from people whose identities would have remained a secret forever had it not been for the whistleblowers. And this winter there are only two cases a long series of donation scandals which, until the convictions related to the national case, had not resulted in any successful prosecution. One partial success does little to change the general impression that both the country’s electoral law and its enforcement system need serious overhaul.