Safeguarding democracy: Gap in foreign donations' regulations

5:58 pm on 28 August 2019

By Andrew Geddis*

Opinion - In some ways, the story that National received a donation of $150,000 from a company called the "Inner Mongolia Rider Horse Industry (NZ) Ltd" is pretty old news.

Polling booths are open for New Zealand's general election in Auckland on September 23, 2017. (Photo by MICHAEL BRADLEY / AFP)

Photo: AFP or licensors

The donation was, after all, made back in May 2017. It was fully disclosed to the Electoral Commission (as required by law) within 10 days of the party receiving it.

RNZ noted its existence, as well as the fact the company was owned by "Chinese billionaire Lin 'Mr Wolf' Wang", in this story before the 2017 election.

However, no one seemed particularly fussed by the donation at that time. So why is it now back in the headlines, some two years and an election (that National lost) later?

Part of the reason has to do with new information regarding the role that National's then minister for trade Todd McClay played in establishing the relationship that led to the donation. While there is no suggestion of any unlawful behaviour, the various "hats" that those in public office must juggle as ministers, MPs and party members become even more complicated when very large sums of money get involved.

But perhaps more important are heightened concerns about the potential influence that money, and particularly money from beyond our borders, might have on our elections. After all, if the head of the SIS Rebecca Kitteridge is telling Parliament "we've seen relationship-building and donation activity by state actors and their proxies that concern us," then it's probably a good idea to listen to her.

(It is important to note that there is no suggestion that the donation from the Inner Mongolia Rider Horse Industry (NZ) Ltd, or Mr Lin Wang as an individual, were a part of Ms Kitteridge's warning.)

Of course, concerns about potential overseas influence are not exactly new. When New Zealand overhauled its laws on election funding back in 2010, a decision was made that "overseas persons" should be able to have only very limited financial involvement in our democracy.

Such overseas persons can donate no more than a total of $1500 in each election cycle (ie the years between elections). And they can only spend up to $13,200 on their own election advertising in the three months before an election.

However, a rather obvious gap remained in this regulatory framework. While individual overseas persons are restricted in how they can use their money, any NZ based company or organisation faces no such restrictions.

And so, Mr Lin Wang was legally able to tell the NZ company he uses to buy horses here to give the National Party some 100 times more than he could personally. The fact that he fully owns the company in question, and that it exists purely as a vehicle for his personal business interests, is irrelevant.

Note that this is not a loophole in the law. It was deliberately written to permit this outcome, on the legal fiction that a company (or other form of association) is a different thing to the flesh-and-blood persons who own or control it.

If an NZ based company or other association wants to donate "its" money to a party or candidate, or spend "its" money directly on election advertising, then that's all perfectly fine in the eyes of the law. Even if, as in the case of the Inner Mongolia Rider Horse Industry (NZ) Ltd, the direction to do so comes from someone who we otherwise do not think should be able to donate to or spend on our elections.

Whether that distinction really makes sense is now something we have to consider. But if we think it doesn't, what could we do about it?

Well, one response might be to follow the lead of Canada and only allow individual NZ citizens or residents to make donations to political parties or candidates. After all, these are the only people who can vote at elections, so shouldn't they be the only ones who can try to financially influence its outcome?

Such a change would be a really big one. It would force some parties to refocus how they raise the money they use for their activities. In particular, it would force the Labour Party to change its relationship with the union movement to one where individual union members would have to choose to donate directly to the party rather than their union deciding to donate to it on their behalf.

And there is a question as to whether parties could raise enough money from individual contributions without some sort of financial aid from the state. Canada, for example, encourages individuals to donate by allowing them to claim tax credits in the same way as we do for charitable donations. And both candidates and parties in Canada can claim partial reimbursement of their election expenses following each campaign.

An alternative, less drastic, response might be to change the definition of "overseas person" in the Electoral Act to reflect the one contained in the Overseas Investment Act 2005. That would have the effect of preventing some companies with significant NZ business interests from being able to donate to parties or candidates they believe might be best for them and their future.

It also would complicate the job of party fundraisers, who would have to investigate the ownership structure of a company before being able to determine whether a donation can be accepted or not.

The third response, as suggested by the SIS' Rebecca Kitteridge is for "more stringent" rules around disclosing donations on the basis that "the greater the transparency, the better".

As a general principle, greater transparency is hard to argue against. But the problem with using it as a panacea for all evils is this.

It was fully disclosed in 2017 that National had received this very large donation. It was fully disclosed in 2017 who owned the company that had given it. Yet no one seemed to pay any particular attention to that information.

Is that then really enough of a safeguard for our democracy?

*Andrew Geddis is a professor of law at University of Otago.

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