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Bryce Edwards
democracyproject.nz
Dr Bryce Edwards is Political Analyst in Residence at Victoria University of Wellington. He is the director of the Democracy Project.
Warning
Long read: 1976 words
The New Zealand First donations scandal trial began in the High Court this week. And it’s already showing why the political finance laws in this country need a significant overhaul.
The trial is the outcome of a high-profile scandal that unfolded in the 2020 election year, when documents were made public showing that over years wealthy individuals and businesses had been making large donations to support the New Zealand First party, but these had not been disclosed to the public. It was revealed that the money had actually been funnelled into an entity that was legally separate to the party, called the New Zealand First Foundation.
The Serious Fraud Office (SFO) charged two men, who currently have name suppression, with offences under the Crimes Act. The trial started in the High Court on Tuesday, and is expected to go for about six weeks. This landmark court case is throwing up three reasons we need urgent reform of the laws around donations to politicians.
Reform reason one: Vested interests donated to NZ First seeking private gain
The court case has only been going for a few days and already there has been a wealth of new evidence presented by the Crown prosecution detailing the donations that were made to the party. These totalled about $750,000, and generally came from business people keen on New Zealand First protecting their interests in government.
Covering the court trial, journalists Tim Murphy and Matthew Scott report that: “Evidence before the High Court at Auckland this week showed two distinct groups were inspired to donate in bands of $10,000 or $15,000 and in totals of up to $50,000 to ensure their industries – horse racing and natural health products – had the benefit of NZ First’s policies in government.”
Many of the donors are upfront about their motivations for making the political donations. One horse-racing enthusiast, Joan Egan, donated $15,000 and told prosecutors that it was “purely to help Winston Peters and his promise to look into the racing industry”. Four natural health business people gave amounts ranging from $2,500 to $12,500 in 2017, with one of the businessmen citing his decision to donate being due to the advice of a professional lobbyist.
Others gave much higher amounts. Murphy and Scott report that donors giving evidence to the trial include: “rich listers such as Waiheke’s Spencer Family, Andrew Bagnall, Kent Baigent, Sir Peter Vela, Tony Van Den Brink, Aaron Bhatnagar, Brendan Lindsay, Ian Ross and a clutch of stud farm owners and natural products business people”. About 40 donors have given evidence.
Such evidence can only reinforce the suspicion of many voters that wealthy individuals and companies give significant sums to politicians and parties to influence policy decisions or prevent change occurring.
Reform reason two: NZF donors easily circumvented the electoral laws
To help guard against the undue influence of wealth, New Zealand has laws around political finance, especially in terms of donations to political parties. Large donations must be publicly declared by the parties, with some exceptions. The idea is that if the public is aware of these financial relationships, they will be on guard against politicians unduly acting in favour of their benefactors.
Under the Electoral Act an exemption is made for donations to political parties under the threshold of $15,000.01. And it has long been suspected that many wealthy donors break down their large donations into smaller figures under this threshold to circumvent the law and keep their financial contributions secret. Both Labour and National are involved in two other prosecutions this year where it has been alleged donations above the disclosure threshold have been broken down to circumvent electoral law.
There is an abundance of evidence of this practice in the current trial. Firstly, it appears that the fundraising foundation was set up by New Zealand First to circumvent the requirement for public disclosure of the donations. Secondly, many donors have given striking evidence in the trial of their own attempts to get around the law and remain anonymous.
Again, Murphy and Scott have reported on this from the court: “some donors told investigators they had been determined that their donations should remain anonymous. Several sought legal advice or assurances from NZ First figures before splitting their totals of up to $50,000 into multiple donations just below the $15,000.01 threshold that would require their names to be declared to the Electoral Commission.”
Horse breeder Tony van den Brink has given evidence about splitting up his $50,000 donation into smaller amounts donated from four of his different businesses, in order to circumvent disclosure. He explained: “I wanted it to be anonymous because I would rather not have the donation public.” Likewise, his son, Karl van den Brink, stated: “we are a private family, a private business, and we did not want to be headlined as making donations to political parties”.
Business person, Andrew Bagnall donated about $50,000 split into four smaller donations, mostly from different legal trusts. He told the SFO: “I would not have donated anything from any of the [entities] that would have required public disclosure. I try to fly very much under the radar.”
Company director Ian Ross, also associated with the racing industry, broke his $50,000 donation into five $10,000 donations that came from five different business entities he owned.
The rich lister Spencer family of Waiheke Island also gave a $50,000 donation, made up of four separate $12,500 contributions from different family members. They also explained that they ensured the donations were under the legal threshold of $15,000 in order to protect their privacy.
The chief executive of Black Diamond Technology, Ron Woodrow, also explained to the SFO why he had made a donation of precisely $14,997 in 2016 (and was therefore just under the threshold for disclosure): “I remember some scandals about NZ First going back 10 years ago and was very concerned that they had their act together and were not going to allow the media to have access to this.”
According to the court reporting of Murphy and Scott, Woodrow had met for dinner with party leader Winston Peters and his adviser Api Dawson, and the latter assured Woodrow that in making the donation, “absolutely it will remain 100 per cent confidential”.
Politicians and electoral law experts have normally assured the public that the law prevents large donations from being made without being declared to the public. However, having exemptions for donations made under $15,000 makes it easier to disguise much larger donations. Given the stark exposure of how blatant this practice has been, expect to see a demand that all donations – big or small – be subject to declaration.
Reform reason three: The SFO have had to charge the defendants under the Crimes Act instead of the Electoral Act
Much of the evidence that has arisen out of the New Zealand First Foundation scandal and trial indicates that the Electoral Act has been breached. Large donations haven’t been disclosed to the public.
However, the SFO have not charged anyone associated with the foundation or party with breaching the Electoral Act. It seems likely that the maximum penalties that can be imposed under this act are deemed too low, and so the SFO have used the Crimes Act instead. This raises the question of why the maximum penalties under the Electoral Act are so low. Alternatively, the SFO’s decision to use the Crimes Act might have been because it was too difficult to prove that the Electoral Act has been breached.
This is unfortunate, as the public need to have confidence that failure to disclose large donations will be prosecuted as political corruption, and it’s not yet clear that this is happening.
The allegation is essentially that the defendants have stolen money from the New Zealand First party, or more precisely, they have deceived donors into giving their financial contribution to the foundation instead of the party. Such a conviction for this would not have the same democratic impact as a conviction under the Electoral Act. And as Peters has claimed, with some theoretical justification, his party has been exonerated by the SFO choosing not to prosecute any politician or office holder in New Zealand First.
The picture that is coming out of the trial is that a slush fund was operated by the defendants. Money came in from donations that were sought by New Zealand First MPs and office holders. The money was then allegedly spent by the foundation to help the party win votes, despite very little of it having been declared as donations of any type – from the foundation or the donors who gave the money originally.
But even if a prosecution is successful in this case, it will only result in the two people involved with the foundation being convicted under the Crimes Act for fraud. Those outside of the foundation, such as office holders in the party or the MPs that were involved in arranging the donations, will be exonerated.
Why does all this matter?
Ultimately this is a question about how healthy New Zealand’s democracy is, and whether wealthy vested interests are easily able to get their way. And although New Zealand First is no longer in the current Labour Government, they campaigned for and succeeded in being in government during the 2017-2020 term when the fundraising which is the subject of this trial was in effect.
That wealthy interests were secretly donating large amounts of money both before and after the party was elected into office should raise questions of whether that government led by Prime Minister Jacinda Ardern was corrupted in some of its decision making. All sorts of government decisions, from Capital Gains Tax through to fisheries policies could have been influenced by large donors. If so, then there are urgent questions about whether the current political donations regime is fit for purpose.
When this scandal first arose, another government minister, James Shaw, said this about New Zealand First’s donations: “When you have a party taking large donations from, say, fisheries companies, and then issuing policy that is entirely aligned with those companies, the case for donations reform is pretty obvious.”
It is also important to point out that this current High Court trial has not come about through the monitoring and enforcement of the Electoral Commission. Instead, the prosecutions have been made as a result of a whistleblower inside New Zealand First, who went to the media and the police. Neither the Electoral Commission nor any of the audits discovered the problem with the NZ First Foundation’s fundraising.
This suggests that what we are currently seeing in the court case is merely the tip of the iceberg. There have probably been similar types of fundraising occurring in other political parties that we have no idea about because the equivalent whistleblowers simply haven’t come forward about them. Similarly, there is soon to be a trial involving donations made to National, which only came about as a consequence of Jami-Lee Ross’ fallout with his party’s leadership.
It’s therefore extremely timely that the government is currently reforming political donation laws. Yet the signs are that the changes are likely to result in tinkering rather than an overhaul. This current court case suggests that much more than this is desperately required if public confidence is to be revived in how New Zealand politics works.
This article can be republished under a Creative Commons CC BY-ND 4.0 license. Attributions should include a link to the Democracy Project.
