Undisclosed money could threaten the next election

If anyone wanted to channel hundreds of thousands of dollars to a political party, and do so without the public knowing the first thing about it, the High Court has just shown them how.

In a judgment last week that has caused consternation among the political class, the court ruled that the activities of the New Zealand First Foundation, a fundraising vehicle for the Winston Peters-led NZ First party, were completely legal.

The foundation had taken nearly $700,000 from wealthy donors who believed they were giving to the party and had annotated their bank transfers with tags like ‘‘donation’’ and ‘‘Good luck Winston’’. The foundation then used this money to pay bills incurred by the party: $140,000 here for its 2017 campaign, $10,000 there for boxer Joseph Parker’s conference speech. Before last week’s ruling, most people assumed the sums given to the foundation would be deemed political donations, and the donors’ identities disclosed, so that the public could see who was giving what to whom, and make up its own mind as to whether any influence had been secured. Given the ever-present potential for money to buy political favours, this openness is an essential means by which a democracy’s integrity is maintained.

The public had a right to know that, when NZ First was preparing to block a capital gains tax, the foundation had received tens of thousands of dollars from people associated with billionaire Graeme Hart, who gave partly because they were opposed to said tax.

It had a right to know that Peters, a twotime racing minister, was regulating an industry that had given tens of thousands of dollars to the foundation. Failing to disclose these sums should, in my view, have been a flagrant violation of electoral law.

In the NZ First Foundation case, however, the two defendants, who have name suppression, escaped punishment. Not on the substance, though: Justice Pheroze Jagose found ‘‘comprehensive evidence [the defendants] deployed the dishonest scheme in order to deceive the party and party secretary’’.

They were cleared, rather, on a troubling technicality. Justice Jagose ruled that payments are donations only if they are given directly to a political party or to people engaged ‘‘in the administration of the affairs of the party’’.

Because the defendants were not involved in NZ First’s day-to-day running (at least, not in the capacity in which they received the money), the payments were deemed not to be party donations, and there was no obligation to disclose them.

When the Electoral Act was drafted, no-one anticipated a scheme quite like the NZ First Foundation. The result? Anyone, from any political party, is free to set up an aligned but technically separate organisation, make sure they themselves steer clear of party ‘‘administration’’, collect big donations, and pay the party’s bills in complete secrecy.

To say this has troubling implications would be to put it mildly. The door is open for all manner of undisclosed money – including unlimited foreign donations – to pour into political party coffers before next year’s election.

Transparency and integrity have both been put at risk. The urgent task now is to shut that door – indeed to lock it, and bar it with steel.

Fortunately, a great danger is met with a great opportunity. Alarmed by the rising tide of donation-related scandals, the Government has just introduced a bill that would require more donors’ names to be disclosed and force parties to publish annual accounts.

Though it has its flaws, the bill nonetheless presents the perfect chance to add provisions that would close the NZ First Foundation loophole. The steps needed are simple. The definition of ‘‘party donation’’ must be widened to include any donation designed to assist a party, regardless of the recipient’s job title. That would clearly identify the problem.

Failure to pass those donations on to a party must be made a criminal offence (not just a technical breach, as at present), and one that attracts sweeping penalties.