Bryce Edwards: What’s driving the urgent clamp down on foreign donations?

Bryce Edwards: What’s driving the urgent clamp down on foreign donations?

What is it about reforming laws around money and politics that makes politicians so inclined to stuff it up and act undemocratically? From Helen Clark’s notorious Electoral Finance Act (2007) – which the party eventually voted to repeal, given it was so anti-democratic and unworkable – through to yesterday’s announcement of a so-called ban on foreign donations, politicians are inclined to act quickly, without proper consultation with the public and end up making bad law.

Partly it’s because it’s something of a populist issue – to hit the wealthy. And partly it’s because at the moment it has xenophobic elements – dealing with the foreigners who are said to be threatening our democracy. This means politicians want to move fast, with high moral certainty, and damn the complexities and democratic challenges involved. Of course, there is also usually a large dose of self-interest, which is always a bad motive when politicians are designing rules around how elections operate.

Yesterday, almost out of the blue, came the triumphant announcement from Justice Minister Andrew Little that he was going to pass a reform of party donations laws, under urgency. The so-called ban lowers the threshold of allowable foreign donations from $1500 to $50.

For more details, see Jason Walls’ The Government will ban most foreign donations to political parties and candidates. Here’s the key part: “The bill contains a minimal threshold of $50 [for disclosure of donations from foreign sources], to ensure that small-scale fundraising activities such as bucket donations and whip-rounds won’t be affected. But big donations will be gone. It also introduces a new requirement that party secretaries and candidates must take ‘reasonable steps’ to ensure that any donation is not from an overseas person.”

Consensus about the ineffectiveness of the new rules

The response was quick, and almost entirely condemning. It’s hard to find a positive evaluation of the announcement from anywhere across the political spectrum. The best analysis was put forward by Newsroom’s Sam Sachdeva, who said that essentially the new law was “virtue signalling” because it pretends to get tough on donations but in reality it doesn’t do much at all. He says “there is less to the law than meets the eye”, and on “closer reading… the changes seem to create as many problems as they solve” – see: Govt’s foreign donation ‘ban’ leaves loopholes untouched.

The biggest problem, it seems, is that the new law essentially does nothing to deal with alleged and known loopholes that allow foreign sources to donate – especially those involving New Zealand trusts, businesses or foundations.

Sachdeva points to the most controversial example: “The $150,000 donation to National from the New Zealand-domiciled but entirely foreign-owned Inner Mongolia Rider Horse Industry Ltd, which Ardern pointedly described as being against the spirit of the law, would remain legal under the proposed changes. That loophole remains intact, along with the risk of overseas donations to third-party campaigners despite justice officials describing it as a ‘potential weakness’ in 2020”.

Another loophole that is retained by the new law, is that large anonymous donations will still be allowed, effectively also from foreigners. Sachdeva reports that officials from the Ministry of Justice and the Electoral Commission have already drawn the Government’s attention to the problem that comes from having a different threshold for anonymous disclosures ($1500) and foreign donations ($50).

This is a “glaring problem” in the rules according to Henry Cooke, who says: “This means that party secretaries will still be able to receive an envelope with $1499 of cash in it and bank it happily, as long as they don’t have any reason to believe the money came from a foreigner” – see: Andrew Little’s foreign donations ban is good politics, terrible lawmaking.

For these types of reasons, law professor Andrew Geddis has quoted independent MP Jami-Lee Ross saying: “The only way to effectively ban foreigners from influencing our politics is to restrict who can make donations to people that are entitled to vote.” Geddis concurs with the logic of this, agrees that the new bill is “pretty ineffectual”, but suggests that banning all donations from companies and trade unions would make state funding necessary – see: Less haste, more beef, please.

Newstalk ZB’s Mike Hosking also challenges how the new law would work: “the new rules solve nothing. And who is a foreigner? And whose money is it when it hits the party coffers? What about a company ultimately owned by a foreigner but domiciled here? What about a company partially owned by a foreigner? What about a new resident or new arrival on a business visa? What about a foreigner putting money through a resident? For every rule, you can dream up several scenarios to get around it. Like the tax, both legal and illegal” – see: Donation law is laudable bit ultimately pointless.

National’s spokesperson, Nick Smith, has been arguing that because of the way the new rules have been designed, they can easily be thwarted by foreign sources wanting to donate. He says “It’s very easy to set up a trust or a company or some other way to get around the new limit of $50 that’s proposed in this bill. So it’s not particularly robust” – see RNZ’s Foreign donations ban bill not robust – Nick Smith.

Smith says the new law needs to ensure that companies registered in this country and donating to politicians really are bona fide New Zealand companies: “A number of countries have different rules around whether it’s a trading company in New Zealand or what those different rules are around how they might be able to donate… For instance, you’ve got a company like Fletchers – a very New Zealand company, but actually has a majority of foreign investors. You need to resolve those sorts of details if you’re going to do this law robustly.”

According to researcher Pete McKenzie, “The distinction between protecting New Zealand from foreign interference and preventing corruption domestically is artificial”, and “the newly announced ban will do almost nothing to prevent foreign donations affecting New Zealand politics” – see his Guardian opinion piece, The foreign donation ban is a good thing – but it won’t protect NZ from political corruption.

He quotes the SIS director general, Rebecca Kitteridge, on foreign donations from earlier in the year: “We know that a foreign donation ban would not on its own be an effective way of mitigating the risks New Zealand candidates and MPs face… A foreign actor could easily use a proxy to work around such a ban. We know that foreign states are adept at understanding and working around regulatory regimes.”

McKenzie also challenges whether foreign donations being banned are even that significant: “Since 2011, foreign donations to New Zealand’s political parties have amounted to a mere $105,194… Total donations to parties over that same period amounted to more than $44m. Put simply, the foreign donations which New Zealand will soon ban are just 0.24% of the overall picture.

Anti-democratic abuse of urgency

The new “ban” on foreign donations law (or the “Electoral Amendment Bill No 2”) was passed this afternoon under parliamentary urgency. This is also being condemned across the board by commentators. For example, Andrew Geddis says this is “somewhat concerning” and that “Andrew Little is starting to betray a worrying habit” given that he has recently also pushed through the Terrorism Suppression (Control Orders) Bill.

Writing yesterday, Geddis emphasises that “this morning was the first time the public (and the opposition) even saw this legislation” and “means that there was no opportunity for select committee scrutiny, and no chance for the public to submit their views on the Bill.”

The official justification for pushing the new law through Parliament was the convention that changes to election rules shouldn’t be made in the actual year of an election. The Government had been relying on the justice select committee to come up with some recommendations prior to now. And this had been stymied by what Henry Cooke calls a “mess” on the select committee, pointing out that “its inquiry into foreign interference in our election processes went through six separate chairpeople in less than four months.”

Regardless of such frustrations, Cooke wasn’t buying the Government’s justification for such extreme urgency, claiming that it “is an appalling way to make law. A bad select committee does not excuse running roughshod over Parliament.” Furthermore, he argues, “Andrew Little could slow down and pass this bill with a single week of select committee hearings without stopping his aim of getting it in place by next year.”

In the blogosphere, there was agreement with this. From the left, No Right Turn said the proposed change “seems like a move which needs serious select committee scrutiny. Otherwise, we’re either going to end up with a cosmetic PR move, or a f…-up. And the public deserves better than that” – see: This is bullshit, and our democracy deserves better.

From the right, David Farrar was outraged: “There is no reason it should bypass select committee scrutiny and shame on the Greens for supporting ramming it through under urgency. Some Government apologists have tried to claim it must be done under urgency tonight to stop a rush of mythical foreign donations flowing through before the law takes effect. But the apologists haven’t even read the bill. It doesn’t take effect until 1 January 2020 so passing it tonight under urgency still means you could have the imaginary flood of donations occur” – see: Government rushing electoral law changes through under urgency.

Explanations for the bad law

In his blog post, David Farrar offered an explanation for why the Government might be so keen to avoid the public and opposition proposing changes: “If the bill went to select committee an amendment could be considered that would extend the ban (over a certain level) to foundations established by political parties to fund them. But Labour and the Greens don’t want to do anything about any foreign donations to the NZ First Foundation, so they’re rushing it through under urgency. Shame.”

The best analysis for why the Government was so keen to push this through, comes from Heather du Plessis Allan, who says “It’s nothing more than an attempt to look like it’s being tough on donations, timed for exactly when New Zealand First is facing questions about donations” – see: Foreign donation ban is half-arsed and conveniently timed.

Du Plessis Allan points out that this issue has been around for years – especially with Australia banning foreign donations two years ago – and it’s suspicious that out of the blue it’s become urgent enough to be passed within a day. She elaborates: “Anyone else think the timing is just a little cute? You’ve got the minor coalition party in trouble over donations allegations, and suddenly the major coalition party wants to make it look like it’s taking a hard line on donations. Very clever – pity we can see right through it. The reason this strategy is so obvious is because this law is so half-arsed. It doesn’t actually doesn’t look like it’s going to change much.”

Similarly, Barry Soper argues today that the donation ban is all about producing a distraction to get the Government out of tight spot: “So what does a Government do when it’s on the ropes? It looks for something that’ll get traction. Banning foreign donations to political parties even though it would seem the largesse of cash-rich foreigners is around the same level as our contribution to world greenhouse emissions, 0.2 per cent of total donations at the last election” – see: Master class of what Government does when it’s on ropes.

Soper is also sceptical of the new rule directing political party secretaries to decline any donations that might not clearly be domestic in origin: “The party functionary will be expected to track down who’s actually behind the cash flow. But what if the money’s fed through a New Zealand company without a foreign name? Russian rubbles would of course be a dead giveaway but if it’s been converted into dollars and the party secretary’s still unsure, it’ll go into consolidated fund – yeah right.”

Finally, the Labour Party continues to face questions about the ethics of their own political fundraising which involves $1500-a-head functions for businesspeople to meet the Prime Minister and her colleagues. But Jacinda Ardern has justified the arrangements – see Henry Cooke’s Jacinda Ardern says in ‘perfect world’ political parties wouldn’t have to fundraise at all.