An off-the-books enterprise was set up to fund NZ First without the public’s knowledge, and a court just ruled that’s entirely legal. Laurie Duncan explains.

On Friday morning, Justice Jagose released his decision finding two individuals connected with the NZ First Foundation not guilty of criminal offending connected with that entity. In an earlier decision, he decided that these individuals should have their identities permanently suppressed. What does it all mean?

The NZ First Foundation … what was that again?

It was a trust set up to help out with the NZ First Party’s funding problems. In theory, the money paid into it would buy “capital assets” that would create a steady income stream for the NZ First Party. This model is used, entirely lawfully, by the National Party.

In practice, however, the NZ First Foundation appears to have worked more as an off-the-books slush fund for the NZ First Party. Whenever a bill needed paying for the party’s campaign activities, the foundation would fork out the money.

But if it was set up to help the NZ First Party, and it did help the party, what’s the problem?

The problem was that the NZ First Party’s secretary was never told about the money paid into the foundation – some $678,000 from a range of pretty well-off individuals. And because the party secretary never knew of this money, it was not included in the party’s return of donations to the Electoral Commission. Meaning that its existence never got made known to the public.

That all sounds just a little bit dodgy, doesn’t it?

That’s what the Electoral Commission thought, too. When information about the foundation’s activities came to light, it referred the matter to the police. The police then handed it on to the Serious Fraud Office (SFO). And the SFO brought charges under the Crimes Act 1961, s 240 (“Obtaining by deception or causing loss by deception”).

Which the judge has just rejected, right?

Yes – Justice Jagose found that as the SFO hadn’t made out all the necessary elements of the offence, the defendants were not guilty of it. Which is how criminal law works.

Why?

Well, like a lot of the law, the reason is a bit complicated. But in a nutshell, the offence under the Crimes Act could only be committed if the two accused had a legal obligation to give the money they received over to the party secretary. And that legal obligation only arises if the money they received met the definition of a “party donation”, being: “a donation … that is made to a party, or to any person or body of persons on behalf of the party who are involved in the administration of the affairs of the party.”

The judge then decided that because the accused weren’t “involved in the administration of the affairs of the party” when they received this money, then it wasn’t actually a party donation. That’s irrespective of any roles that those individuals also played in NZ First; because they set the trust up as a separate entity, and received the money in their capacity as trustees, they weren’t wearing a party hat when they got it.

So, to recap, hundreds of thousands of dollars were given by people who wanted to help the NZ First Party win political power …

Yes.

To people who set up a trust purely to help the NZ First Party win political power …

Yes.

And then was spent on activities intended to help the party get its candidates elected …

Yes.

But this wasn’t considered a donation to the party?

No.

Isn’t that a bit, you know, crazy?

You may very well think that. I couldn’t possibly comment.

So, where does all of this leave us?

In a bit of a mess, really. The effect of this judgment is that it is entirely legal for a party to set up a shadow, off-the-books funding enterprise to pay for all its activities. As long as the people running the enterprise take in money as “trustees” for that enterprise, it won’t be considered a donation to that party. And if it isn’t a donation to a party, then nothing about it needs to be declared to the Electoral Commission.

So, the decision has pretty much gutted the transparency requirements in our Electoral Act?

Yep. Any donor can now effectively fund a party’s activities with as much money as they want without there being any legal obligation to tell anyone about it. And this includes overseas donors, who are otherwise prohibited from giving more than $50 directly to a political party.

Yikes! Can anything be done about this?

Well, in a bit of perhaps good timing, the government has just this week introduced an Electoral Amendment Bill into the house. It already includes a bunch of proposed amendments to require more donation disclosure by political parties. Let’s just say that its now going to need to have a whole bunch more put into it to undo the effect of this decision.