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Illustration: Toby Morris
Illustration: Toby Morris

PoliticsOctober 27, 2022

How to hide a million dollars in politics

Illustration: Toby Morris
Illustration: Toby Morris

Two recently-concluded court cases highlight the inadequacies of New Zealand’s political donation laws, writes Max Rashbrooke.

According to the official records, David Zhang had donated $8,000 to the Labour Party by buying an overpriced piece of art at auction. So it was something of a surprise when he stood up in court and said, “I do not like the Labour Party. I’d rather burn money than give it to Labour.”

Zhang’s comments were just one darkly comic moment in the long winter of cases in which people connected to National, Labour and New Zealand First went on trial for trying to hide the sources of those parties’ funding from the public. And now that the cases have concluded (pending appeals), and some defendants been convicted, it is time to take stock of a political finance system that appears wide open to abuse, and reflect on how it might be reformed.

The first court case, which wound up in July, concerned the New Zealand First Foundation, set up as a fundraising vehicle for Winston Peters’ centrist party. It solicited large sums from wealthy New Zealanders, and took in nearly $700,000 in what were, on the face of it, donations. Most of the sums were over the $15,000 threshold at which, under the Electoral Act, the donor’s identity must be publicly disclosed. Many of the givers thought the money was going to New Zealand First, and the foundation used the cash to pay the party’s bills. These were, in substance, donations: sums the New Zealand public should have known about, so that they could see who was funding the party and be on the lookout for favours being paid in return. This is the basic premise of our transparency laws.

In this case, however, the defendants – who have name suppression – were acquitted, partly on the technicality that, in law, donations are sums given directly to a party or to people “involved in the administration of the affairs of the party”. The defendants, in the judge’s view, were administering the foundation, not the party itself. This ruling suggested that unlimited sums could be anonymously channelled to parties through related entities: a loophole so large you could drive Winston Peters’ bus right through it.

The Winston Peters battle bus outside parliament in 2020. (Photo: Justin Gionvannetti)

To further underline the law’s weakness, the defendants weren’t even charged under the Electoral Act, which lacks sufficiently strong penalties and, in some cases, the kind of offences that would cover such activities. Convoluted charges under the Crimes Act were filed instead. What’s more, many donors admitted to the Serious Fraud Office (SFO) that they had split their very large donations into sub-$15,000 tranches, routing those sums through the bank accounts of friends, family members and companies and trusts they controlled, in order to keep their (the true donor’s) identity secret. (As the foundation wasn’t disclosing the donations anyway, this was an unnecessary precaution.) Yet they weren’t prosecuted, for reasons that remain unclear.

In the winter’s second big political case, the judgement in which landed earlier this month, the SFO finally got a conviction.  The trial revolved around three Aucklanders: wealthy businessman Yikun Zhang and his associates, twin brothers Colin and Joe Zheng. All three were found guilty of concealing a $100,000 donation from Zhang to National by splitting it into sub-$15,000 tranches and routing them through other people’s bank accounts. Colin Zheng was also found guilty of concealing Zhang’s identity as the donor of another $100,000 to National, and Joe Zheng was convicted of lying to the Serious Fraud Office (SFO).

Image: Tina Tiller

Why they so badly wanted to conceal Zhang’s identity was never fully explained, though the SFO did note that he had eagerly sought, and received, an official Honour (MNZM) from the National government of the time. Ironically, the disgraced former National MP Jami-Lee Ross, who had solicited donations from Zhang and whose allegations of wrongdoing sparked the whole trial, was cleared of all charges, the judge disregarding his self-incriminating testimony owing to the state of his mental health at the time.

When the SFO had been following up Ross’s allegations, though, they found that Zhang had also donated to Labour. Following that trail led to charges against him and the Zheng brothers – heard in court simultaneously with the National charges – of conspiring to conceal another $35,000 donation. Zhang had paid $60,000 for five artworks that Labour had valued at $25,000, the balance counting, the SFO argued, as a donation.

The payment was again disguised, this time by the Zheng brothers falsely claiming that five members of Auckland’s Chinese community had bought one artwork each at a silent auction. One of them was the above-mentioned David Zhang, whose anti-Labour views – and insistence that he had never bought a painting in his life – underscored the SFO’s case.

For all that, the defendants were cleared of the Labour-related charges, essentially because of an SFO mistake. The agency had failed to independently value the artworks, raising the (very slim) prospect that the paintings might actually have been worth over $45,000 and therefore Zhang’s donation (the difference between his payment and the artworks’ market value) would have been less than the $15,000 that needed to be declared. Two Labour Party defendants were also cleared of charges, on the basis that, although they had clearly provided false statements about the donations, they might simply have been misled by Zhang and the Zheng brothers.

Jami-Lee Ross, accompanied by Heather Stewart, walks free from the High Court in Auckland. (Photo: Toby Manhire)

What can we conclude from these two cases? Clearly the law is inadequate. The government has said it will close the New Zealand First Foundation loophole, but it may need to go further. Penalties for breaches may need to be strengthened, and the law may need a general “anti-collusion” offence to catch donation subterfuges the law can’t specifically anticipate. 

It is clear, too, that the concealment of donors’ identities, via donation-splitting, is widespread. Stopping it altogether is difficult, but greater transparency would help. So the government may need to go beyond its current plan to lower the threshold for disclosing a donor’s identity from $15,000 to $5,000. Even at that level, a donor of $60,000 could hide their identity by splitting the sum among 12 people; at, say, $1,500, they would have to involve 40 people in the conspiracy, significantly raising the chances of being ratted out or otherwise detected.

It is also worrying that these cases were brought to light only by whistleblowers – albeit strange ones, in Ross’s case – and not by tough, systematic inspections by regulators. Such haphazard methods of discovery leave ample room for more offending to go undetected. 

And indeed the trials remind us of just how weak our regulatory agencies are. The SFO, though basically in the right, made rookie mistakes. The police appear to be generally reluctant to take donations-related cases, perhaps because those cases are so intensely politicised. Meanwhile the Electoral Commission, which should be the first agency to detect wrongdoing, has almost no ability to do so. It receives donation summaries from political parties, but cannot check whether the summaries match the party’s own internal records, nor whether those records themselves are reliable. It can compel neither documents nor witnesses.

The consequence is that party funding often remains opaque; the public is kept in the dark. Across the two cases, something close to $1m was given to political parties from people whose identities would, absent whistle-blowers, have remained secret forever. And this winter’s cases are just two in a long line of donations scandals that have, until the National-related convictions, resulted in precisely zero successful prosecutions. One partial success does not greatly change the overall impression that the country’s electoral laws, and its system of enforcement, are both in need of serious repair.

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Anna Rawhiti-Connell
— Senior writer
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Image: Tina Tiller
Image: Tina Tiller

OPINIONPoliticsOctober 27, 2022

Defund Ponsonby (and give the money to suburbs that actually accept new housing)

Image: Tina Tiller
Image: Tina Tiller

A call to stop a ‘gold-standard’ cycleway programme in inner-city Auckland may be misguided, but the objections contain a kernel of truth.

In a shocking and unprecedented turn of events, a recent edition of the Herald has carried a negative story about a proposed cycleway. You’re probably fainting and vomiting from surprise, but it’s true. Under the headline “$100m cycling project in doubt under Auckland Mayor Wayne Brown”, famously objective, even-handed straight news reporter Bernard Orsman writes that three upgrades are “seemingly on the skids”, as Brown directs AT to focus on less costly cycleways.

As is traditional for the Herald’s reporting on Auckland issues, the story is riddled with distortions. Some of the cycleways in question aren’t just cycleways at all, but road upgrades. As Russell Brown notes, the real scandal is that AT is raiding its cycling budget to rebuild a road its predecessors built over a load of subsiding trash.

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Liam Rātana
— Ātea editor

Wayne Brown doesn’t have the authority to put anything on the skids without the approval of the council’s governing body, but even if he did, cancelling the projects would be a bad idea. They’ll link several town centres to each other and the northwestern motorway cycle path, creating a network effect which should take pressure off our clogged roading system. Though congestion advocates like Lee may want to keep the streets jammed for tradies, taxi drivers, and people hauling entire kids’ weekend netball teams, they deserve to be able to move around without having to compete for scarce road space with a Ponsonby lawyer driving 400 metres to pick up fine cheeses in an overspecced Ford Ranger.

Having said that, the story does contain a kernel of truth. In his quotes to Orsman, Lee says AT’s plans are “horrendously expensive”. That may or may not be accurate when it comes to these projects, but it’s definitely true our authorities are spending far too much on gold-standard infrastructure in his ward, Waitematā, which includes the rich central suburbs of Ponsonby, Grey Lynn, Herne Bay, Westmere and Parnell. Many of those areas are refusing to accept much new housing, citing the “special character” of their renovated villas.

Though the council often delusionally whimpers about creating a “compact city”, it has forbidden dense development on roughly 40% of the land within 5km of the city centre. Waitematā’s population actually dropped 9.7% last year. Fewer housing consents are issued there than anywhere else. The suburbs closest to the city centre are not just growing slower than anywhere else; they’re shrinking.

Despite that, these suburbs are also some of the biggest beneficiaries of the council’s infrastructure investment. Lee’s loathed cycleways are just the tip of the iceberg. Three new City Rail Link stations are being built within walking distance of Tāmaki Makaurau’s so-called character suburbs, which already have rapid transit. The parks are pristine. The pools are plentiful. The roads are sealed.

Meanwhile, it takes Amanda Kennedy three hours to get to work using public transit. She’s no longer legally allowed to drive after recently being diagnosed with adult-onset epilepsy following a bout of Covid. Her commute from Henderson Valley now involves a snaking bus journey through west Auckland, if the bus shows up at all. In an effort to find a more reliable alternative, she recently bought an e-scooter to get to Sunnyvale train station, only for train frequencies to be reduced as Kiwirail works to address decades of underinvestment in track maintenance.

“People with epilepsy, with other disabilities, or without cars for whatever reason still need to exist and get around,” she says. “We pay tax, we pay rates, and we subsidise actual functioning public transport for people in fancier suburbs, while our normal transport needs are ignored.”

The latest statistics from Auckland Council show it’s consenting more houses in the Henderson-Massey area than anywhere else. The influx of housing is bringing opportunity, but it hasn’t been matched by necessary large-scale infrastructure investment. Kennedy’s journey is so long because the west has almost no dedicated bus lanes, no rapid transit like the Northern Busway, and few cycleways to take pressure off the roads.

“The density of housing in West Auckland continues to increase, with no apparent plans to improve transport or town infrastructure, while people in sparsely-populated inner-city suburbs enjoy their frequent buses and thriving town centres,” she says. “The plan for how all these extra people are going to get in and out of west Auckland seems to consist of planners covering their eyes and going LA LA LA, I CAN’T HEAR YOU.”

In general, the richer the area, and the closer it is to existing infrastructure, the less likely it is that the council will allow people to build housing (Graph: Greater Auckland)

Waitakere councillor Shane Henderson says the west’s unrivalled hospitality isn’t being reciprocated with extra council funding. In a recent council meeting, he implored his colleagues from richer, better-serviced and connected suburbs to “do your bit”. He says poorer communities on Auckland’s fringe often don’t get heard at the council table, while residents of rich inner suburbs complain until they get their way. That may be their right in a democracy, but he believes it should come at a cost – literally. “If communities don’t want to take growth, that’s fine. But I think they should also not take so much funding. That’s a quid pro quo situation, surely.”

The same goes for the south. Until Henderson-Massey took over, Papakura was routinely topping the council’s list for consents issued. Its local councillor Angela Dalton says that growth hasn’t come with enough extra money for community facilities and transport upgrades. “I think it’s dire, honestly.  Especially when I look at what other areas get. Look at Ōrākei: it’s beautiful. When you look at how the suburbs are getting these beautiful projects, and we are not getting what we need to support a growing community, it’s inequitable. It’s unfair. It’s absolutely unfair.”

To add insult to injury, suburbs like Ponsonby are economic parasites on the poorer suburbs that actually accept their share of growth. Research done on Lafayette, Louisiana and Eugene, Oregon shows dense housing makes a positive return for councils, while sprawl and low density developments like those common on Auckland’s city fringe are a negative for a city’s finances.

How much low density residential costs cities, from research on Eugene, Oregon.

Many of Auckland’s richer character suburb residents are likely the type to grouse about so-called benefit bludgers, even as economists go on TV to command politicians and bankers to generate more unemployed people to help the economy. In reality our city’s villa dwellers are the biggest bludgers of all. They selfishly refuse to welcome new people into their area, then ask the people living in the dense housing blocks they’ve rejected to subsidise their lifestyles.

But the residents of Ponsonby can’t sit back, do nothing, and expect a free handout from the government and taxpayers. Bernard Orsman and Mike Lee are right: Grey Lynn, Westmere and Herne Bay should get less gold-standard infrastructure. Instead, Te Atatu Peninsula needs new playgrounds. Papakura needs protected bike lanes. Kennedy needs a bus that doesn’t get stuck in traffic or trains that turn up more than once a day. If you won’t accept more people, you can’t ask for more money. It’s time to defund Ponsonby and give it to the suburbs doing their bit.

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Gabi Lardies
— Staff writer

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