Dr Bryce Edwards: Court ruling shows big political donations can be given secretly

New Zealand’s rules to regulate money in politics can now officially be declared broken. Although, in theory, political parties are required to publicly declare any large donations, we now know that in practice they sometimes don’t, and the enforcement and legal consequences can be extremely weak.

We know this because this month the Court of Appeal overturned the convictions of the political donors who were on trial last year for channelling large undisclosed donations to the National and Labour parties.

The original trial saw charges being brought against a number of National and Labour insiders, including former National MP Jami-Lee Ross and three members of the Chinese community in New Zealand. The High Court trial resulted in three individuals being convicted of fraud, but the Court of Appeal overturned the main guilty verdicts last week.

Although this landmark outcome has barely been reported, it is worth examining in detail, as the result has significant consequences for New Zealand’s democracy, how we run our elections, and whether wealthy vested interests can buy power. The main ramification of the new “not guilty” verdict is that New Zealand can now be deemed to have very weak rules regulating big money in politics.

The Court of Appeal judges made this point themselves. In quashing the convictions, they stated that the “inability to charge the defendants with offences under the Electoral Act exposes a significant weakness in the offence provisions of that Act.”

Unfortunately, there is no sign that this significant weakness is about to be reformed. The Labour Government had set up a panel of experts to look at the regulation of donations, but these areas of concern were not part of their remit.

The original allegations of fraud

The whole controversy, which led to the subsequent court trial, began in 2018 when Jami-Lee Ross – then a senior National MP – went public about a $100,000 donation given to his party that hadn’t been disclosed to the Electoral Commission. Ross pointed to the legal requirement that donations over $15,000 must be declared and claimed fraud had been committed by having the large donation from one individual broken into smaller sums and transferred to National via seven different individuals to circumvent the rules.

The Serious Fraud Office (SFO) then spent millions of dollars investigating a wider pattern of donations and financial transactions, charging seven people. Jami-Lee Ross himself was charged. Donations to National amounted to over $200,000, and smaller amounts were donated to Labour via art auctions.

A ten-week trial then took place last year, which resulted in three men being found guilty of fraud – wealthy property developer Yikun Zhang, and twin brothers Colin and Joe Zheng. The latter was also convicted of lying to the SFO during their investigation.

The Court of Appeal overturns the verdict

The seven accused of fraud were all charged under the Crimes Act. The SFO had decided not to prosecute with the Electoral Act, in the belief that it wasn’t strong enough to achieve a conviction.

However, the three businessmen who were convicted by the High Court then appealed this, arguing in the Court of Appeal that the provisions of the Crimes Act they were charged under meant that the prosecution had to show they had obtained a financial gain from their actions. The SFO failed to show that the defendants had gained materially from their actions designed to circumvent donation laws.

Although the SFO prosecution couldn’t point to any asset of financial value that the defendants had gained as a result of their deception, they argued that the donors had obtained protection from public scrutiny. In particular, the argument put to the courts was that the motive behind the obscuring of the donations was to prevent the public from realising that Labour and National MPs had lobbied for a wealthy donor to receive a royal honour. After all, the original source of the money was Yikun Zhang who was, in 2018, made a member of the New Zealand Order of Merit.

Essentially the defendants weren’t able to convince the court that no “sham donations” had been made, but rather that a prosecution wasn’t possible. The public might well see this as a case of the defendants getting off on a technicality.

Joe Zheng was unable to get his conviction for lying to the SFO overturned by the Court of Appeal.

Parallels with the failed SFO case against NZ First

The SFO’s failed case against the donations to National and Labour comes after an equally shocking failure to win last year’s High Court trial against those involved in undisclosed donations to the New Zealand First party.

The NZ First trial showed how the rules were easily avoided simply by having a system set up where cheques were deposited into a bank account of a separate legal entity called the New Zealand First Foundation. In this case, the judge ruled that these large gifts – about $750,000 in total – did not qualify as “political donations” under the Electoral Act. Therefore, the donors weren’t disclosed, and although the SFO viewed this as a violation of the Crimes Act, the judge acquitted the defendants. The case is not necessarily over, as the SFO has appealed this decision.

In all these trials – relating to NZ First, National, and Labour – the SFO has chosen not to prosecute under the Electoral Act, choosing instead to use the Crimes Act. And this month, in their judgement the Court of Appeal said that the SFO was “vexed by the lack of connection between the conduct in this case and the offence provisions in the Electoral Act.”

Surely the SFO needs to front up now and explain to the public the decisions it’s made, why the powerful agency has failed to get convictions, and what it believes are the inadequacies of the Electoral Act. The main conclusion to be drawn is that the Act needs a significant overhaul. But without the SFO providing any real detail about this, it’s hard to have a public debate on this crucial issue.

An unsatisfactory outcome

New Zealand has now had two high-profile political donations trials which have proven that the regulation of large donations to political parties doesn’t work. All three political parties have been able to accept and retain very substantial donations without these being declared. And even now, neither NZ First, Labour or National have had to relinquish any of the various undeclared donations.

The main authorities, from the police to the Electoral Commission and the Serious Fraud Office, all appear to be relatively toothless. And there is no real prospect of reform occurring anytime soon.

Massive change is needed to clean up our electoral processes. Yes, the Labour Government appointed a panel to look at a few areas relating to political donations, but this has not yet delivered anything particularly meaningful, largely because the review was focused on other electoral issues. And while the Labour Government didn’t appear to have much appetite for thorough reform, the incoming National Government is likely to have even less.

There also now needs to be a bit more scepticism about the Honours processes, as the most recent trial suggested that New Zealand suffers from a “Cash for Honours” regime in which royal awards are much more likely to be given if you’ve befriended or donated to politicians.

In lieu of any real reforms being made by Labour or National governments, there needs to be less naivety and complacency on the part of the public and media in terms of the transparency of donations. The current rules can’t be trusted to make large donations transparent and prevent the purchase of policy from politicians. For too long New Zealanders have had a misplaced and false sense of security about corruption in our political system. The “high trust model” that is the Electoral Act is not serving democracy well.

Dr Bryce Edwards is the Political Analyst in Residence at Victoria University of Wellington. He is the director of the Democracy Project.