5.1 The primary public concern over the effectiveness of the Act's disclosure provisions since the 1996 report has centred around The Greenfields Foundation (Greenfields). Greenfields is a trust to which the Federal Secretariat of the Liberal Party owed $4 450 000 as at the 30th of June 1999. This amount had reduced from an original amount of $4 750 000 in 1996 by three payments by the party, each of $100 000. The debt was assigned to Greenfields by Mr Ron Walker following the party acknowledging an obligation to indemnify him for his payment in discharge of a guarantee over an existing debt of the party. The AEC has undertaken extensive inquiries into the transactions surrounding the debt owed to Greenfields.
5.2 As the result of a compliance audit of the Federal Secretariat of the Liberal Party in 1998, the AEC required an amendment to be made to the party's 1996/97 annual disclosure return acknowledging the receipt of a sum from Mr Ron Walker. Correspondence with Mr Walker advised him that any persons or organisations from whom he had received donations which were used by him in making his payments totalling $4 750 000 may have disclosure obligations under the Act (the Act deems that donations of $1 500 or more made for the purpose of benefiting a registered political party are disclosable even where those donations were not made direct to the party). After follow-up inquiries, Mr Walker stated that he had not received any such donations.
5.3 The AEC also wrote to the trustees of Greenfields seeking associated entity disclosure returns. The trustees responded that their view was that Greenfields was not an associated entity, citing the objects of its trust deed that limited it to the purpose of making donations to charitable organisations with a further restriction that it could not make donations to political parties. Subsequent to these inquiries, the Act was amended giving the AEC the power to inspect the records of organisations for the purpose of determining whether, in its opinion, that organisation has a disclosure obligation as an associated entity. The AEC exercised this new power in relation to Greenfields and examined the records of the foundation.
5.4 The AEC formed the view that, notwithstanding the provisions of its trust deed, Greenfields was an associated entity. It was concluded that Greenfields was treating the Liberal Party in an uncommonly favourable manner in that it appeared that annual repayments of only $100 000 on the original debt of $4 750 000 had been demanded and that no interest had been charged or demanded. The AEC's view was that the trustee's lenient treatment of the Liberal Party in servicing the debt represented a benefit to the party.
5.5 The AEC wrote to Greenfields in September 1999 demanding lodgement of disclosure returns covering the 1996/97, 1997/98 and 1998/99 financial years. On 11 November the returns were lodged, although unsigned and under protest, with the trustees maintaining their view that Greenfields is not an associated entity. The AEC accepted the returns, although unsigned, as they were accompanied by a signed letter from Greenfields' financial controller which stated that they contained all the information that an associated entity would be required to disclose.
5.6 It is apparent that a person, or in certain circumstances a corporation, who wished to avoid full and open disclosure could do so by a series of transactions based on the Greenfields model. The AEC believes that such potential circumventions of the intention of the public disclosure provisions in the Act should be addressed legislatively as a matter of priority.
5.7 In its simplest form this type of arrangement might be structured as follows:
5.8 In an example such as the above, the identity of the guarantor and the payment of the guarantee would not need to be disclosed in any return lodged with the AEC because:
5.9 Instead, only the creditor would be disclosed by the party as being owed the outstanding balance of the debt arising from the payment of the guarantee. Should the creditor not have any individual disclosure obligations, for instance as an associated entity, the identity of the guarantor – the real source of the funds – need not be disclosed anywhere.
5.10 To continue the scenario outlined above, even if the creditor were to forgive the debt owed to it by the political party, it is likely that no disclosure would be required of the gift to the creditor of the debt assigned by the guarantor despite the fact that the political party ultimately has been financially advantaged by arrangements initiated by the guarantor. The AEC believes that the identity of the guarantor in such circumstances is potentially as important to the public record as in the case of a donor to a political party, but under the current legislation that disclosure may not be required.
5.11 The issue of non-disclosure, however, is potentially deeper than just the suppression of the identity of the guarantor. It could be the case that the money used by the guarantor to pay the financial institution was provided by another person (the donor). Subsection 305B(2) of the Act deems that a person who makes a donation to another person with the intention of benefiting a political party is taken to have made that donation direct to that political party. In whatever circumstances the payment of a guarantee over the debt of a political party has taken place, that political party has benefited. The donor, who was the true source of the funds used to pay that guarantee, could have a disclosure responsibility under this deeming provision; however, disclosure cannot be guaranteed. It is most likely that, under this scenario, the donor would not know of their disclosure responsibility. This ignorance is compounded by the lack of any legal compulsion for the AEC to be notified of the transaction or of the donor's identity – the guarantor who received the donation has no obligation to disclose its receipt, and the political party which has been the beneficiary may not even know of the donation to the guarantor and therefore would not disclose it. Ultimately the AEC, which is tasked to administer disclosure in the interests of transparency in the political financing process, has no means of identifying the donor and obtaining a disclosure return.
5.12 The failure of the donor to lodge a disclosure return in these circumstances and the inability of the AEC to identify that donor and enforce their disclosure responsibility is a serious loophole open to exploitation, either intentionally or unintentionally. It is the opinion of the AEC that recent amendments to the Act effected by the Electoral and Referendum Amendment Act 1999 do not fully address the loophole as outlined above, primarily because there remains no requirement for disclosure of the guarantor and therefore no link to the donor, the true source of the funds. That is to say, the AEC, and therefore the public, would still never know of the donor or the donation unless the donor knew of their disclosure responsibility and initiated their own compliance with the Act.
5.13 The AEC believes that the simplest and most effective way to close this loophole is for the Act to deem the payment of a guarantee to be a donation. This would complement the initiative of the Electoral and Referendum Amendment Act 1999 for donors to political parties to disclose donations they have received. These changes would ensure that there is a complete trail of disclosure back to the true source of funds received by, or of benefit to, political parties – an essential precondition if the disclosure system is to be effective. While the payment of a guarantee is not identical to the making of a donation, the fact that a benefit is obtained by a political party in either instance is the critical issue and all benefits received by a political party that have a financial value should be disclosed if the intent of the Act is to be honoured.
The payment of a guarantee to be deemed to be a gift for the purposes ofthe disclosure provisions of the Commonwealth Electoral Act.
5.14 The amendment made to the Act by the Electoral and Referendum Amendment Act 1999 required donors to political parties to disclose details of donations of $1 000 or more they received in making their donations. The AEC believes that for clarity and consistency this threshold should be set at the same level as for the disclosure of donations made to a political party, that is to say, at $1 500.
5.15 Further, the amendment contains a potentially serious flaw in that it does not specify, as is done elsewhere in the disclosure provisions of the Act, that two or more donations from the same person are to be taken as the one donation. Such a provision is intended to prevent a person from evading disclosure by splitting their donation into a number of amounts each falling under the set threshold.
Raise the threshold at which donors to political parties are required to disclose gifts received and used by them, either in whole or in part, to fund their gifts to a registered political party from $1 000 or more to $1 500 or more to maintain a consistent value at which the Act deems disclosure necessary.
The threshold at which donors to political parties are required to disclose gifts received of $1 000 or more (or $1 500 or more if the above recommendation is accepted) to include two or more gifts from the same source which together exceed that threshold.
5.16 Whatever legislative scheme is adopted, there continues to be a question whether donors to political parties are making complete and accurate disclosures, especially in regard to the sources of funds they may have used in making their donations. Annual disclosures by political parties and associated entities are subject to routine compliance audits by the AEC as an independent assurance of their veracity. This audit function also covers 'prescribed persons' listed at Appendix 3. Prescribed persons include donors to candidates but, in an apparent oversight in amendments made to the Act by the Commonwealth Electoral Amendment Act 1995, no longer to donors to political parties.
5.17 The AEC recognises that the blanket auditing of donors to political parties would be intrusive and of little value in many cases. Such action is also likely to discourage the giving of donations. Nevertheless there is a strong public interest consideration in having the disclosure regime enhanced by making persons and organisations who make substantial donations to political parties open to compliance audits by the AEC. It is perhaps worth noting that donors to candidates and Senate groups, indeed all third parties at an election including those listed in this Report at Appendix 3, already are subject to compliance audits, but that the AEC has not seen the need to date to ever conduct such an audit.
Donors to political parties above a predetermined threshold be subject to compliance audits.
5.18 Expenses or debts that have not yet arisen but are contingent upon the occurrence of some other event, could nevertheless be as significant to a political party or an associated entity as an existing debt. Debts are disclosable because it is recognised that a creditor potentially is in a position of attempting to exert influence over a party that is carrying significant debt.
5.19 The giving of a guarantee over a party's debt is one example of a contingent liability. It does not of itself give rise to a debt and, therefore, there is no disclosure required currently of the existence of the guarantee. But even without a debt ever arising from the guarantee, its very existence is a matter of public interest.
5.20 The giving of a guarantee would not be required or given except where necessary for a party to maintain or extend its level of debt with a creditor. There is clearly a benefit being provided to the party in having its debt guaranteed. The rationale for the disclosure of donations is that the provision of a benefit to a party has the potential to come with 'strings attached' and that the public interest is served by having such transactions publicly disclosed. This rationale is equally applicable to an instance such as the giving of a guarantee.
5.21 Other contingent liabilities could also be used as leverage to 'strike a deal' with a political party. For instance, court action against a political party could be dropped after receiving some other favourable treatment, such as being awarded a large government contract. Again, without disclosure of the contingent liability there is no public transparency of any such transaction.
5.22 Contingent liabilities are no more likely to be successfully used to corruptly influence a political party than donations, but if donations and debts are required to be disclosed, there is an equivalent need to disclose contingent liabilities. Contingent liabilities, such as the giving of a guarantee over party debt, should be disclosed where the potential liability could exceed $1 500.
Contingent debts be treated identically to current debts for disclosure purposes.