Some Conservative legal problems

May 28th, 2012 at 2:00 pm by David Farrar

Claire Trevett at NZ Herald reports:

leader loaned $1.9 million to his party for its election expenses, but this month wrote off $1.6 million of that loan as a donation.

A $1.6 million donation was disclosed to the on May 18 under the law requiring donations of more than $30,000 to be declared within 20 working days.

The party’s election return was also filed with the Electoral Commission on May 18 – about two months late – and it listed no donations over the disclosure threshold of $15,000 and only $11,791.50 in smaller sums.

There are numerous issues here, which may have some legal consequences. For a start one could dispute whether the loan was even a loan, when there was obviously no capacity to repay. So the first issue is was it a genuine loan, or should it always have been treated and disclosed as a donation.

The second issue is the interest on the loan. Let’s start with what the says on interest free loans. S207 defines a party donation as including:

where credit is provided to a party on terms and conditions substantially more favourable than the commercial terms and conditions prevailing at the time for the same or similar credit, the value to the party of those more favourable terms and conditions

So how big is the value of a $1.9m interest free loan?

Mr Craig said his company, Centurion Management, had paid the bills for the Conservatives’ campaign totalling $1.55 million during 2011, and subsequently billed the party for the amount.

We’ll come back to the legality of having a company pay bill on behalf of a political party.

The auditor’s report with the donation return said it was possible that Mr Craig’s $1.6 million should be listed in the donation return for election year – rather than now – if it was deemed to be a donation on the date the bills were originally paid by way of a loan, rather than the date the debt was forgiven.

And if it was a donation at the time the bills were paid, it was not disclosed when it was meant to.

Mr Craig said the party had treated the bill payments by Centurion on its behalf as credit on favourable grounds and declared interest on that at a rate of 12 per cent, which totalled a $10,590.50 donation in its return.

This is where the numbers do not add up. An annual interest rate of 12% is equal to a daily rate of 0.033%. Which means from the day the $1.6m bills were paid, daily interest of $526 is accrued.

Now if over $15,000 of interest was accrued before 31 December 2011, then a donation should have been disclosed in their donation return. This means that if the bills were paid before 3 December 2011, then the Conservatives have failed to disclose the donation in their annual return. The Electoral Commission needs to determine when bills were actually paid, to determine this.

However the larger problem may be the requirement to immediately disclose any donation over $30,000. Once that $1.6m had been paid for more than 57 days, then it needed to be disclosed. Now the overall donation was disclosed on 17 May 2012. S210C(6) states:

A return must be filed under subsection (1) or (2) within 10 working days of the donation being received by the party secretary.

This means that if the value of the foregone interest exceeded $30,000 by 03 May 2012, then it should have been disclosed before 17 May 2012. Now when is the latest the expenses should have been paid. S206E states:

A claim that is sent to the party secretary in accordance with subsection (1) must be paid within 40 working days after the day on which the declaration required by section 193(5) is made.

The declaration referred to is the declaration of election results. This was on 17 December 2012. So the bills must be paid within 40 working days. But a working day excludes any days between 25 December and 15 January. So 40 working days after 17 December is the 5th of March. This is the last possible day the advertising bills were paid. Personally I would be surprised if they were not paid in December, as people get grumpy if not paid.

The interest that would accrue between the 5th of March and the 3rd of May is $31,000 approx. So even under the most favourable legal timings I would say they also breached the continuous disclosure rule.

But on top of this we have the murky fact that the bills were paid by Centurion Management. One can either treat Centurion as an agent of the party, or as an outside entity. If it was an outside entity, then Centurion should have billed the Conservatives by the 5th of February and been paid by the 5th of March. It appears they were not paid until the mid May, when Craig repaid them. So that arrangement is also legally suspect.

If they were acting as an agent of the Conservatives (like an ad agency would), well was this documented. Of importance is that Centurion is not the private company of Colin Craig. He owns 55% and his wife 40%, but 5% is owned by a Stephen and Sarah Plummer.  Mr Plummer is a director. Did the Board formally approve the use of Centurion to act on behalf of the Conservatives and pay all their bills for them?

So I’d say there are a huge number of issues for the Electoral Commission to gets its head around. At a minimum they need details of when actual bills were paid, and then calculate foregone interest from those dates.

It is worth noting that Craig was open about the fact he was bankrolling the campaign for the party he leads. However that doesn’t mean one can ignore the rules. What Colin Craig should have done is set up a bank account for the Conservatives from the moment it was registered, donated the money to them upfront, and then have the party pays bill directly and disclose his donation within 10 working days. The way he has gone about it, has not been clean. Private companies should not be paying bills on behalf a registered political parties, and the loan should have been treated as a donation from the start as there was never any possibility of significant repayment.

It will be interesting to see what the Electoral Commission determines.

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24 Responses to “Some Conservative legal problems”

  1. Adolf Fiinkensein (2,703 comments) says:

    David, there doesn’t seem to be much difference here between Mr Craig paying some bills for a political party and the EPMU supplying endless staff hours, vehicle miles and printing etc for the political party of its choice.

    Were all the EPMU members consulted?

    Will be interesting to see how this develops but yes, he does seem to be a bit of a dil.

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  2. Nookin (3,557 comments) says:

    Just waiting for Ross69 to visit and tell you to take your eye patch off.

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  3. wreck1080 (3,999 comments) says:

    it does show the mess around funding.

    How is joe bloggs supposed to run for office with such complex rules?

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  4. Graeme Edgeler (2,972 comments) says:

    What Colin Craig should have done is set up a bank account for the Conservatives from the moment it was registered, donated the money to them upfront, and then have the party pays bill directly and disclose his donation within 10 working days.

    I just assumed he’d donated the money to the unregistered party before it was registered by the Electoral Commission.

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  5. Spoon (104 comments) says:

    How would things work if he had done what you’d said (opened a bank account, chucked $1.9m into it by way of a donation) then had only ended up spending, say, $1m. Is there an easy way to reverse the $900k difference (as there is with the loan setup – simply repaying it)?

    The last thing you’d want is to be taxed for refunding your own money to yourself.

    [DPF: There would be no tax involved. He could also have just donated money over each month as the bills came in]

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  6. George Patton (352 comments) says:

    Getting the company to pay for political party expenses?

    Sounds like a nice GST sort.

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  7. gazzmaniac (2,306 comments) says:

    I think perhaps you’re being a little bit nitpicky here.

    The general principle of being transparent was followed, we knew before the election where the money came from. No real fraud has happened, nobody has been ripped off. All this is, is a paperwork irregularity and has probably happened because Mr Craig is probably a novice with electoral law and probably doesn’t know electoral law inside out like people who work in politics day in and day out. Needless to say I don’t think he’ll do it again.

    Has Winston paid back his $160k plus interest yet? What about Labour and its $800k?

    I’m defending a guy who I will probably never vote for.

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  8. thedavincimode (6,890 comments) says:

    God won’t like this.

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  9. alex (304 comments) says:

    So interesting to see how the relationship between the liberal wing of the National Party and the Conservatives will play out. I’m guessing DPF would put himself among the liberals, he’s not given Craig a moment of credit ever since he emerged as the new Messiah of the small c conservative movement.

    [DPF: Actually I have twice praised his performance on weekend TV shows. I don’t like his policies, but I try to be fair]

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  10. AG (1,833 comments) says:

    Here’s another thing to throw in the pot. Under the Electoral Act:

    “s.206A: An election expense in relation to a party advertisement may only be incurred by—
    (a) the party secretary; or
    (b) a candidate in relation to an election advertisement [that promotes both the candidate and the party]; or
    (c) a promoter authorised [in writing] by the party secretary ….”

    A breach of s.206A is a corrupt practice (if intentional) or an unlawful practice otherwise.

    Now – if Centurion directly paid for all the advertising expenses of the party advertising that the Conservative Party secretary promoted during the 3 months before the election (i.e. the Conservative Party’s “election expenses”), does that mean it “incurred” those election expenses? Because if it did, it doesn’t fit any of the permitted individuals in (a)-(c).

    A lot may turn on the structure of the contracts between the Conservative Party and those who printed/distributed their advertising … if those contracts made it clear that Centurion was going to pay for the work done, then it’s strongly arguable s.206A has been breached (in addition to any of the disclosure rules DPF discusses).

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  11. Jeremy (319 comments) says:

    Who cares what the election law says. In it’s current from it’s nothing but a gerrymander by the existing parties to restrict free speech.

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  12. mikenmild (12,316 comments) says:

    So you’re quite comfortable with the Kim Dotcom donation to Banks, then? What about the Labour pledge card? Winston Peters? Or are only some breaches of electoral law things no one should care about?

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  13. bhudson (4,741 comments) says:

    @mikey,

    So you’re quite comfortable with the Kim Dotcom donation to Banks, then?…Or are only some breaches of electoral law things no one should care about?

    What breach? None has been established as yet.

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  14. Jeremy (319 comments) says:

    So you’re quite comfortable with the Kim Dotcom donation to Banks, then?

    Yes, he can give his money to whoever he likes.

    What about the Labour pledge card?

    That was theft of taxpayer money and should have been handled under the Crimes Act.

    Winston Peters?

    Owen Glenn is free to give his money to whoever he likes.

    Or are only some breaches of electoral law things no one should care about?

    This post is about DPF not liking the threat from the Conservative Party, it has little to do with the higher principles of the law and what the law should be based on.

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  15. gazzmaniac (2,306 comments) says:

    So you’re quite comfortable with the Kim Dotcom donation to Banks, then?…Or are only some breaches of electoral law things no one should care about?

    I have no issue with Kim Dotcom donating to whoever he wants. That again seems like a minor technicality, and it also appears that it was within the rules (though perhaps starting to get a bit grey).

    There is a gulf between that and the efforts of Winston First and Labour, both of whom deliberately used taxpayers money illegally for their election campaigns and there is a prima-facie fraud case for both to answer.

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  16. Jeremy (319 comments) says:

    There is a gulf between that and the efforts of Winston First and Labour, both of whom deliberately used taxpayers money illegally for their election campaigns and there is a prima-facie fraud case for both to answer.

    I thought Milkenmild was referring to the Owen Glenn affair but maybe NZ First’s theft too. This section of the Crimes Act would have been good for any of the parties who stole from us (whether or not they paid us back):

    http://www.legislation.govt.nz/act/public/1961/0043/latest/DLM330201.html

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  17. RRM (10,097 comments) says:

    I have no issue with Kim Dotcom donating to whoever he wants. That again seems like a minor technicality, and it also appears that it was within the rules (though perhaps starting to get a bit grey).

    I like Kim Dotcom’s style, and I like Owen Glenn’s style too, but I think you’ve got to take an interest whenever someone starts giving our esteemed politicians very large sums of money… clearly he is trying to buy something more than what his two votes can procure – what is it?

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  18. Jeremy (319 comments) says:

    clearly he is trying to buy something more than what his two votes can procure – what is it?

    Usually it’s the government’s ability to stick it’s hand in our pockets…

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  19. PaulL (5,446 comments) says:

    RRM:

    clearly he is trying to buy something more than what his two votes can procure – what is it?

    Strangely enough, the views of those on the right do allow for altruism, and do believe that those with a lot of money can sometimes use it to support causes that align with their beliefs. Some use it to support crazy left wing ideas, some to support churches, and some use it to support right wing parties. In general we’re OK with all of this, and it doesn’t imply that they’re trying to buy favours.

    However, what we are usually against is people breaking the law. DPF seems to be saying that this is a technical breach, he’s pretty clear nobody is harmed, but the bottom line is that it’s a breach of electoral law. DPF is generally (and over time) on a campaign to tighten enforcement of electoral law which has been shamefully lax, partly because it’s seen as a lesser crime than the things that the police usually deal with day-to-day (rape, murder, that kind of thing). DPF’s suggestion to move enforcement to the electoral commission makes sense in that context.

    As for Banks, I think DPF has pointed out a few times that:
    a) some of his actions took place when he was a private citizen. That doesn’t fit under electoral law.
    b) some of his actions took place as part of his mayoral campaign. The electoral law is different for local elections, so again the question is did he break the law (and DPF has been pretty clear he thinks it’s a silly law and should be aligned with the national law)

    I can see that it’s amusing to throw around allegations of double standards, but it behoves yourself to be vaguely accurate before you throw insults at your host.

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  20. Nick K (1,259 comments) says:

    As I’ve said before, there is a very good reason they are named the CONservatives.

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  21. hj (7,142 comments) says:

    Property development must be a good game. Couldn’t some of that wealth have gone to the community (or the struggling buyer)? Land tax and all that.

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  22. PaulL (5,446 comments) says:

    hj, no doubt some extra of your income could go to the community to. Unless we think that he didn’t pay his fair share of taxes, then what exactly is your point?

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  23. Jeremy (319 comments) says:

    Property development must be a good game.

    Colin Craig is a property manager, not developer.

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  24. Humphrey (2 comments) says:

    Over at PoliticallyCorrect.co.nz we quoted this post in the article below. Thanks for doing what you do!

    http://www.politicallycorrect.co.nz/2012/07/14/referendums-and-we-have-freedom-of-speech-but-if-you-want-to-actually-be-heard-it-will-cost-you/

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