Some Conservative legal problems

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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