Associated Entities and other Loopholes Require Reform

A key screening device for hiding the true source of big donations is the use of 'front' organisations such as trusts, foundations and clubs, referred to as 'associated entities' under the Commonwealth and Western Australian Electoral Acts. These entities allow people and companies to donate money anonymously and escape any perception of strings-attached donations.

For the purposes of the legislation, the definition of an 'associated entity' turns on the concepts of 'control' and 'benefit', which are not defined in the Acts. It is a body controlled by, or operating wholly or to a significant extent for the benefit of, one or more registered political parties.

Associated entities may include companies or incorporated associations, trusts, including charitable foundations, and unincorporated associations, societies, groups or clubs. These may actively participate in business or fundraising activities, or passively hold assets (including intellectual property) or liabilities. All entities must lodge annual disclosure returns providing details of revenue, expenditure, debts and capital contributions (click here to view Commonwealth and WA disclosure requirements).

Considerable amounts of money are distributed through these entities. For instance, the Coalition Parties in WA have received over $2 million from The 500 Club between 1992/93-2004/05.

The Democrats have a long history of activism for greater accountability and transparency with disclosure laws. Their Joint Standing Committee on Electoral Matters Minority Reports into the 1996, 1998, 2001 and 2004 elections have all repeated the need to prohibit the receipt of inordinately large donations and to further limit the public perception of corruptibility associated with political donations.

Senator Murray has moved amendments in parliament based on the recommendations outlined in these Minority Reports, but both major parties have turned them down. It seems it is never the right time for the major parties to support much needed reform in the area of political funding and disclosure.

Some political parties, in seeking to preserve the secrecy surrounding some of their funding, claim that confidentiality is essential for donors who do not wish to be publicly identified with a particular party. But the privacy considerations for donors must be made subordinate to the wider public interest of an open and accountable system of government. Further, if donors have no intention of influencing policy directions of political parties, they would not be dissuaded by a transparent scheme.

The Democrats believe that democracy is best served by keeping the cost of political party management and campaigns at reasonable levels. The entry of new political parties is made difficult with the soaring costs of campaigning in Australia. Other governments have recognised the importance of placing restraints on campaign expenditure. Australia should learn from this experience.

One step forward is to set a limit on donations - to apply a cap, or ceiling. Such limitations do apply in other democratic systems around the world. Several submissions to the JSCEM following the 2004 elections called for the imposition of restraints, which the main JSCEM Report duly noted.

A submission to the JSCEM Inquiry into the 2004 federal election by Professor Graeme Orr and Joo-Cheong Tham stressed the importance of combining improved disclosure laws with donation caps and expenditure limits, since "... disclosure on its own is a weak regulatory mechanism, and probably merely 'normalises' corporate donations". They suggest improving disclosure laws by:

• expanding the definition of 'associated entity' to more accurately capture the financial relationships that exist within political parties;
• classifying payments from fundraisers, party conferences and similar events as gifts and that all parties be required to submit gift reports that include the status of all donors; and
• removing delays in the timing of disclosure through say quarterly disclosure statements and even weekly statements during an election period.

For these improvements to be effective donation caps that limit actual or perceived undue influence by individuals or corporations would also need to be implemented.

The Democrats recommend that a cap or ceiling of $100,000 be imposed on any donation made. Although higher than the caps recommended by others, the Democrats are of the view that to be even considered, a new principle of a cap would need to be at a high level.

Despite the support for placing limitations on funding from both international models and from domestic commentary, there is no recommendation forthcoming from the JSCEM to this end. In contrast, the Democrats do propose a legislated amendment that places an indexed cap on electoral and campaign funding, with the amount to be set and controlled by the AEC.

Ultimately, minimising or limiting the public perception of corruptibility associated with political donations requires a good donations policy that forbids a political party from receiving inordinately large donations.

Another loophole that can be exploited is the cash-for-access phenomenon. This is where business leaders pay considerable sums, often $1000s, to attend forums with ministers, party function dinners and the like. Charging for access is certainly a backward step for our representative democracy and is a practice ordinary Australians cannot afford.

The Democrats are also concerned with the practice of making multiple donations, even more so since the Coalition Government succeeded in raising the threshold from $1,500 to $10,000 with the recent passing of the Electoral and Referendum Amendment (Electoral Integrity and Other Measures) Bill 2000. (See A Bad Bill But Hope For The Future, 21st July 2006)

This means that nine separate cheques of $9,999 can now be made out to the separate federal, state and territory divisions of the same political party. For Labor, an amount of close on $90,000 can now flow into their coffers without triggering disclosure requirements. The Liberals can expect just on $80,000 and the Nationals can expect close to $60,000 from their six branches. What is more, such donations can be made annually.

Click here for a table of the Democrats' reform recommendations.

Document last updated on: 13:12 23rd Aug 2006.