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 The Dangerous Art of GivingPolitical donations pose a threat to Australian democracy. Reform is urgently needed.by Senator Andrew Murray and Marilyn Rock This article was published in the Australian Quarterly, June-July, 2000, pp.29-33. History shows that power, politics and money go hand in hand. Ever since partisan appeals were etched into the walls of ancient Greece, elections have cost money, and ever since the first political donation changed hands, money has been used to influence electoral outcomes and the process of government. This situation contradicts the hallmarks of liberalism espoused by renowned liberals from Locke to Hayek and Nozick, who contend "that people should not be able to impose themselves on others .. . [and] that 'the liberty of the strong' must be restrained".1 Although the holding of democratic elections demand fairness, independence and an equal opportunity to present a political platform, some moneyed people will always attempt to speak louder and will often succeed as a result. Certainly, political donations and finance make very uneven the much-lauded "level playing field" that free market forces should deliver in the contest for political power. This impacts on a healthy democracy because it jeopardises the legitimacy of the electoral process. Political donations are valued over grassroots political involvement, incumbency and parliamentary access over electoral competitiveness, and economic inequality over political equality. Even though Australians would be incredibly cynical to think that corruption is a common motive for political donations, much of the literature on the subject has an underlying assumption of quid pro quo and of political donations being shrouded in suspicion2. It is argued that the "fascination" of political finance stems from it being full of "the stuff of detective stories. It smells of corruption - individuals or interest groups buying access or favourable legislation ... ".3 In Australia, renowned researcher in this area, Professor Rolf Gerritsen, claims that the motives of corporate donors range "from a public-spirited desire to back our system of electoral democracy, through to manifestations of partisan preference".4 Certainly, the exposure of huge and sometimes dubious donations by big companies, organizations and unions attempting to do business with both state and federal governments has facilitated both media criticism and public cynicism about what is perceived as an obvious link between money, politics and policy.5 Additionally, empirical research carried out in the 1990s on the political activism of big business in Australia found that virtually all respondents claimed that "direct access" to policy makers was crucial to their political operations.6 Yet, at the heart of any debate on democratic practice and the financing of
political parties there are two fundamental truisms. First, political parties are
crucial to the practice of democracy because they represent particular sites
through which the citizenry can participate in public agenda setting, debate and
electoral politics. Secondly, professional political parties need significant finance
to operate effectively. In short, money determines the electoral and
organizational facets of political life. However, the skyrocketing costs associated
with modern election campaigns represent the greatest opportunity for political
corruption. Gerritsen argues that governments can be delivered to the party with
the "best bagman". Consequently, Although public funds are now provided to political parties, and reform measures seeking to regulate or disclose pecuniary interests have been enacted since the early 1980s, it is essential further measures be taken to redress this potential imbalance. To eliminate the link between money and the taint of corruption, the 1918 Commonwealth ElectoralActhas been reformed on a number of occasions in the 1980s and 1990s. To begin with, and pursuant to the recommendations of the 1983 Joint Standing Committee on Electoral Reform (JSCER), the Hawke Labor Government secured the passage of the Commonwealth Electoral Legislation Amendment Act 1984 which introduced the public funding of election campaigns8 and a tightened system of disclosure for campaign donations9. In spite of this tightened system of disclosure, donors still have the capacity to skirt disclosure measures. It is as if the reforms have only been effective for the amount of time it has taken for accountants, lawyers and politicians to discover ways to circumvent or ignore them. While public funding has undoubtedly evened up the financing of political parties away from the bias of private donations to the Liberal and Labor Parties, in no way has it supplanted private donations which continue to grow exponentially. In the six years from 1992/93 to 1997/98, disclosure of donations over $1500 show that over $135 million went to the Coalition and Labor Parties: over $22 million each year10. 10 Essentially, on the one hand, public funding now provides the major parties with a very useful top-up of funds, plus a 'safety net' of funds should private donations dry up. For example, from the 1998 federal election, the Coalition parties received just on $14 million and the Labor Party received just over $14 million in public funds.11 On the other hand, given the minor parties receive low private donations, they tend to be far more reliant on public funding alone. However, in contrast to the substantial amounts received by the major parties, all the minor parties and independents received just on $6 million from the 1998 federal election.12 It is alleged the weak points and anomalies of the 1984 amended legislation were "ultimately responsible for legislating huge loopholes that turned the disclosure of private donations into a largely voluntary option".13 In particular, political parties were able to adopt more creative accounting methods to offset the stricter regulations by setting up "front" organizations such as trust funds, foundations and clubs as vehicles to skirt the intent of the electoral funding disclosure laws thereby masking the identities of donors. For example, the Liberal "clubs" initiated by John Elliott became a significant new source of funds for the Coalition parties to the extent that it is claimed he "turned political fundraising into a multimillion [dollarl enterprise".14 Similarly, the use of business enterprises acting as trust funds allowed businesses to escape exposure by donating to the fund rather than directly to the Party, with the trust fund then donating the income earned from the invested donations. Known as "associated entities" under the Act, for the Liberal Party, the Free Enterprise Foundation (FEF) and the Cormack Foundation in Victoria are notable examples, and for Labor, the ALP Legacies and Gifts Limited and Labor Holdings in Queensland are equivalent associated entities enabling disclosure to be avoided. In a similar way, donors wishing to avoid public scrutiny could direct contributions to the administrative accounts of parties rather than to campaign funds. In 1985, this prompted Labor's then national General-Secretary, Bob McMullan, to contact a large number of private companies to advise them of the ALP's Administrative Fund to which they could donate and escape the Act's requirements.15 Yet another major weakness of the 1984 legislation was that the disclosure regime only applied to the national level and not to the states, as the Commonwealth does not have the constitutional power to regulate state elections. In retrospect, a lack of cooperation between State and federal jurisdictions was a serious oversight as it provided fertile ground for dubious ethical standards and corruption as revealed in the 1989 Fitzgerald Royal Commission in Queensland and the 1992 WA Inc. Royal Commission. An amendment to the Act in 1988 attempted to address some of the above weak-nesses. It provided for the full disclosure of all income of political parties, including income from capital and investments. Parties and companies were also now required to declare donations of more than $1,500 whether given during or between election campaigns.16 However, the ambiguities around disclosure exploited by associated entities persisted, as did the artificial distinction between donations to political parties for elections or for other purposes. By the end of the 1980s, it was claimed that "Australia was close to a general lack of confidence in the electoral system': and that the integrity of the electoral system was left "teetering on a knife edge in a climate of political corruption".17 After three federal elections - 1984,1987 and 1990 - held under the new reform measures, one newspaper editorial described the situation in the following way: ...flaws are being exploited more and more cyriically as the parties become more innovative in their bookkeeping. Moves by political parties to establish foundations and companies have enabled money to be shuffled between accounts and from one party branch to another without requiring disclosure. Donations can also be channelled into property and other investments with the earnings from them being used for election campaigns. Corrective action is clearly needed when the Australian Electoral Commission itself describes the disclosure system as "just a game".18 At the beginning of the 1990s, an obvious and continuing general lack of confidence in the electoral system again became apparent. Pursuant to the 1990 JSCER recommendations, the Labor Government implemented the Political Broadcasting and Political Disclosures Act 1991 and the Commonwealth Electoral (Amendment) Act 1991. Although the ban on political advertising during an election campaign in the former Act was reversed by the High Court in the Australian Capital Television Case, on the grounds that the Constitution contains an implicit right of free speech, 19 four major changes survived under the latter Act.
These were considerable and welcome reforms, but the disclosure of associated entity or "arms-length donations" was still a problem. The JSCER had recommended that this fundamental loophole be closed by requiring that there be full disclosure of all income and expenditure by associated entities. Nonetheless, a resistant Labor Government maintained that this would impinge on issues of privacy and commercial confidentiality. Hence, these changes confined associated entity disclosure just to "gifts" made directly to political parties or their auxiliaries.2^1 Subsequently, in 1993-94, it is alleged a prominent trust of the Liberal Partythe Free Enterprise Foundation added $7.1 million to the party coffers.22 Indeed, the failure of progressive reforms to achieve full disclosure shows the capacity of political parties to adapt in ways that serve their own interests rather than enhancing democratic practice. Then in 1995, more amendments were forthcoming. A more onerous disclosure regime now required any trust deemed to be an associated entity had to disclose all their financial details, including the source of all their income. Additionally, if payments are made to registered political parties out of income earned from capital of the associated entity, the details of all persons or organizations depositing capital in trust with associated entities from 16 June 1995 onwards, had to be disclosed. The latter part of these reforms is particularly interesting as it further illustrates the extent to which political parties will go to skirt disclosure measures. The AEC discovered in 1995 that the spirit of the Commonwealth Electoral Act continued to be undermined with parties informing their donors that this "was your last chance to make a donation without being disclosed".23 By so doing, associated entities would not be obliged to reveal the origins of extra monies because the funds were donated and then invested before the disclosure regime was tightened. In other words, as only the investment income need be revealed, donors of the original capital were able to remain anonymous. Although the 1995-96 electoral donation returns were intended to lih the veil of secrecy over the sources of foundation funding, disclosure amendments were only partly successful. For instance, it was reported in the media that the Coalition had been accused of ~laundering" millions of dollars through foundations with income streams that were blurred.24 Even though the FEF declared $758,000 in new income, it paid out more than $3.1 million in donations to the Coalition parties, and elected not to disclose the source of over half its donations. At the same time, the Cormack Foundation donated the sum of .S million to the pany's Victorian Branch. In 1996-97 the FEF again donated monies to the Coalition that greatly exceeded its income declared from donations received. It was shown that this associated entity had received donations totalling about $400,000, but more than $700,000 had been channelled through the Foundation to the Coalition without having to reveal the source of the extra $300,000.25 indeed, in 1998, it was alleged that the FEF had such a Vast warchest, it would be able to make substantial donations to the Coalition parties for years to come to preserve and promote free enterprise policy-making.26 Nonetheless, associated entities were now caught by the 1995 disclosure Crackdown, prompting the need for more creative accounting methods to offset these stricter regulations. To this end, offshore shelf companies appear to be one way around the rules. In 1995 the AEC's attention was drawn to a ,000 donation by a Hong Kong company, Catch Tim, to the South Australian Liberal Party, an amount that "dwarfed any other donation received and caused a "political furors" before the donor was identified.27 The donor - Hong Kong businessman, Victor Lo - had a major shareholding in the South Australian firm, Gerard industries, an enterprise that had received a $2.5million government grant and whose directors included two prominent members of the Liberal Party. The then Premier, Mr Brown, denied any link with the grant, and after an investigation, the Director of Public Prosecution infommed the AEC that no breach of the Act had occurred. Yet, another "major new loophole" became apparent when the Greenfields Foundation - an organization with strong links to the FEF - made a loan of $4.65 million to the Liberal Party: an amount roughly equivalent to the pany's then almost $5 million debt. It was maintained that as this money was lent rather than donated, the Party was not obliged to provide any infommation to the AEC.28 Regardless of claims that this Foundation is a charitable organization, given that it shares the same post office box number and two trustees with the FEF, it appears more the case it is a vehicle to circumvent the intent of the disclosure regime.29 From the above, it is clear problems of accountability persist. As long as there continues inadequate transparenq over the funding of political parties, there will be justified disquiet over the perceived overt and covert links between donations and policies. In a free and democratic society, information about all political funding should be readily available to individuals. As it stands, working through the maze of political donations requires herculean efforts. Certainly, the task of tracking campaign contributions proves a daunting task even for highly skilled academics and journalists. Moreover and inextricably linked with the problem of achieving a genuine open and accountable political system in Australia, is the difficulty concerning the organization, function and structure of political parties. In contrast to the body of law that sets out the framework for corporate govema'nce, there is very lithe concerning the issue of political govemance. Political governance is about how a political party is set up and managed: its constitution, method of operation and accountability mechanisms. The Commonwealth ElectoralAct only sets out the minimal requirements for the registration of political panies, hence, they are less regulated than corporations, associations and unions and are subject to little if any real control as to the propriety of their conduct and the fairness of their internal processes. Clearly, as political parties are extensivelyand intimatelyinvolved in public life in every way, dhis lack of regulation is not in the public interest. It is essential dhat a comprehensive regulatory system be put in place. If furdher steps are not taken to address problems of political governance, a cynical electorate will only continue to lose faidh in dhe electoral process and democrat in Australia will further diminish. In addition, shareholders should be concerned about companies making political donations widhout shareholder approval and without disclosing donations in annual repons. Board or management prerogative about political donations is inappropriate without shareholder approval As neither the Corporations Law nor the Australian StockExchamge nor theAustralian Securities and investment Commission have any specific requirements relating to political donations, it is now timely that corporations disclose political donations and the policy that dictates them in their annual reports. This would allow shareholders, stakeholders and consumers to judge the value and probity of the donations. Rather than corporate board members making the decisions about political donations, they have a fiduciary and ethical responsibility to disclose these in annual reports and to get shareholder approval. Should this not occur? The potential for a political partisan (or even a mere activist) shareholder to cause embarrassment at the Annual General Meeting of a company by publicly questioning any donations to political parties is a real fear for many company chief executives.30 In this respect, during an annual meeting of the ANZ Bank, and in the course of several shareholders querying the Bank's decision to donate, one noted that "the poor Democrats and Greens" missed out.31It is essential for democratic practice in Australia that money and the exercise of influence not be inevitably connected. Even though the introduction of public funding for elections and disclosure reform have made a valuable contribution to the working of Australian democracy, a new financing model is required to reconnect all the Australian citizenry to the electoral process. National political parties have to contest election campaigns for nine parliaments, and in between run effective viable organizations. Membership fees and other sources of income are utterly inadequate for the funding task that this effort requires. Therefore, private donations, public funding, or a mix of the two remain essential to the effective maintenance of Australian democracy. In this respect, only two models seem possible. First, that political donations be banned, unless (say) less than $1500, and that the monies normally received from private donations be replaced by public funding for both administrative and electoral expenses. Currently though, apart from federal elections, New SouthWales and Queensland are the only states that benefit from public funding. Therefore, as the Commonwealth does not have the constitutional power to regulate party and electoral funding in the states, cooperation between all the national and state governments would be needed to decide on the rate of funding required by each government to meet the ongoing operational expenses of political parties and independents. Secondly, the alternative is that a mixture of public funding and private donations be retained as at present, but the system be made absolutely transparent. This would require a comprehensive regulatory system that legally requires the publication of explicit details of the true sources of donations to parties, and the destinations of their expenditures. The objectives of such a regime would be to prevent, or at least discourage, corrupt, illegal or improper conduct in the formulation or execution of public policy. Moreover, the side benefits of such accountability would be a revival of faith in the integrity of the political system among the wider public and the protection of politicians from the undue influence of donors. In seeking to preserve the secrecy surrounding some of their funding, the major political parties often claim that confidentiality is essential for donors who do not wish to be publicly identified with a particular party. However, the privacy considerations for donors, although in some cases perhaps understandable, 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 parties, they would not be dissuaded by such a transparent scheme. Additional disclosure requirements should apply to donors. As trusts and foundations are key screening devices for hiding the true source of donations, political parties should be obliged to return donated monies unless the following is fully disclosed:
Similarly, as a minimum, political parties that receive donations from political 'clubs' should be obliged to return these funds unless full disclosure of the true donors' identities are forthcoming. Reform is urgendy required to put an end to any notion of the corrupting influence of money and policy direction otherwise the scenario is one in which Australian democracy is the real loser. First, reform should increase democratic accountability to the extent that no particular candidate or political parties enjoy significant strategic advantage in any election because of being the recipient of large donations. Secondly, much stronger political party regulation is also required. As Australia enters the new century, there needs to be a fundamental commitment to the democratic principle that the liberty of some must not be allowed at the expense of others, especiallywhen the others seem to be the majority of citizens. Only in this way can the practice of Australian democracy be truly enhanced. References
Document last updated on: 09:16 12th Dec 2005. 
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