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Analysis by Dr Bryce Edwards – It’s the prerogative of Cabinet ministers and politicians to be friends with wealthy individuals, and then to accept their generous donations of money, travel, and accommodation. But those relationships and gifts do come at a cost. There’s no such thing as a free lunch, as politicians of the political right used to say – meaning “free” things always have an associated cost.

Those costs are under the microscope at the moment, with a bombshell report by Matt Nippert in the Herald yesterday about a foreign-owned company making a generous donation to the National Party, despite the supposed existence of rules banning foreign donations – see: Former trade minister Todd McClay helped arrange $150,000 donation from Chinese racing industry billionaire Lin Lang to National Party (paywalled).

The basic details are this: Todd McClay became associated with Chinese billionaire Lang Lin in 2016, meeting him in Beijing while on official government business as the Minister of Trade. McClay then worked with then party fundraiser and MP Jami-Lee Ross the next year to facilitate a donation from Lang. $150,000 was deposited into the Rotorua National Party branch bank account – which is McClay’s electorate. The donation came from the company owned by Lang, “Inner Mongolia Rider Horse Industry NZ”, which is registered in New Zealand. It was declared by National to the Electoral Commission, as per the rules about donations.

McClay has also subsequently accepted other generous gifts from Lang, or his company, such as a fact-finding trip to China in 2018. And McClay says he has had further interactions with Lang “in a social capacity”. Lang’s company has described McClay as a “friend” to the billionaire owner.

The main controversy over the donation to National is that donations from foreign individuals are banned under the current electoral finance rules, however donations from foreign-owned companies are not banned, as long as they’re registered in New Zealand. The question therefore is: was the $150,000 donation from Lang’s company to National a case of exploiting a “loophole” in the law?

The potential costs of this particular relationship between McClay and Lang are many and varied. And this connection, along with other similar relationships between politicians and wealthy individuals, also illustrates some significant issues in New Zealand politics at the moment.

There is obvious embarrassment for National from this scandal. It has handed their opponents the opportunity to admonish the party for acting unethically. The Prime Minister has been able to make the point that although no laws appear to have been broken, there’s something untoward going on: “Arguably, what happened here was legal but I would argue that it was equally outside the spirit of what our law intends when it comes to foreign donations” – see Jason Walls and Boris Jancic’s Prime Minister Jacinda Ardern says National’s $150k donation was ‘against the spirit’ of the law.

This article also reports that “National is pushing back, with leader Simon Bridges saying the donation was completely legal and National’s hands are clean.” And McClay has been forced onto the backfoot, having to defend himself about allegations of a conflict of interest. Nippert has reported his claims of innocence: “McClay said a potential donation was not raised in Beijing when he was on official business, was first broached only in the latter meeting in Rotorua and he did not meet Lang again while a minister”.

McClay is using the fashionable “hats” argument, saying that he was essentially wearing a different hat when involved with fundraising, and when he was helping facilitate the money being given to his party he was simply acting in his capacity as a National MP, not as a minister, nor as the MP for Rotorua.

National is already vulnerable on the issue of its connection to wealthy donors. After all, the Serious Fraud Office is still investigating, on Police recommendations, the donation allegations raised last year by Jami-Lee Ross.

The current scandal will dredge up memories of other questionable financial arrangements of the National Party. And Claire Trevett has done just this, going back through other infamous incidents in her column, Political donations – just a quid, or a quid-pro-quo? (paywalled). She also says: “Putting big donors in the public eye made it easier for political rivals to take pot shots at motives, alleged conflicts of interest and fundraising practises, from dinners with ministers to more intimate events.”

The Greens have been able to use the latest scandal to push their own policies of electoral finance reform. Newshub reports: “Green Party Electoral spokesperson Golriz Ghahraman has described the revelation as ‘deeply alarming’ and said it highlights why New Zealand needs stronger and more transparent political donation laws. Ghahraman is calling for a cap on individual donations to $35,000. She also wants to ban overseas donations, and reduce the anonymity threshold to $1000” – see: Jacinda Ardern describes $150,000 donation to National ‘outside spirit of the law’.

Helen Clark, too, has used the opportunity to campaign about the problem, tweeting: “Money politics is a curse the world over. It’s corrosive of the democratic process. In NZ people have long decried it & feasted on whatever compromising information comes to light, but where are the media calls for public funding & tighter donation rules?”

The cost to New Zealand’s governing system

The McClay donation raises questions about what impact such generosity from private individuals and companies might potentially have on New Zealand’s system of government. As reported in Nippert’s original article, Lang’s company made a statement “saying he expected nothing in return for his company’s donation.” The Chinese-owned company stated that the donation was simply in appreciation for National “promoting trade between the two countries”.

However, the possibility of a government gong for the Chinese billionaire was also raised by the company statement: “Lang also considered that he made so much effort to open the China market in exporting NZ horses to China, the NZ Government should award him an honour.”

So, does the involvement of Cabinet ministers in the procurement of such donations raise problems for the integrity of New Zealand’s governing system? Nippert quotes University of Otago law professor Andrew Geddis, saying that this, and the rules around it, seemed to be a problem: “Geddis said the involvement of Cabinet members in personal and political fund-raising was a long-standing concern, and he hoped the ‘hat juggling exercise by ministers’ who played multiple roles at different times, would cease. He said the issue of involvement by ministers in party fund-raising was curious as the Cabinet manual was ‘completely silent’ about the matter. ‘I suspect it’s not an oversight. Successive governments have decided maybe the less said about it the better,’ he said.”

The cost to New Zealand’s democracy

Nippert has written about conflicts of interest in the Lang donation, saying that this type of activity is a challenge to the status quo: “New Zealand is rightly proud of its democracy. Our nation has fair and free elections, a vibrant culture of opposition, orderly changes of power, and is regularly ranked among the least-corrupt countries on Earth” – see: $150,000 donation – Money in politics and why it matters (paywalled).

Nippert argues that the episode raises questions about whether “our current legal framework governing donations is fit for purpose”. For him, it shows the laws have been designed to allow foreign donations (via companies registered in New Zealand) despite the apparent ban on foreign individuals donating here: “This is not a loophole – the law was intentionally written this way – but it is worth weighing whether we should really be treating this as a feature of our electoral finance system rather than a bug. Resolving the issue is not straightforward, requiring either a potentially blunt hard-and-fast rule or a complicated test of control or ultimate ownership, and will run into vested interests of its own.”

The cost to New Zealand’s sovereignty

If donations are allowed from foreign sources, is this a problem for New Zealand’s sovereignty? It seems so, according to Security Intelligence Service director-general Rebecca Kitteridge. Yesterday she made an appearance at the Justice Select Committee at Parliament, which is currently examining the electoral laws, including those involving donations.

Kitteridge had earlier voiced alarm about the role of donations to political parties, saying the intelligence services were worried about their impact. She said: “One of the main reasons we become concerned about these activities is because as relationships of influence, or a sense of reciprocity is established, they may be used as leverage to facilitate future interference or espionage activity.” She warned that “grey areas” of the existing laws were being exploited and suggested that “total transparency” for political donations was now required.

Kitteridge spoke yesterday about how it wasn’t simply a case of wealthy individuals having an influence, but also the possibility of foreign states actually being behind those donations. She told MPs: “We’ve seen relationship-building and donation activity by state actors and their proxies that concern us… This activity spans the political spectrum and occurs at a central and local government level” – see Craig McCulloch’s NZ spy agencies call for greater transparency on political donations.

Debates over electoral finance reform 

For Kitteridge, a greater ban on foreign donations – as recommended by the Green Party – isn’t enough, and instead she recommended that more transparency was the answer. Kitteridge said: “You can see how a foreign actor could easily use a New Zealand based proxy to work around such a ban… We know that foreign states are adept at understanding and working around regulatory regimes.” Therefore, “more stringent disclosure requirements” were preferable.

Others are suggesting that donation bans could be implemented – either for companies per se, or for any entity other than an individual in New Zealand.

But don’t necessarily expect any such stringent reforms to be quickly agreed upon and implemented. As Nippert says, both Labour and National dominate the current Justice select committee looking at this issue, and as those parties are reliant on wealthy sources of funds, there will be a temptation “to do nothing in order to keep the taps flowing.”

Claire Trevett has also argued that the “disease of self-interest” is likely to stymie any reform. Furthermore without buy-in from the main players, it’s difficult to push through reform: “Changing the rules can be fraught unless there is consensus, as Labour found out when it pushed through the Electoral Finance Act in 2005. One-sided reforms are easily seen as an attempt to protect one’s own funding sources while drying up a rival’s. Labour would not want a change that would restrict the trade unions donating any more than National would want companies restricted.”

So how well is the current select committee process going in evaluating the electoral finance laws and the risks of foreign interference? Today Sam Sachdeva reports that the committee seems “dogged by dysfunction” and unlikely to fix the numerous problems prior to the next election, which he says “seems unpalatable to say the least” – see: Politicians must pick up pace on donations reform.

But both the Justice Minister, Andrew Little, and National’s spokesperson on electoral matters, Nick Smith, are apparently keen on urgency and might push for faster reform.

Sachdeva also argues that there are questions about Labour’s fundraising too: “its hands are not entirely clean either. As reported by Stuff before the last election, the party has received tens of thousands of dollars through the auction of art at over-inflated prices, naming the artist as the donor rather than the person forking out the money – something which also seems to breach the spirit if not the letter of the law.”

And as an indication that the problem of ministers being used to fundraise isn’t limited to the National Party, there has been another report of the Minister of Finance, Grant Robertson, taking off his finance hat and asking the wealthy to give to the Labour Party – see Jason Walls’ Minister Grant Robertson was just one of the MPs who spoke at the ‘President’s Dinner’ event (paywalled).

According to this article, those invited had to pay $750 to attend and hear a speech from Robertson, who was speaking in Auckland but wearing his “Wellington Central MP” hat.

Finally, clearly a bigger debate is required about how to fix the problems of money in politics – and for a good discussion of some of the possibilities, written late last year, see Simon Chapple’s New Zealand politics: how political donations could be reformed to reduce potential influence.

MIL OSI AnalysisEveningReport.nz