The NSW Electoral Commission bombshell decision to withhold public funding to the NSW Liberal Party is based on a damning report that, in effect, accuses the Liberals of a long-term plan to hide the identity of donors.

At the heart of the commission’s decision is the Free Enterprise Foundation, one of the vehicles used by the NSW Liberal Party to disguise illegal donations by property developers in the lead-up to the 2011 state election. The donations were revealed in the course of the investigation by the Independent Commission Against Corruption (Operation Spicer) into the soliciting and receipt of payments by MPs for favouring business interests.

Based on the Spicer hearings, the commission has decided that the foundation “had been used by senior officials of the Party and an employed party fundraiser to channel and disguise donations by major political donors some of whom were prohibited donors”.

Moreover, according to the commission, this was a long-term purpose of the foundation:

“The Foundation commenced to be used well before 2010 as a means of offering anonymity to favourably disposed donors wishing to support the Liberal Party. This was not the sole function of the Foundation but it appears to have been a major part of its activities.”

What was the basis for the commission’s conclusions?

“The NSWEC has relied on the evidence provided to ICAC by Mr Simon McInnes, formerly the Finance Director of the Party, currently the party agent and State Director; Mr Paul Nicolaou of Millennium Forum; and Mr Mark Neeham, State Director of the NSW Division of the Party between 2008 and 2013. Through them evidence was also given of the involvement of other senior Party officials constituting the Finance Committee, including Mr Sinodinos the Finance Director/Treasurer …”

The foundation worked by accepting donations from donors and then giving them automatically to the Liberal Party.

“[Nicolaou’s] practice was to solicit donations on behalf of the Party, frequently proposing to donors that they could donate via the Foundation. Cheques in favour of the Foundation were then passed by him to officers of the Foundation accompanied by a standard form letter requesting the Foundation to make an equivalent donation to the Party. This in turn would be done.”

The commission has used a strict legal argument about how the foundation broke NSW electoral donation laws; it wasn’t that one of the main purposes of the foundation was to hide donors, it was that it didn’t do so effectively enough. Because the foundation doesn’t, in the commission’s view, fit the definition of a charity, legally it was never in control of the donations it passed on to the NSW Liberal Party, meaning that the original donors remained in control of them. The NSW Liberal Party therefore received donations, including donations from prohibited donors, that weren’t disclosed. And in any event, the commission says, the law also says that making a donation to enable someone else to donate to a party is itself a donation, and therefore must be declared.

The party, naturally, disputes that, but doesn’t dispute the evidence before Operation Spicer. It ended up trying to argue the commission could only withhold public funding to the amount that equalled the donations that are in dispute. As late as yesterday, the party was arguing the commission should only withhold the amount that is covered by the foundation’s donation: $693,000. The commission says it doesn’t have the discretion to pick and choose what it withholds when it comes to public funding. So now the party is going to be out of pocket over $4 million.

This is hardly the first time the NSW Liberals have been in trouble about their donations. They have been forced no fewer than three times to correct their original 2010-11 disclosure to the Australian Electoral Commission — despite the AEC operating under much less stringent laws. In April 2012, McInnes made an additional disclosure of over $200,000 in extra donations, including additional donations from Australian Water Holdings. Eighteen months later, at the end of 2013, McInnes revealed about another $150,000 in extra donations, including yet more from Australian Water Holdings. But wait, he still hadn’t got it right. In March 2014, he advised the AEC of yet more undisclosed donations for 2010-11, including $25,000 from a fundraising body linked to Tony Abbott, the Warringah Club.

No wonder the NSW Liberals weren’t keen to take up the NSW Electoral Commission’s invitation to correct their record yet again. It would have made for their fifth separate version of what they received in 2010-11.

And what did the Free Enterprise Foundation tell the Australian Electoral Commission? The foundation is an “associated entity” for the purposes of Commonwealth law. In October 2012, it told the AEC that it had received $1.57 million in receipts, including $950,000 in donations for 2010-11 — an unusual case of a Commonwealth return including more donations than a NSW return, given NSW laws are much tighter around what must be reported.

Whether the NSW Liberals — the home branch not merely of Cabinet Secretary Arthur Sinodinos but Prime Minister Malcolm Turnbull — pay a political, as well as financial price for such an outrageous breach of both the spirit and the letter of laws designed to facilitate transparency in public life remains to be seen. NSW Labor’s record on integrity and ethics is far worse than their opponents. But it again illustrates the dire state of our system of political donation disclosure.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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