The Bill proposes a range of measures to improve the financial transparency of the electoral system and the funding of political actors in Australia. This includes:
removing foreign interference in the domestic political landscape;
requiring greater financial transparency from all participants with significant political expenditure; and preventing political actors from profiteering and achieving private gain by standing candidates for election.
The Bill also proposes ‘anti-avoidance measures so that funnelling foreign donations through an intermediary, setting up a shell company in Australia or splitting donations to avoid thresholds are banned.’
The Bill intends to restrict foreign donations influencing the political process in Australia. The Bill does this by requiring all donations that are greater than $250 and used for ‘political expenditure’ (discussed in Chapter 2) to come from ‘allowable donors’.
‘Allowable donors’ are defined as:
an Australian citizen; or
an Australian resident*
incorporated in Australia; or
the entity’s head office or principal place of activity is in Australia.
*The Minister may determine that an Australian resident is not an allowable donor by legislative instrument.
The following entities are not allowable donors:
a body politic of a foreign country; or
a body politic of a part of a foreign country; or
a foreign public enterprise.
In addition, donations cannot be given from foreign bank accounts or made while in a foreign country.
Recipients are required to obtain ‘appropriate donor information’ to verify that a gift donor is an allowable donor for all gifts of a value of $250 (the allowable amount) or over. This includes the cumulative value of gifts over a financial year. Verification is to be obtained by statutory declaration unless declared otherwise by regulation.
If a charity receives a donation over $250 that is not from an allowable donor, it cannot be kept in any bank account that is used for ‘political expenditure’.
In the evidence received to this inquiry, matters were raised regarding:
the definition of ‘allowable donor’;
the compliance burden proposed the means to obtain ‘appropriate donor information’;
the ’allowable amount’ threshold; and
the restrictions on foreign bank accounts.
Ban on donations from foreign governments
Many submitters supported measures to remove the capacity for foreign influence on Australian elections. The Australian Council of Trade Unions submitted:
the argument for banning donations from foreign governments and government-owned or controlled entities to political parties and candidates seems unassailable. These donations are the clearest case of foreign interference in domestic political affairs and represent an unacceptable risk to national sovereignty and the integrity of the Australian electoral system. A similar objection can be taken to donations emanating from overseas bank accounts.
The issue of foreign political donations becomes more complicated when the donor has no connection to a foreign political power (or their commercial offshoots) but nor do they have any obvious or direct connection to the Australian body politic. This could include private citizens of another country and large foreign commercial enterprises. However, the line can be difficult to draw, particularly given the complex international ownership and operational structures of multi-national corporations.
Perpetual Trustee Company, a manager of charitable trusts, similarly supported the intent of the restriction on foreign influence:
Perpetual is supportive of any regulatory reform that seeks to protect Australia’s democracy by preventing unwanted foreign interference in our elections and influence over those elected representatives who’s role it is to represent the interests of our nation.
On suggestions to exempt charities from a ban on foreign donations, Prof. George Williams stated:
It's like water: water will find a way. It's very clear in the US and a range of countries, including Australia, that you can't exempt one part, or that's simply where the money will flow to.
The definition of ‘allowable donor’ raised three main issues:
the definition is too broad;
the requirements can be easily circumvented; and
it potentially breaches the Constitution.
Submitters argued that the definition of allowable donor was too broad, and included donors that would not normally be considered as a foreign influence. The Human Rights Law Centre argued that ‘allowable donor’ status should be extended to all Australian residents:
Great caution should be exercised before passing legislation that, under the guise of addressing an imprecise threat of “undue or improper foreign influence”, deems that many residents of Australia have no legitimate connection to government or policy in Australia, and no legitimate role to play in participating in public debate or donating to the vast range of civil society organisations that participate in public life. This is a very dangerous road for the Parliament of this country to embark on. Residents of Australia who are not (or not yet)citizens play many valuable roles and are as entitled to enjoy rights to freedom of expression and freedom of association as those who hold Australian citizenship, even if they are not entitled to vote or stand for office.
Prof. Joo-Cheong Tham outlined all three concerns:
They are not justified on the basis of publicised cases of donors with alleged links to the Chinese Communist Party government;
The justification based on ‘meaningful connection to Australia’ is based on an excessively narrow understanding of such connection and in some respects, constitutionally suspect;
The complexity and onerousness of these restrictions will place a disproportionate compliance burden (especially on smaller organisations) posing constitutional risks;
There are doubts as to the compatibility of these restrictions with implied freedom of political communication; and
The problems relating to ‘foreign’ political donations are better addressed through general measures such as caps on political donations and election spending.
Appropriate donor information
There was concern about the proposed requirement to verify donor information by statutory declaration. The majority of submitters contended that this provision is ‘unworkable’.
The verification requirement applies to cumulative donations of $250 within a year. Submitters stated that this would impose a significant administrative burden on fundraisers, requiring statutory declarations from individuals who donate as little as $4.80 per week. It would also require political candidates to keep records of every small donation in case an individual reaches the $250 threshold in a year.
The ACNC outlined the possible impact on charities of these provisions:
With the new requirement for donations to come only from allowable donors, and for donors to complete a statutory declaration stating they are allowable, it is likely that there will be less funds available for charities to undertake advocacy work. This is because of the administrative overhead in maintaining separate accounts or calculating allowable amounts, ensuring statutory declarations are kept, and ensuring that all activity relating to a ‘political purpose’ is contained in projects separate to other work to minimise the risk of cross-contamination of funds.
The Law Council of Australia submitted:
These requirements will significantly increase the costs of fundraising and place unreasonable compliance burdens on charities. It is submitted that the over-regulation of charities limits the ability of citizens to exercise their rights of association through charitable organisations. Such over-regulation has a tendency to impinge upon the rights protected by Articles 18 and 19 of the International Covenant on Civil and Political Rights (ICCPR).
Statutory declarations are typically used for court proceedings and other legal processes. For organisations and minor parties that rely on small donations, particularly online donations, expecting them to obtain a statutory declaration from hundreds or even thousands of regular small donors is absurd. This will have a major negative impact on the revenue of grassroots-funded civil society groups caught by the provision, as well as significantly impacting smaller political parties.
Arnold Bloch Leibler also submitted that the requirement to collect and disclose donor information:
would undermine fundraising efforts and lead to disclosure of entirely apolitical donors who in our experience generally place very high value on the protection of their privacy. Under the Bill their personal details will be severely compromised, despite adding very little if anything to the capacity of members of the public to determine whether there exists any undue or inappropriate influence in Australia’s electoral system.
Maintaining and respecting donor privacy is fundamental to the ongoing viability and health of the charity sector. Donors invariably seek anonymity or privacy to avoid public attention, limit recognition of their personal wealth or out of a concern that their personal support for a charitable purpose does not align with separate business interests or public facing roles.
The apparent justification for compromising donor privacy is especially questionable when a donor makes an unconditional gift to a charity that pursues a wide range of activities for the public benefit, a small portion of which includes advocacy or public commentary.
Although there is provision in the Bill for regulations to be made for information to be collected other than by statutory declaration, Philanthropy Australia submitted that ‘reliance should not be placed on the making of regulations given the alternative is unworkable.’
The Bill prohibits donations from non-allowable donors over a cumulative $250. Charities may receive donations from non-allowable donors but must keep them in a separate bank account that is not used for ‘political expenditure’. This provision raised concerns about a dual accounting and administrative burden. The St Vincent de Paul Society submission summarised the concerns expressed to the inquiry by all charities:
For most charities the vast majority of donations come from what would be deemed allowable donors. However, a small number of donations are likely to come from non-citizens or residents of other countries who are appreciative of the work done for them or their families. Separate accounts would need to be set up for this small number of donors and kept separate from other general revenue accounts. No funds from these separate accounts could be used for the broadly defined political expenditure.
Further costs and the extreme difficulty of implementation
These donations from overseas donors would need to be placed in a separate account. As well as placing donations for non-allowable donors in separate accounts, charities that are defined as political campaigners will be required to keep records to show that all other donations of $250 in a year were in fact from allowable donors. This means ensuring and recording that all such donors, if individuals, are Australian citizens, electors or Australian residents, and are not a class of resident that the Minister has deemed not to be an allowable donor. For donations from companies, this will mean ensuring and recording that they are incorporated in Australia, and for non-incorporated bodies, ensuring and recording that their head office or principle place of business is in Australia. This is a significant bureaucratic impost on charities that will add to administrative costs. This seems ironic for a government that has committed itself to reducing “unnecessary or inefficient regulation imposed on individuals, businesses and community organisations by at least $1 billion a year”.
The Committee notes that a number of submissions called for wider reform to the transparency of political donations in Australia. This matter will be addressed in the Committee’s next interim report on the 2016 federal election inquiry.
The Committee notes the comments made by constitutional law experts about defining an ‘allowable donor’, and the potential for challenge in the courts on the grounds of infringing the implied freedom of political communication. The Committee agrees with the principle that everyone should be able to participate in the political process–including through donations–unless they are specifically excluded.
The Committee believes that the Government should consider defining ‘non-allowable’ persons and/or property, rather than defining the ‘allowable donors’. For example, both the similar bills currently before the Parliament propose a prohibition on ‘foreign property’, including property transferred to Australia for the purposed of making a donation.
The Committee is of the view that the Government should consider a definition that contains the presumption that all donors are allowable donors unless they fall into a non-allowable donor category.
Non-allowable donors would be those individuals that are not Australian citizens or residents, and entities that are not incorporated or have their principal place of business in Australia. The Minister should retain the right to determine non-allowable donors by legislative instrument. A verification process will still be required, as further discussed below.
It is appropriate that political donations are explicitly prohibited from the following:
a body politic of a foreign country; or
a body politic of a part of a foreign country;
a foreign public enterprise; and
non-resident citizens of a foreign country
The Committee recommends that the Government give consideration to replacing the definition of ‘allowable donor’ with a definition of ‘non-allowable’ donors.
Use of statutory declarations and ‘allowable amount’
The Committee agrees that the use of a statutory declaration to verify a donor’s identity in all instances is not appropriate. Obtaining a statutory declaration can be time consuming and costly for both donors and recipients and introduces unnecessary red tape into the electoral system.
While the Bill does include a provision that this may be changed by the Minister by regulation, the provision as it stands was of particular concern to submitters.
A requirement to formalise this does not reflect the nature of Australian elections and fundraising done at a grassroots level. It also does not reflect the nature of digital fundraising.
The Committee is of the view that statutory declarations should only be required if the recipient has doubts as to the donors identity. Otherwise, the onus should be on the donor to self-declare they are an allowable donor. Penalties should be introduced into the Act for a donor who makes a false declaration.
In addition, the aggregation of donations received under the allowable amount of $250 could impose a significant compliance burden on recipients. A donor who wishes to split a sizable donation into $250 amounts would be easily identified by the recipient. Therefore, with appropriate anti-avoidance measures in place, the aggregation of donations to $250 does not appear warranted.
The Committee recommends that the Government consider:
removing the potential requirement for statutory declarations for all gifts;
simplifying the process for entities to verify whether a donor is a non-allowable donor.
The Committee recommends that the Government consider removing the aggregation of donations received under the allowable amount, provided that appropriate anti-avoidance measures are implemented.
Foreign bank accounts
The evidence generally supported the proposed restrictions on donations from foreign governments.
However, there were concerns about proposed restrictions on gifts from foreign bank accounts. Prof. Tham submitted that:
the prohibition should not apply when the gift recipient has adduced evidence to the satisfaction of the Australian Electoral Commission that the named donor is the true source of the funds. This measure will allow the risk of laundering to be effectively addressed while allowing political organisations to still receive foreign-sourced donations.
Charities raised concerns that this provision may impact international philanthropy, given that advocacy funded by this philanthropy may be captured under the new definition of ‘political purpose’. Global Health Alliance Melbourne submitted:
We believe that the advocacy, lobbying and health promotion related to advances and discoveries in these areas could be judged as “political activity”, noting that much of the work done in this area by our members is funded by non-Australian entities such as the WHO, UN agencies, the Bill and Melinda Gates Foundation, foreign philanthropists, the Wellcome Trust and many more.
It was also submitted that the blanket restriction on foreign bank accounts may limit innovative fundraising methods such as cloud-based fundraising platforms. These platforms may be hosted internationally, even if individual donors are within Australia.
The Committee agrees with the weight of evidence that the restriction on donations by foreign governments and entities is appropriate and this reflects its third interim report on this issue.
The Committee notes concerns put by submitters about restrictions placed on foreign banks accounts and that this may restrict foreign philanthropy.
However, the Committee also notes that the Bill specifically allows for registered charities to seek and use gifts from foreign donors as long as the funds are not used for domestic political purposes.
The Committee considers that its recommendation in Chapter 2 to amend the definition of ‘political expenditure’ will address many of these concerns.
However, the Committee notes that while the Bill prohibits the receipt of funds from non-allowable donors for the purposes of distributing those funds to a political entity or political campaigner, it does not address the further distribution of those funds.
For example, if entities A, B and C are allowable donors and:
foreign funds are donated to Entity A
Entity A donates to Entity B
Entity B donates to Entity C
Entities A and B do not undertake political campaigning but Entity C does.
In this scenario all entities are acting within the law as Entity B does not have political expenditure and is an allowable donor. However, foreign funds are ultimately being utilised for political purposes.
A provision is required to provide transparency to the secondary distribution of funds through third parties.
The Committee recommends the Government consider providing a legislative mechanism to give greater transparency of foreign funds that are moved through multiple organisations, whether they be charities, not for profits, industry associations or businesses, and to prohibit the use of such funds by way of political expenditure; noting the need to reach agreement on defining ‘political expenditure’ and noting the Australian Greens’ concerns that non-partisan issue based advocacy not be included in the definition of ‘political expenditure’.
Nomination of financial controllers and annual returns
Under s292E of the Bill political campaigners, third party campaigners and associated entities must nominate a financial controller.
Financial controllers are liable for breaches of proposed s302E and s302F which carry penalties of 10 years in prison and/or 600 to 1,000 penalty units (currently $126,000 to $210,000).
Registered third parties, political campaigners and associated entities must also submit annual returns including:
total amounts received and paid and outstanding amounts and debts in the financial year;
senior staff and any membership of political parties those staff hold; and
any discretionary benefits received by, or on behalf of, the entity from the Commonwealth, State or Territory which includes grants, contract or other benefits.
Registered political parties and political campaigners are also required to provide auditor’s reports in accordance with proposed s314ABA.
Appointment of financial controllers
Two concerns were raised about financial controllers:
the requirement to appoint a financial controller; and
the extent of the financial controller’s potential personal liability.
Arnold Bloch Leibler submitted:
For example, any changes to financial controller details must be updated within 60 days. Failure to update details with the AEC, including financial controller information, attracts a civil penalty of 60 penalty units ($12,600). This duplicates charities’ existing obligations to update responsible person details with the ACNC and attracts a significant fine that would trigger breach of ACNC regulations and thus threaten ongoing charity registration.
Unlike the existing Electoral Act civil penalty provisions, many of the new offence and civil penalty provisions in the Bill impose liability directly on the individual “financial controller” rather than the third party entity. The potential for personal fines and a prison term is likely to act as a major deterrent to accountants and other skilled persons taking on the position of secretary or treasurer of a NFP or registered charity, particularly in light of the rule of law concerns outlined above.
Unlike the position of agent of a political party, such positions are often assumed on a voluntary basis. It is critical that the sector can continue to attract skilled persons to take on these important positions on the Boards of NFPs and charities.
The ACNC and a range of other charity submissions supported these concerns.
The Law Council of Australia also submitted that:
It is inappropriate for obligations and significant penalties (including imprisonment in some cases) to be imposed on anyone who is not in fact responsible for controlling finance nor has visibility over donations and gifts and how they are applied.
Under the current Electoral Act, people or organisations (other than political parties) are required to submit annual returns if they incur political expenditure above the disclosure threshold. In 2016-17, 34 organisations made these returns.
The Bill continues the same requirement to submit annual returns to organisations incurring political expenditure above the disclosure threshold.
Organisations that reach a significant expenditure level will have to submit the same detailed annual returns as political parties.
It was submitted that the requirement to provide annual returns would be a compliance burden for smaller entities, and in conflict with the requirements of the Charities Act. The ACNC submitted:
The Bill also requires submission of an auditor’s report at the same time the annual return is provided to the AEC. Under the proposed section 314ABA, the auditor’s report must state whether the return satisfies the requirements of the CEA. Currently, only large registered charities (those with annual revenue of $1million or greater) must submit an auditor’s report to the ACNC.
A medium sized charity (that with an annual revenue that is $250,000 or greater but less than $1 million) can have its financial report reviewed rather than audited. A medium sized charity under the ACNC Act could be a ‘political campaigner’ according to the definition in the Bill and therefore be subject to far greater reporting requirements than those that currently exist, and be required to submit an auditor’s report. Not only is this an increased reporting burden, but it also brings an increased cost to charities. This would apply to both medium and large charities that would fall within the definition of ‘political campaigner’ under the Bill.
The primary concern of submitters is the additional requirement to include the details of senior staff in annual returns. Prof. Anne Twomey raised concerns about the appropriateness of this requirement. She submitted:
‘Senior staff’ is defined in s 287(1) as meaning an entity’s directors, or if it does not have directors, any person who makes or participates in making decisions that affect the whole or a substantial part of the operations of the entity. It is unclear why it is necessary to identify senior staff engaged by political campaigners and third party campaigners and declare any membership of any registered political party (see, eg, s 314AB). The Explanatory Memorandum contends that while there is an impact upon the privacy of senior staff, this is justifiable on the basis that it promotes transparency of the electoral system. However, forcing individuals to publicly declare their political affiliations opens them up to the kind of discrimination and vilification that is normally prohibited in human rights instruments. (See, eg, Commonwealth legislation dealing with discrimination in employment on the ground of political opinion: Australian Human Rights Commission Act 1986; and Fair Work Act 2009, s 153, 195 and 351.) …
It is also likely, as noted above, to affect many of the major corporations in Australia. If they are political campaigners they will all have to declare whether their senior staff, such as their directors, belong to any political parties. Should the board of Qantas or the boards of Australia’s banks and mining corporations be forced to reveal their political affiliations? They might regard this as unnecessarily intrusive and unlikely to achieve the declared aims of the bill.
Oxfam further submitted that while the provision does not prevent senior staff, including directors and board members, being members of political parties, the practical effect of the clause will be to do so:
While this does not directly prevent individuals from being members of registered political parties, it will indirectly do so. ‘Senior staff’ may feel compelled to renounce their membership in the interests of ensuring that the entity does not appear to be politically aligned.
Registered charities and not-for-profits must comply with ACNC governance standards which require that responsible persons ensure that the financial affairs of the charity are managed responsibly. The Bill proposes an additional level of financial responsibility, does not exclude an individual who is already responsible for the financial affairs of the charity for taking this role.
However, the Committee takes seriously the concerns of the charity sector that recruiting suitable personnel may pose some difficulties. This is further discussed in Chapter 4.
Disclosure of senior staff affiliations
The Committee notes the concerns about reporting the political affiliations of senior staff.
Public funding is an important feature of Australian elections. It was first introduced in 1983 to ‘level the playing field’ and to ‘reduce the potential for both real and perceived undue influence and corruption.’
The Bill limits public funding to demonstrated electoral spending. Currently, public funding is a per-vote funding amount for candidates that receive at least 4 per cent of the first preference vote (the public funding rate amount).
When introduced, public funding was based on this formula but capped at the amount of election expenditure. In 1995 this was amended to become an entitlement based on the number of votes received.
There has been public concern following recent state and Federal elections about parties and candidates ‘profiteering’ from election funding ‘windfalls’ by receiving significantly more public funding than actual expenditure.
While only four parties reported that they had spent less money in 2015-2016 returns than they had received in public funding, of those four parties, three have representation in the Federal Parliament.
The Bill proposes amendments that would return public funding to the lesser of:
the public funding rate amount; and
the amount of electoral expenditure occurred in the election period that has been claimed and accepted by the Electoral Commission.
The Bill also proposes a process by which claims for election funding will be made and paid through the Electoral Commission.
In his second reading speech, the Minister stated:
Public election funding is payable in relation to any candidate who received more than four percent of the total first preference votes cast in an election. While this qualification requirement remains unchanged, the bill will limit public election funding to demonstrated electoral spending, which will prevent political actors from profiteering and achieving private gain by standing candidates.
There was little focus on these provisions in submissions to the inquiry. However, Prof. Anne Twomey submitted:
This is a great improvement, as it will prevent profiteering from the public funding scheme, which in the past has drawn the public funding scheme into disrepute.
The Committee reaffirms its support for public funding as an important part of the Australian electoral system. However, the Committee is concerned that the current funding system is not commensurate with community expectations.
This Committee’s predecessor’s report that led to reform of the Senate voting system discusses public concern about ‘gaming’ the voting system to ‘harvest’ votes, resulting in Senate results that were not necessarily reflective of the will of voters. That Committee’s recommendations were aimed at providing assurance to the public that candidates were genuine, and restore confidence in the voting system.
Similarly, standing for election in Australia should not be a money-making exercise and the community perception that it can be undermines the integrity of the public funding system and the community confidence in the electoral system as a whole.
The Committee supports the proposed changes to the public funding system. However, the Committee notes that proposed ss293-295 introduce a level of complexity into the Bill, in comparison to the simplicity of existing s294 regarding the general entitlement to funds. If possible, these sections should be redrafted and simplified.
However, the Committee is also of the view that a minimum expenditure threshold should be established before requiring substantiation. Substantiation should only be required for the amount between the threshold and for the total value of the claim.
This would ensure the least regulatory burden for new and first-time candidates and micro parties whilst ensuring the integrity of the public funding process.
The Committee recommends that the Government consider establishing a minimum expenditure threshold before requiring substantiation for public funding claims.
Subject to the above amendment, the Committee recommends that the proposals relating to public funding be agreed.