The Dirty Money Behind Clean Elections

In March this year NSW Premier Morris Iemma and Opposition Leader Barry O’Farrell gave strong backing to a wide ranging overhaul of political funding laws.

But after more than a decade of relying on corporate money to fund big spending campaigns, have the Labor and Coalition parties really turned their back on their generous donors?

An examination by the Greens Democracy4Sale Research Project of the NSW Election Funding Authority (EFA) records reveals that a number of leading politicians have learned how to hide dirty money while talking up their commitment to cleaning up election campaigns.

The new donation game in town is to find a loophole and exploit it fully. We are at a point now where it is nearly impossible for voters to link major party candidates with money from developers and other discredited donors such as alcohol interests, hotels, gaming outlets and the tobacco industry.

Hiding the money donated from such sources is done mainly in three ways.

The first is where money raised at fundraisers for a local candidate is first handed over to the party head office, which then passes the money on to fund the candidate’s campaign.

Another method is for the money to be donated to the campaign committee of a separate candidate, which agrees to accept the donation and pass it on to other candidates who claim not to take "dirty" money.

The last of the popular methods is to funnel money to "clean" candidates from donors through innocuous looking third parties, such as companies or other organisations.

When these tactics are used, it is difficult and often impossible for the public to know the original source of campaign funds for many candidates. Here are examples of each to illustrate how easy it is to exploit these loopholes.

First, the head office option. In the 2007 NSW state election Liberal candidate returns lodged with the EFA indicated that no donations had been received. Yet in many seats Liberal candidates had spent large amounts of money on their campaigns. Mike Baird spent over $263,000 in his Manly campaign, Peter Debnam almost $94,000 in Vaucluse, Barry O’Farrell $42,000 in Ku-ring-gai and Chris Hatcher over $200,000 in Terrigal.

Where did the hundreds of thousands of dollars come from that funded the 2007 Liberal campaigns in individual electorates? While a small amount could be the candidate’s own money, most of the funds came from a pool of donations the NSW Liberal Party had received. The largest donors to that party were property developers, the hotel and club industry, banks and other financial institutions.

Some say if the donations are at arm’s length, there cannot be any question of a candidate knowing where the donations come from and so there is no effect on later decisions.

This is unlikely. Much of the money is given at fundraising events, many of which were held in local areas, where the donor can sit down and discuss issues with the candidates.

While the Liberals deny any of their candidates accepted donations, disclosure forms lodged with the EFA indicate otherwise. Clubs NSW informed the EFA that they gave $5000 to O’Farrell’s campaign, and Belford Productions contributed $20,000 to Prue Goward. The wealthy founder and CEO of WorleyParsons Ltd. which is involved in the energy and resources industries donated $5000 to Mike Baird’s campaign. None of these Liberal MPs informed the EFA that they have received this money.

Considering the bad donation stories involving the Labor Government this year it’s not surprising Premier Iemma has said he favours this Liberal Party tactic of funneling all donations through head office.

Ironically, Morris Iemma has presented this new approach as one of his solutions to "cleaning up" donations. All it is likely to do is clean up the appearance of those donations, as the money flows on.

While it is not illegal to funnel donations through a party’s head office, and to cut out any money trail to a local candidate or MP, it is certainly not ethical.

If both major parties exploit this loophole it is going to be almost impossible to expose donation scandals similar to those that linked Wollongong MP Noreen Hay and Newcastle MP Jodi Mackay to local developers.

The second donations trick — that of shifting money from one campaign to another — is already very popular in the Labor Party. It was a common practice in the 2003 election, and used to a lesser extent in 2007.

Linda Scott was the Labor candidate for the NSW state seat of Sydney in 2007. She ran a strong public campaign on not accepting donations from property companies, hotels, tobacco or gaming outlets. The Democracy4Sale Project has discovered that Scott received in-kind donations of $21,320 from the Labor MP Kristina Keneally for printing campaign materials. In turn Keneally received almost $20,000 from "Frank Sartor for Rockdale" and thousands of dollars from other property and hotel interests.

Surprisingly, in her declaration lodged to the EFA Scott did not declare that $20,000 of her money came from Keneally. Had Keneally not been so thorough in her own return to the EFA we never would have known about the funneling of money from property and hotels to the Scott campaign.

Scott is the second candidate on the Labor Party’s ticket for the Sydney Council election, and the money trail behind her campaign compromises the credibility of Labor Mayoral candidate Meredith Burgmann’s commitment not to accept any funds from property, alcohol, gaming or tobacco interests.

An example of the third technique of funneling money — through third parties to hide the real source of the funds — can be found in the campaign funding of Sydney’s Lord Mayor, Clover Moore, who has for years claimed she does not take money from property developers. She has frequently called for a complete and unequivocal ban on developer donations to political parties and elected officials at state and local government levels.

In June 2008 Moore severely criticised recent amendments to NSW donations laws because they did not ban donations from the property development industry, or other "high-risk" industries.

However, in the 2004 Sydney Council election the Clover Moore Independent Party accepted considerable property money for its campaign. The Moore Party received almost 50 per cent of its money from Living Sydney Ltd. Living Sydney was set up in 1995 as a political campaign management firm and collected hundreds of thousands of dollars for Frank Sartor’s campaigns for Sydney Council. Approximately 70 per cent of this money came from property companies between 1995 and 2004. The Living Sydney donors included many well known property companies such as Meriton Apartments, Multiplex, Mirvac, Grocon and Transfield.

The possible laundering of money through a third party means that candidates funding campaigns this way are always going to be suspect. Ms Moore claimed she was given guarantees that no property money came to her from Living Sydney Ltd., but this has been denied by two people who were directors of the company in 2004.

The way the Labor and Liberal parties and some independents are exploiting these funding loopholes underlines the need for far-reaching reform of the NSW and federal electoral funding laws. Governments can attempt to close loopholes in their disclosure laws in order to increase transparency of the source of money flowing into the coffers of the political parties. That’s a good thing. However, it appears every time one loophole is closed, political parties and candidates find other ways to avoid accurate disclosure.

Failures in the current system demand some well designed changes to our donation laws to stop private money buying access to those who make decisions that affect the lives of us all. To do this, we need to ban all corporate and group donations, place a low limit on donations from individuals and put caps election expenditure. Candidates should also continuously disclose donations from individuals and the money they spend on their own election campaigns.

These are important steps to take if we want to promote a healthy and vibrant democracy in this country.