A Ban on Foreign Political Donations: Definitions, Scope and Constitutional Validity
BY YEE-FUI NG
06.04.2017
The federal Joint Standing Committee on Electoral Matters has recommended that foreign citizens and entities be banned from making political donations to political parties, associated entities (such as trade unions and dedicated fundraising bodies) and third parties (such as GetUp! and various other campaign groups). The report also recommended further investigation into a ban on foreign donations to all other political actors, so as to prevent them serving as conduits for foreign funds.
Significantly, the committee was not able to deliver a consensus report. Labor and the Greens separately produced dissenting reports that supported a ban on foreign political donations to political parties and their associated entities, but rejected extending it to third parties. They argued that banning foreign donations to third parties would restrict the capacity of NGOs to draw attention to their causes, and endanger robust public discourse by civil society.
Liberal Democrat senator David Leyonhjelm rejected a ban on foreign donations. He claimed there is no evidence of a problem specific to foreign donations.
There is thus general political agreement by the major parties to ban donations from foreign players to political parties and associated entities, but extending the ban to third parties is likely to face resistance from the Opposition.
It is unclear whether such a ban would be compatible with our constitutionally protected freedom of political communication. And banning foreign donations is just one element in the reform Australia’s system desperately needs.
Why ban foreign donations?
The rationale for banning foreign donations is to stop the threat of foreign interests undermining Australian democracy. The report focused on the principle of national sovereignty: that is, that only Australians should have the power to influence Australian politics and elections. The concern is that foreign people or entities could exercise an unduly large influence on our politicians through generous donations.
The report claimed that in the absence of a ban on foreign donations, the Australian public may believe that the views and decisions of political parties are open to foreign influence, and that this could undermine public confidence in Australian democracy and Australian political institutions.
The committee also emphasised that a ban is relatively simple to implement. By contrast, it would be very difficult to compel overseas donors to comply with the disclosure requirements set out in Australian electoral legislation. Further, the committee flagged concerns about the transparency of electoral expenditure incurred by third parties, and the identity and location of donors who give money to these groups.
Several liberal democracies either ban foreign donations or place significant restrictions on them. Canada bans donations from foreign donors by only allowing natural persons who are Canadian citizens or permanent residents to make donations. The US bans direct and indirect donations by foreign nationals (apart from permanent residents). In the UK, donations exceeding £500 are only allowed by permissible donors, with foreigners being banned as they are not included on the permissible donors list. However, companies carrying out business in the UK may donate. New Zealand caps foreign donations at NZ$1,500.
The British laws banning foreign donations were introduced after scandals arising from the government accepting donations from dubious sources. After the Conservative Party refused to send British troops to intervene to stop Serbian atrocities in the Bosnian War, the party received a donation of £18,000 from London associates of the then Serbian leader Slobodan Milosevic. The Tories also received £440,000 from the fugitive Polly Peck tycoon, Asil Nadir, who fled to northern Cyprus in 1993 after being charged with fraud.
In Australia, the Liberal Party received major foreign political donations in the last financial year. Hong Kong Kingson Investment and Kingold Group, two companies owned by property billionaire Chau Chak Wing, gave A$700,000 in total. Kingson Investment also gave A$100,000 to Labor. This amounted to 2.6% of total donations to political parties in 2015-16. In the last seven election periods from 1998-99 to 2016, foreign donations have amounted to between 0.03% to 6.13% of total donations.
How do we define foreign donations?
Another big issue for the committee was how to define foreign donations in a way that respected Australian constitutional and democratic freedoms.
As Joo-Cheong Tham and Malcolm Anderson point out, “foreign” has three possible meanings:
a narrow meaning, which refers to overseas-based donors;a broad one, which extends to all non-citizens who donate to political parties, whether or not they are residing in Australia; ora third, more complex meaning, which captures individuals born overseas who are now Australian citizens or permanent residents and who, while closely involved in business activities in Australia, nevertheless retain close government and business connections in their country of origin.
Casting the net too wide and banning all donations from individuals born overseas, including Australian citizens born overseas, would be unconstitutional. This is because Australian citizens clearly have a constitutionally protected freedom to communicate on political matters, which will be discussed in further detail below.
The middle approach of banning all donations from non-citizens, unions and corporations is also likely to be unconstitutional. In Unions NSW v New South Wales, the High Court struck down a scheme that only allowed donations from individuals on the electoral roll, thus banning donations from corporations, unions and non-citizens. The Court found that there was no evidence that donations by non-voters had a greater corrupting influence than other donations.
This may be why the committee favoured the narrow definition where the proposed ban will not apply to dual Australian citizens in Australia or overseas, or to permanent residents.
Is a ban constitutional?
Australia has a constitutionally protected freedom to communicate on political matters. This assists electors to make a free and informed choice about who represents them in parliament.
In Lange v Australian Broadcasting Corporation, the High Court adopted a two-step test for determining whether a law breaches the implied freedom of political communication:
the law effectively burdens the freedom of political communication in its terms, operation or effect (first limb); andthe law is reasonably appropriate and adapted to serve a legitimate end in a manner which is compatible with the maintenance of the prescribed system of representative government (second limb).
A ban on foreign donations clearly burdens political communication by restricting the source of funds available to political parties and candidates to meet the costs of political communication. Banning foreign donations would seem to have a legitimate purpose: to reduce undue foreign influence on Australian politics and public policy.
The bigger issue is whether banning foreign donations is a proportionate response to justify limiting freedom of political communication. The High Court in McCloy v New South Wales has devised a very complex multi-pronged test for assessing proportionality based on balancing the following factors:
suitable: having a rational connection to the purpose of the provision;necessary: there is no obvious and compelling alternative, reasonably practicable means of achieving the same purpose which has a less restrictive effect on the freedom;adequate in its balance: a criterion requiring value judgment, consistent with the limits of the judicial function, describing the balance between the importance of the purpose served by the restrictive measure and the extent of the restriction it imposes on the freedom.
It is difficult to predict how the court might rule on this.
The High Court has previously permitted laws that banned donations from a certain class of people. In McCloy, the court upheld a New South Wales scheme that banned donations from property developers due to the history of corruption in the state. This means it is possible to ban donations from a certain group, such as foreigners, where there is evidence of a serious risk of corruption.
But in McCloy, there was evidence of corruption implicating property developers borne out in several reports by the NSW Independent Commission Against Corruption. It is unclear whether it can be proven there has been corruption in Australia due to foreign donations.
Australia does not have a federal anti-corruption body that has investigated these issues. Also, the proportion of foreign donations in Australia is small. There may not be enough proof that foreigners pose a particular threat to the integrity of the Australian electoral system. This means the High Court may strike down a law banning foreign donations as unconstitutional.
The Joint Standing Committee on Electoral Matters proceeded on the assumption that it would be constitutional to introduce a provision banning foreign donations modelled on section 270 of the Queensland electoral legislation (Electoral Act 1992 (Qld)), which prohibits political parties and candidates from receiving foreign property, including cash. However, the form of ban is unlikely to make a difference, whether it is banning gifts from foreigners to political parties, or banning foreigners from donating to political parties. The test for constitutional validity will be the same, that is, the Lange test, combined with the McCloy proportionality test. There is thus no guarantee that adopting the Queensland provision would survive a High Court challenge.
What about third parties?
A ban on foreign donations to third party groups reduces the ability of these groups to engage in political communication; it decreases their funds to launch political campaigns seeking change in government policy and decision-making. The purpose of the ban would again be to reduce foreign influences on Australia’s political system.
The ban may not be a proportionate response to reducing the influence of foreign interests on domestic policy. Again, there is unlikely to be evidence that foreign donations to third party groups corrupt Australia’s electoral system. There is a more tenuous link between such groups and foreign influence on domestic policy, compared to political parties who are elected to government.
Also, the proportion of foreign donations to third party groups might be considered too small. GetUp!, for example, receives about 1% of its annual income, and about A$300,000 in the past two years, from foreign sources.
So, a ban on foreign donations to third parties may not be constitutionally valid.
Will this fix the system?
If ruled constitutional, a ban would certainly reduce the impact of overseas interests on domestic policy.
But our system needs more holistic change. The biggest shortcoming of existing federal regulation is that it does not promote political equality. Caps on political donations of, say, A$1,000 would better level the playing field, and are more likely to be constitutional. In Unions NSW, the High Court upheld a scheme that imposed yearly caps on political donations.
Donations should be disclosed in real time, rather than once a year. The rules also need to be tightened to eliminate loopholes, like donation-splitting between associated entities.
Governments of all stripes need to do more to reduce the influence of money in our politics and give people a more equal voice in our democracy.
A shorter version of this post appeared in The Conversation.
Dr Yee-Fui Ng is a lecturer at the Graduate School of Business and Law at RMIT University. She researches in the area of public law and politics. Her book, Ministerial Advisers in Australia: The Modern Legal Context (Federation Press, 2016), was a finalist for the Holt Prize.
Suggested citation: Yee-Fui Ng ‘A Ban on Foreign Political Donations: Definitions, Scope and Constitutional Validity‘ on AUSPUBLAW (6 April 2017) <https://auspublaw.org/blog/2017/04/a-ban-on-foreign-political-donations/>