Kim Dotcom and John Banks have quite different stories about their relationship. It might matter an awful lot who is telling the truth.

Politics costs money. Anyone who has had anything to do with any sort of campaign - be it to pressure the Council to fix the potholes in your street, or to get the leader of a political party elected as Prime Minister of New Zealand - knows this. 

So to pay for political activity, those who are wanting to engage in it must have money. They may have it themselves - think Colin Craig and his ability to bankroll the nascent Conservative Party. Or, they may not have it themselves (or not want to spend their own money). In which case, they have to get it from other people.

Which then starts to raise questions. If a person is just giving money to some politically active individual or organisation because they think the individual or organisation has the right answers, then that's one thing. We might still have concerns about how much a donor ought to be able to help out others in the contest for political power, but in general it is a good thing that people put their money where their mouths are. 

However, what about cases where we suspect a donation is motivated less by ideological sympathy and more in an effort to curry favour with those who may hold future public decision making power? Or, to put it crudely, there's a fear someone has tried to buy a politician? 

Well, one way we might try and put such fears to bed is to say to candidates (and the organisations behind them) that they have to tell us who are the big funders of their campaigns. The glib rationale for such rules is that "sunshine is the best disinfectant"; if everyone can see potential links between a donation and a future policy outcome, then it's a lot harder to create the sorts of corrupt relationships that otherwise may flourish.

Which is why today's New Zealand Herald story about Mr Kim Dotcom's claimed donation to Mr John Bank's Auckland mayoral campaign back in 2010 matters. Not so much because Mr Dotcom was in fact trying to buy any influence, or that Mr Banks in fact intended to sell anything. But rather because unless we can see exactly who is giving what to whom, then we cannot be sure what sorts of deals may be getting struck behind the scenes.

Here's Dotcom's account of the donation (as related by the Herald):

"He mentioned the elections were coming up [and] he was raising money for his campaign," Dotcom said. "He said it was hard to raise money in New Zealand, the mayoral campaign was coming up and he's trying to raise funds for that.

"I kind of liked the guy. I said, 'I'm happy to help.' I told Wayne to write a cheque for $50,000.

"His [Mr Banks'] eyes got a little bit bigger at that moment."

Mr Tempero asked the chief financial officer to come into the room to write the cheque.

"John said, 'Wait a minute'," Dotcom recalled last night. "'It would be good if you could split it up into two payments of 25 [thousand dollars], then I don't declare publicly who made it'."

Dotcom said one cheque was made out in his own name, or the name of his company Megastuff Ltd, and the other in Mr Tempero's name.

"He [Mr Banks] called me a few days after the cheques entered his bank account and he thanked me personally."

Now, as I say, this is just Mr Dotcom's account. But I can't see why he'd have an interest in making up a story like this about Banks - unless he's very, very bored on home detention, or feels that Banks has screwed him over in some way, or the like. And given that Mr Dotcom names others who were present at the meeting, you'd think there's ways of checking how accurate his recollection of it is that make fabrication a futile business.

But against those reasons for believing Mr Dotcom is his claim that: "John said, 'Wait a minute. It would be good if you could split it up into two payments of 25 [thousand dollars], then I don't declare publicly who made it'." This seems a bit odd, on its face. Splitting a donation of $50,000 into two donations of $25,000 has no effect whatsoever on the requirement to disclose it under the Local Electoral Act 2001.

Under s.109(1), a candidate must disclose within 55 days of the election the source of all "electoral donations" made to her or his campaign that exceed $1000. So it makes no difference to the requirement to disclose if the donation comes in one $50,000 amount or two $25,000 payments - both have to be declared. 

Assuming Mr Dotcom's account is accurate (which is, I reiterate, simply an assumption at the moment and in no way a certainty), it would appear that Mr Banks either did not know the law in this area, or perhaps was concerned that a single donation of $50,000 would raise questions that two $25,000 donations would not. Which is, if not unlawful in itself, certainly in tension with the spirit of the law.

But so far all we've looked at is what Mr Dotcom says happened. What does Mr Banks have to say about Mr Dotcom's claims? Again, the Herald tells us that:

Last night, Mr Banks said there would be nothing wrong with his telling people how to give anonymously.

"If someone says to me, 'How can I put money into your campaign?' what would be wrong with telling them that - if that was that case?

"I could say, 'Firstly, you should talk to people who are raising money for me. But if you want to put money into my campaign, you can put it in two ways. You can put it in anonymously or you can put it in and have it declared.' It's quite legitimate.

"If Kim Dotcom wants to put money into my campaign anonymously he is quite entitled to do it. Whether it is 1000, 5000, 50,000 or 500,000 [dollars], he is quite entitled to do it under the act.

"Nothing to hide, nothing to fear. If Mr Kim Dotcom put money into my mayoral campaign, you should tell him I'm grateful and thank you very much."

Technically, this is true. The Local Electoral Act 2001, s.109(1)(c) says that "electoral donations" of more than $1000 that are made "anonymously" simply need to be reported in the candidate's election expenses return as coming from an "anonymous" source. And s.5 defines "anonymous" as: "in relation to an electoral donation ... , means a donation that is made in such a way that the candidate concerned does not know who made the donation."

So a local body candidate legally can meet with a potential donor, tell that donor "here's what to do if you want to avoid having your name appear in my return of election expenses" and then go off and leave the donor to deal with those who are in charge of the campaign's financial affairs. And even if the candidate subsequently learns a large "anonymous" donation was made to her or his campaign in the days after the conversation, the candidate can claim not to "know" who it came from. And then that donation only needs to be reported to the public as being "anonymous" in nature. Which, you might think, is a pretty silly rule to have if the concern is revealing to the world who is paying the bills for elected officials (and thus may expect favourable treatment thereafter).

(Note also that the disclosure rules for local elections are different (in the sense of much looser) than those that apply at national elections - as David Farrar explains here.)

However, Mr Banks' account of the conversation with Mr Dotcom - actually, he doesn't acknowledge talking to Mr Dotcom at all, so his generic account of theoretical conversations with potential donors - diverges significantly from what Mr Dotcom says happened. For one thing, it sounds from Mr Dotcom's account like the cheques were given directly to Mr Banks. And in any case, Mr Dotcom claims Mr Banks rang him to thank him for the donation.

If either of these claims are true, Mr Banks cannot possibly claim not to "know" the source of the donations. And so they cannot qualify as "anonymous" in nature. And so if they were reported as such in his return of election expenses, rather than as coming from Mr Dotcom (or his company) and Mr Tempero, then that return was false. And returning a false return of electoral expenses is an offence.

Now, here I'm stacking assumption upon assumption, but if it turns out Mr Dotcom's account is the accurate one (and this seems eminently checkable through witness statements and phone records) and Mr Banks is charged with an offence, what then? Well, it depends on Mr Banks' state of knowledge with regards the expenses return. 

If he knew the return was "false in any material particular" - by conciously treating Mr Dotcom's donations as anonymous when he knew the donor's identity - then he's in real trouble. Because under the Electoral Act 1993, s 55(1)(d), a conviction for this offence automatically results in his seat in Parliament becoming "vacant" (i.e. he gets kicked out of Parliament). It doesn't matter what sentence he receives - it's the very fact of a conviction that matters.

Of course, even in this worst-case scenario, Mr Banks could stand again in the resultant by-election. And even if he doesn't win it, National's candidate certainly would. Which would mean that the numbers in Parliament wouldn't change appreciably - but it certainly wouldn't be something the Government would appreciate happening.

However, if he didn't know of the false return (i.e. it can be shown that it was someone in his campaign that wrongly reported the donation as anonymous and he didn't realise the mistake was made), then at most Mr Banks may be in line for a small fine. And if he can prove he did all he could to avoid such errors, then not even this.

So - as I say, there's a lot of assumptions that have to be proven true before we even get to this point. But who knew that letting a fat German ex-hacker with a questionable internet business model into the country would lead to such interesting times?

Comments (23)

by Pete Sime on April 28, 2012
Pete Sime

Was this the same meeting where Mr Banks dined with Mr Dotcom, gave him immigration advice and admired his fleet of vehicles?

by Pete Sime on April 28, 2012
Pete Sime

Note the article I link to above reports:

Mr Banks said he did not know if Dotcom donated money to his mayoral campaign in 2010, but possibly it was anonymous.

If Banks was wilfully blind to such a donation, would that constitute knowledge for the purposes of the Electoral Act?

by stuart munro on April 28, 2012
stuart munro

There's a slightly related issue about company donations to MPs, you might have noticed fishing companies are among the top listed donors to MPs.

I believe it should be illegal for publicly listed companies to do this. The reasoning is that companies have no self that is entitled to promote a particular political view. And publicly listed companies have in principle a range of shareholders. If the company derives a direct advantage from a donation, that is corrupt. And if the company does not derive such an advantage, they are acting contrary to shareholder interests by giving money away.

by Pete Sime on April 29, 2012
Pete Sime

@Stuart

I believe it should be illegal for publicly listed companies to do this. The reasoning is that companies have no self that is entitled to promote a particular political view.


But it is not illegal. And it may have the effect of chilling any philanthropic activites companies perform too (I know, it can be considered a PR expense, but a lot of that activity falls under the radar). There was a great episode of This American Life recently looking at campaign finance. Some academics had done a study of the return on investment on money spent lobbying on a particular issue - it was twenty-two thousand percent.

by Andrew Geddis on April 29, 2012
Andrew Geddis

@Pete: "If Banks was wilfully blind to such a donation, would that constitute knowledge for the purposes of the Electoral Act?"

Probably not. The definition of anonymous says "does not know who made the donation." Hence, for a donation not to be "anonymous" you must know who made it. The Electoral Act 1993 (which covers parliamentary elections) has a different definition, which excludes "wilfull blindness" of the kind you refer to.

@Stuart: "I believe it should be illegal for publicly listed companies to do this. The reasoning is that companies have no self that is entitled to promote a particular political view."

Thats a respectable viewpoint. But what think you of unions?

by animalspirit on April 29, 2012
animalspirit

Cross cheque bank statements?

by Graeme Edgeler on April 29, 2012
Graeme Edgeler

Of course, even in this worst-case scenario, Mr Banks could stand again in the resultant by-election.

Surely the worst-case scenario for Banks involves his being unable to stand in the by-election because he has been removed from the electoral roll thanks to the erstwhile efforts of Paul Quinn?

However, if he didn't know of the false return (i.e. it can be shown that it was someone in his campaign that wrongly reported the donation as anonymous and he didn't realise the mistake was made), then at most Mr Banks may be in line for a small fine.

I see your s 134(1) of the Local Electoral Act 2001, and raise you s 14 of the Summary Proceedings Act. Also, the most likely reason to charge the lesser offence would, I thought, be that they just haven't got the evidence to prove the serious one, but think it was probably done. The technical offences about not really knowing will apply to both (if you didn't really know, then you claim it was anonymous, that will be technically accurate, so not a breach of the serious or the lesser offence).

by Scott Chris on April 29, 2012
Scott Chris

If either of these claims are true, Mr Banks cannot possibly claim not to "know" the source of the donations.


Perhaps Banks had been the recipient of other "anonymous" donations for the sum of $25,000 apart from Dotcom's, but not of $50,000, so that he could claim not to know exactly who had donated any particular sum of $25,000.

Seems a bit far fetched, but there must be a logical reason for the request to split the donation, and perhaps Dotcom was given a spurious explanation as to why. (I find it unlikely that he would misunderstood the explanation, given his penchant for financial manipulation)

by Felix Geiringer on April 29, 2012
Felix Geiringer

Andrew

To what are you referring when you say that the Electoral Act 1993 has a different definition, which excludes "wilful blindness"?  Are you talking about s 207(2)(a)(ii)?  If so, I think that is extending the definition to cover constructive knowledge which is a somewhat different issue than wilful blindness.  

When I looked into this issue at the time of the teapot affair, the view I formed was that the criminal courts have been very willing to interpret the mens rea of knowledge to include wilful blindness.  This is especially true in NZ compared with England.

Wilful blindness is a narrower extension to knowledge than constructive knowledge.  The latter requires a person to take reasonable positive steps to obtain knowledge.  Wilful blindness is limited to covering someone who has suspicion and then goes out of the way to avoid obtaining knowledge.

The courts extend knowledge to cover wilful blindness because otherwise it enables people to deliberately circumvent out laws.  Imagine a drug mule who says, “I am happy to work for you, Mr Drug Baron, as long as you don’t tell me what powdery white substance is in those condoms you are pushing up my backside.” 

What is disturbing about even Mr Bank’s account is that the sort of behaviour he describes is exactly wilful blindness.  It is staggering to think that this sort of behaviour, clearly designed for the purpose of trying to circumvent our electoral rules, could be regarded as acceptable by a member of parliament. 

Felix Geiringer

by Andrew Geddis on April 29, 2012
Andrew Geddis

@Graeme,

The Summary Offences Act is not something I care to dwell on. Far too plebian for my tastes. But as for: "The technical offences about not really knowing will apply to both (if you didn't really know, then you claim it was anonymous, that will be technically accurate, so not a breach of the serious or the lesser offence)." Is that necessarily true? Couldn't a candidate know who a donation came from (thus meaning they can't declare it as an anonymous one), but not know that the return they file is false (i.e. just didn't realise a given donation had been mistakenly reported as anonymous when it should have been listed as from an identifiable donor)? A bit more difficult to claim when the amounts involved are $50,000, I guess.

@Scott: "Seems a bit far fetched, but there must be a logical reason for the request to split the donation, and perhaps Dotcom was given a spurious explanation as to why."

Possibly it is so he can say "I don't know exactly which $25,000 came from which person" ... but this won't wash if (a) Dotcom gave him the cheques (although this would be pretty stupid of Banks), or (b) he did ring Dotcom to say thanks for the donation. I wonder if the reason for splitting is that an "anonymous" donation of $50,000 will stand out in a way that two of $25,000 might not (i.e. he's concious of the media maybe asking "who exactly liked you THAT much?").

But a big part of the problem is that Mr Banks isn't telling us anything about what he was/wasn't thinking ... leading us to speculate wildly. But his call, I guess.

@Felix: yes, I was thinking of the definition of anonymous in the Electoral Act 1993, s207(2), viz:

"anonymous (a) in relation to a candidate donation, means a donation that is made in such a way that the candidate who receives the donation—

(i) does not know the identity of the donor; and

(ii) could not, in the circumstances, reasonably be expected to know the identity of the donor."

Whether the term "wilful blindness" is appropriate or not, the point I was making is that the existence of (ii) is an attempt to shut down the kinds of strategems that otherwise see candidates telling donors "please give me money, but here's how you should give it to me so that I don't 'know' that you've done so."

by Graeme Edgeler on April 29, 2012
Graeme Edgeler

It is staggering to think that this sort of behaviour, clearly designed for the purpose of trying to circumvent our electoral rules, could be regarded as acceptable by a member of parliament.

The purpose of allowing anonymous donations is to discourage corruption. A mayor who does not know who donated to them in large amounts cannot hand out favours. This aim of the law - discouraging corruption in the form of quae pro quibus (thanks Google!) for donations - is advanced by candidates who actively seek to avoid knowledge of their donors.

by Graeme Edgeler on April 29, 2012
Graeme Edgeler

Couldn't a candidate know who a donation came from (thus meaning they can't declare it as an anonymous one), but not know that the return they file is false (i.e. just didn't realise a given donation had been mistakenly reported as anonymous when it should have been listed as from an identifiable donor)?

Yes. That just seems unlikely in the given circumstances.

If Banks can properly claim not to know whom the $25,000 donations came from then his return will be accurate. If he does know who gave those donations, his return will be inaccurate and he will almost certainly know it to be so.

Back to Felix's argument ... there are a number of ways to read the obligations in s 109 of the Local Electoral Act, thinking of others, I came up with one whch drastically narrows the scope for hijinks. Section 109 requires:

every candidate [to] transmit to the electoral officer a return setting out—

(a) ... and

(b) the name and address of each person who made an electoral donation to the candidate and the amount of each electoral donation; and 

(c) ...


Ask yourself: does Kim Dotcom fall within (b)? Is he a person who made an electoral donation to John Banks?

Clearly he does; his donation easily falls within the definition of electoral donation in s 104. Surely then, a complete return is required to include Kim Dotcom's name and address. (c) does deal with anonymous donations, but it is an additional to the obligation in (b), not alternative to it. And paragraph (b) doesn't have an exclusion like that in section 207(3)(a) of the Electoral Act.

by Felix Geiringer on April 29, 2012
Felix Geiringer

@Graeme - except that what Banks is describing is taking someone who Banks knows wants to donate, and in respect of whom therefore the quid pro quo corruption danger already exists, and telling that person how to do so "anonymously" so that the statutory protections against such corruption that Andrew describes can be avoided.  

by Andrew Geddis on April 29, 2012
Andrew Geddis

@Graeme: "This aim of the law - discouraging corruption in the form of quae pro quibus (thanks Google!) for donations - is advanced by candidates who actively seek to avoid knowledge of their donors."

But not by candidates who actively seek to avoid knowing the particular details of each donor's final donation (even if they know a donor is intending to donate something) so that they can then list the source of said donation as "anonymous" and thus avoid the pesky media asking inconvenient questions like "why is a German multi-millionaire with a rather chequered past giving you lots of money?"). Right?

As for the relationship between s.109(b)&(c) of the Local Electoral Act ... a big part of the problem is that the definition of "anonymous" in s.3 refers to "a donation that is made in such a way that the candidate concerned does not know who made the donation." What does "a donation that is made in such a way" mean?

(1) Does it encompass a situation where the candidate goes around asking for donations, but then gets them sent to a member of staff who does not tell the candidate who is donating to the campaign (i.e. does the existence of strict chinese walls within a candidate's campaign meet the statutory test)?; or,

(2) Does it only encompass a situation where a donor sends money (or other material support) to the candidate's campaign in a way that its source cannot be identified (i.e. by a bank cheque, or through a lawyer's trust fund, or the like)?

Isn't there a good argument, building on your suggested interpretation of s.109, that only (2) will qualify ... so that if someone sends a personal cheque to a campaign drawing on their own account (as Dotcom and his offsider apparently did), then that can never be "anonymous" as the campaign (hence the candidate) always "knows" where it came from? That would seem to best meet the underlying transparency rationale of the disclosure requirements.

Against that, however, is the fact that the definition of "electoral donation" in s.104 refers to:

"a donation (whether of money or the equivalent of money or of goods or services or of a combination of those things) of a sum or value of more than $1,000 (such amount being inclusive of any goods and services tax and of a series of donations made by or on behalf of any one person that aggregate more than $1,000) made to the candidate, or to any person on the candidate's behalf, for use by or on behalf of the candidate in the campaign for his or her election"

So why the difference between the definition of "anonymous" in s.3 (which refers only to the knowledge of the candidate) and that of "election donation" in s.104 (which says a donation can be made either to a candidate or to persons on his behalf)? Does this definitional distinction maybe indicate that Parliament really did mean that only donations the candidate has direct personal knowledge of need to be declared?

by stuart munro on April 30, 2012
stuart munro

I kind of like unions, Andrew. But their political donations always made me uneasy. I'd have to say that, in the time when New Zealand had compulsory unionism, that compulsion made political donations by the unions improper.

Under current circumstances it could be argued that a dissenting worker need not join a union that supports a party that they oppose. But unions really shouldn't  be involved in cash lobbying. Expediting their members' involvement in parties with common interests is probably as far as they should be allowed to go.

Still, the union and the corporation are different beasts. The first usually has some kind of vaguely sanctifying pretensions to democratic process, but the second operates more on the principles of Huxleyian Darwinism.

by stuart munro on April 30, 2012
stuart munro

@ Pete Sime

Some academics had done a study of the return on investment on money spent lobbying on a particular issue - it was twenty-two thousand percent.

 

by stuart munro on April 30, 2012
stuart munro

For some reason this was cut off:

This would seem to indicate corruption. Mundane business practices rarely generate much over 500% ROI.

by nommopilot on April 30, 2012
nommopilot

"This would seem to indicate corruption"

How dare you insinuate there be corruption in the American political system.  'Tis the land of the free!

by Graeme Edgeler on May 01, 2012
Graeme Edgeler

So why the difference between the definition of "anonymous" in s.3 (which refers only to the knowledge of the candidate) and that of "election donation" in s.104 (which says a donation can be made either to a candidate or to persons on his behalf)? Does this definitional distinction maybe indicate that Parliament really did mean that only donations the candidate has direct personal knowledge of need to be declared?

Or are we trying to read far too much into it? The problem isn't the interpretation of the law, and re-interpretation of the law isn't the solution. It simply needs to be re-drafted, and that needs to be enforced.

by Andrew Geddis on May 01, 2012
Andrew Geddis

"The problem isn't the interpretation of the law, and re-interpretation of the law isn't the solution."

But before we can say there is a "problem", we have to know what the law actually says. Which requires interpretation of a statute. Which requires asking, which of a range of potential meanings best fits the text and purpose of the enactment. Which is what we're doing.

Now, it may be that the best (only?) available interpretation is that whether or not a donation is "anonymous" depends solely on the state of knowledge of the candidate involved. But before reaching that conclusion, it's still worth considering others to see why they are no good.

by Graeme Edgeler on May 01, 2012
Graeme Edgeler

But before we can say there is a "problem", we have to know what the law actually says.

No we don't. We can also have a quick look at the law and decide it obviously has mutiple interpretations. And that even if we could agree on which was the best fit, and it turned out to be very good in terms of transparency, we should still amend the law because laws like this shouldn't have the level of ambiguity we found. Especially when they are criminal statutes.

by Andrew Geddis on May 01, 2012
Andrew Geddis

"No we don't. We can also have a quick look at the law and decide it obviously has mutiple interpretations."

But that still involves knowing what the law says ... just that we can't know with any certainty (which is a bad thing). And there's two questions here - one is whether Banks breached the law as it is (based on what we know of the facts and what we think is the best available of multiple interpretations of the relevant statute); the second is whether the law as it is is any good.

I think we can agree on that second question. But for now, the first is the more pressing.

by animalspirit on May 01, 2012
animalspirit
Grin - as cross cheque confirms Dotcom source of contribution to Banks funds - interesting to see other kinds of withdrawals from Banks statement in Herald. If law no good current PM feels free to change it? Ethics just a matter of interpretation.

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