Sunday, June 22, 2014

Stephen Franks: Labour-Liu legal loophole?

Since the link between Donghua Liu and David Cunliffe surfaced early this week there has been widespread speculation that Labour breached the law in failing to declare two campaign donations made by Mr Liu in 2007.

Though Labour maintains it has no records, the Herald has reported that in 2007 Mr Liu contributed $15,000 for a book signed by Helen Clark, and an unknown amount of money for a bottle of wine.

Under the current law, a candidate donation can include:

“where goods or services are provided by a candidate under a contract or arrangement at a value that is more than their reasonable market value, the amount of the difference between that value and the reasonable market value of those goods or services.”

Corresponding terms govern party donations. Assuming the second donation was for more than $1500, they would capture both of Mr Liu’s transactions. The candidate or responsible party agent who knowingly failed to report them could face up to two years imprisonment (section 207I of the Electoral Act 1993).

But until 19 December 2007 the law governing donations was different. Until then the Electoral Act 1993 defined ‘donation’ to include goods or services provided to the party at an undervalue, but did not expressly capture a sale at an overvalue.

This loophole was partly closed by the Electoral Finance Act 2007 but untl then it was arguably legal not to report the alleged Liu donations if they were provided by way of auction price.

The fact that the law was changed to capture the second transaction increases the strength of the case that parliament realised there was a legal loophole under the old provision.

There is another way to analyse the transaction under pre-2007 law:
  1. The donation of the item (e.g. the wine bottle) to the party;
  2. The auction sale where the price is immaterial to its characterisation as a purchase, not a donation.
On this view Mr Liu would not have donated to the Labour party at all. The donor would be the person who provided the item.  In other words was the mistake not reporting the gift as coming from the original donor with a 'reasonable market value' close to the auction price?

Though attractive in terms of spreading the worry net,  in my view this analysis is not correct, even if it was not irrelevant because of lapse of time for prosecution.  There are too may indeterminables for it to appeal to a court applying the criminal standard of proof.

Of course evading illegality with a technical device does not diminish the disgrace that has rightly come to Labour for its hypocrisy in hounding Maurice Williamson, and before that Judith Collins, and even more so John Banks. Their condemnation of John Banks is particularly disgusting in the light of the Liu revelations, because John's refusal to intervene for Kim Dotcom showed that he was not corrupted by the undisclosed donation.

We lack reason for such confidence about the effect on Labour of the early Liu donations, given Mr Liu's subsequent dealings with government, the circumstances of Shane Jones' decision on another businessman, and Labour's corrupt use of Parliamentary funding as it sought to nobble others with the Electoral Finance Act 2007.

Thanks Michael Moughan for careful study of the superseded law.

Stephen Franks is a principal of Wellington law firm Franks & Ogilvie and a former MP. He blogs at


Anonymous said...

The best thing to come out of this entire contretemps is that is further and unmistakeably underscores to the electorate what a prize twat David Cunliffe is :)

Anonymous said...

Correct anonymous... and how left wing zealots are convinced that the law does not apply to them. They make the laws and apply them to everyone else and they get very nasty and bitter when the tables are turned and they are caught in their own traps.