| The Funding of Political Parties in the United Kingdom | ||||
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CHAPTER FOUR SOURCES OF FUNDING 4.1 The Government welcomes the Neill Committee's endorsement, in the context of its wider proposals, for the manifesto commitment to ban the foreign funding of political parties (R24). 4.2 The Neill Committee recognised that a key difficulty in seeking to ban foreign donations was the problem of defining a foreign source for the purposes of such a ban. Any such definition would inevitably be hedged around with a multitude of exceptions. The Committee concluded that this difficulty could effectively be overcome by defining those sources from which political parties should be entitled to receive donations. They therefore recommended (R25) that donations should be receivable by political parties only if they originate from a "permissible source", defined in such a way as to exclude foreign funding. Part IV of the draft Bill adopts this suggested approach. How the ban will operate 4.3 The Neill Committee recommended (R28) that the responsibility for ensuring that donations are received only from a permissible source should be placed on each political party and that a designated officer from each party should be required to certify the position to the Electoral Commission annually when reporting on the donations received. 4.4 Clause 50(1) of the draft Bill accordingly requires that a registered political party must not accept a donation unless the party has established to its reasonable satisfaction that the donation has been made by a permissible donor. In addition, Clause 60(1) requires that a quarterly donation report must be accompanied by a declaration from the party's treasurer stating that, during the reporting period, no donations have been received and retained by the party from a source which is not a permissible source. As a consequence of these provisions the party's treasurer will be under an obligation to ensure that a check is made in respect of each and every donation to the party sufficient to establish that the donor is a permissible source. It is important, if the scheme is to be workable, that such checks should be straightforward for the political parties to administer. This consideration has a significant bearing on the Government's proposals in respect of the definition of a permissible source. Permissible sources Individuals 4.5 The Neill Committee recommended (R26) that political parties should be able to receive donations both from those who are registered voters in the United Kingdom and from those who are entitled to register to vote in the United Kingdom. Clause 50(2)(a) departs from this recommendation by providing that registered political parties may accept donations only from those individuals whose names appear on the electoral register. Entitlement to register, whether as a resident or overseas elector, will not qualify an individual as a permissible source. 4.6 Checking that a particular donor appears on the electoral register offers a test that is both conclusive and simple to administer. It would be far less straightforward for political parties to verify that a donor not appearing on the register was nevertheless entitled to do so. It is in the interests of the parties to have available a test which offers certainty as to the eligibility of a donor. With the introduction of rolling registration it would be open to anyone who was entitled to be registered as an elector, but was not on the register for whatever reason, to take the necessary steps at any time to secure his or her registration. Once registered, it would then be open to a political party to accept a donation from such a person. In practice, therefore, little is lost by the proposed departure from the Neill Committee's recommendation. Companies 4.7 The Neill Committee recommended (R26) that political parties should be able to receive donations from companies incorporated in the United Kingdom and from partnerships based in and having their principal sphere of operations in the United Kingdom. 4.8 The Government's proposals in respect of companies follow the Committee's recommendation subject to two modifications. First, clause 50(2)(b) provides that a registered political party may accept a donation from a company which is incorporated anywhere in the European Union, provided that it carries on business in the United Kingdom. To confine the ability to contribute to companies incorporated in the United Kingdom would be an infringement of the European Union treaty rules on freedom of establishment. All European Union nationals, including companies incorporated in other member states, have the right to establish themselves in the United Kingdom and to carry on business here in any appropriate legal form. The case law of the European Court of Justice has established that a member state cannot require a European Union enterprise to adopt a particular legal form, when carrying on business in that state, in order to obtain specific rights, benefits or privileges. Restricting the right to make political donations to United Kingdom-incorporated companies would compel such European Union enterprises to form a United Kingdom company if they wished to make such donations. The draft Bill, therefore, enables a company incorporated in another member state but carrying on business in the United Kingdom through a branch or other direct establishment of that company to make political donations. 4.9 The Neill Committee acknowledged that the ease with which a company, including a subsidiary of a foreign corporation, may be incorporated in the United Kingdom provides scope for the evasion of a ban on foreign donations to political parties. The draft Bill accordingly proposes that incorporation on its own, even if it is incorporation in Great Britain or Northern Ireland, will not be sufficient: it will also be necessary for a company to be carrying on business in the United Kingdom. This second modification to the Neill Committee's recommendation will help reduce the scope for such evasion. 4.10 An overseas company which has established a place of business here is required to register as an overseas company under section 691 of the Companies Act 1985, and this provides a ready means of establishing whether companies incorporated elsewhere in the European Union qualify as a permissible source. However, a check against the register will not be sufficient to establish that a company incorporated in the United Kingdom is carrying on business here. Where there is any doubt as to whether a corporate donor is genuinely carrying on business in the United Kingdom it will therefore be necessary for registered political parties to make some additional enquiries in order to establish that the donor qualifies as a permissible source. This is, however, a simple test, and in the great majority of cases a corporate donor's business activities in the United Kingdom should be well known to the political party in question. Trade unions and other unincorporated associations 4.11 Clause 50(2)(c) and (d) provides that registered political parties and trade unions qualify as a permissible source. In the case of other unincorporated associations, such as partnerships, trusts and voluntary organisations, clause 50(2)(e) requires that, to qualify as a permissible source, such organisations must carry on business wholly or mainly in the United Kingdom and have their main office here. Action by parties 4.12 Parties will have thirty days from the date of receipt of a donation to undertake any necessary enquiries about the bona fides of a donor. Where a party establishes that the donor is not a permissible source, or is unable to establish that fact one way or the other, it must either return the donation to the donor or surrender it (or an equivalent sum) to the Electoral Commission within thirty days of receipt. Once the thirty days have elapsed, a party is deemed to have accepted the donation. Enforcing the ban on foreign donations 4.13 The Neill Committee proposed (R30) that criminal sanctions should attach to the deliberate acceptance of a donation from a source outside the definition of a permissible source. Clause 60(4) provides that it will be an offence for the treasurer to make a false declaration concerning the acceptance of donations from other than a permissible source. 4.14 As the Neill Committee recommended (R27), the Government also proposes that it should be a criminal offence to attempt to evade the restrictions on the source of political parties' funds by, for example, channelling money through a third party in order to conceal the identity of the true donor. Clause 54(1) provides that it shall be a criminal offence to enter into or be otherwise concerned with facilitating the making of a donation to a political party from an impermissible source. 4.15 In addition to these criminal sanctions the Government also accepts the Committee's proposal (R31) that where a party is found to have accepted a donation from other than a permissible source it should be liable to forfeit that sum. Clause 51 provides a power for a magistrates' court (or in Scotland the sheriff) to order the forfeiture of a sum equal to the value of a donation received from other than a permissible source. This will apply whether such a donation was accepted knowingly or not. Under clause 51(2) it will be for the Electoral Commission to make an application to the court for a civil forfeiture order. Northern Ireland 4.16 The Neill Committee concluded that section 2(1) of the Ireland Act 1949 and the terms of the Good Friday Agreement argued for an exception to be made to the definition of a permissible source in order to allow a citizen of the Republic of Ireland to make a donation to a Northern Ireland political party provided that the donor complied with the provisions of the Republic of Ireland's Electoral Act 1997 (R29). The Government accepts the case for making such an exception and proposes to give effect to the Committee's recommendation by means of an exemption order (clause 63). Such an order will initially be made for five years when it will be subject to review and, if necessary, renewed.
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