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Funding parties through intermediaries

The Sunday Times published a story today about Zac Goldsmith and others making donations to the Conservative Party via an intermediary company. The Conservative Party recorded the donations with the  Electoral Commission, but named the company, not Goldsmith, as the donor.

The story highlights the potential for intermediary organisations to undermine the controls on political donations. The issue in the Sunday Times story concerned the transparency rules, which require the disclosure of the source of all donations over £7,500.  By naming only an intermediary organisation, the true source of the donation (ie the person who gave the money to the company) was not disclosed. The story does not allege any wrongdoing on Goldsmith’s part, and the Conservatives explain the failure to report the source as an administrative error. If there was no bad intention, it still maybe suggests that the use of intermediaries makes arrangements more complex and thereby prone to errors in the record keeping.

The law requires the disclosure of the true source of a donation where the intermediary organisation acts as an agent for someone else. The Sunday Times report suggests that this is not in dispute and that the Conservatives accept that they should have recorded the donation as from Goldsmith.

However, in other circumstances, an agency agreement is not always easy to establish. There are also ways for organisations to act as a front without an agency agreement. The previous controversies – such as those concerning David Abrahams, the Midlands Industrial Council and 5th Avenue Partners – show that the regulations leave room to give money using other organisations or people without falling foul of the law.

Creative uses of intermediaries would also be a likely problem if a cap on political donations is introduced – with people getting round the donation limits  by using companies or other organisations to give extra funds. The difficult question is how to solve these problems? Ban all donations except those from individuals? That would be harsh on all those organisations that want to give money and do not act as a front. An alternative is a system of regulation that requires organisations to disclose their donors (as is now required for unincorporated associations) or even cap the amounts that people can give to organisations that donate to a political party – but this extends the regulation of political funding to a wider range of political actors and increases the complexity of the law.

The use of intermediaries, and the limits of the law in controlling these methods, has been a recurring problem since the introduction of the controls on political donations and seems unlikely to go away.

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