Bearwood and company donations

The Electoral Commission has ruled that the donations to the Conservative Party from Lord Ashcroft’s company, Bearwood Corporate Services, were lawful. Given the Ashcroft related headlines this week, the decision is timely. However, it also reveals the limits of the existing laws on company donations and donations through agents.

The ruling is unsurprising following some of the Electoral Commission’s previous decisions. It is also politically convenient for the Commission (as I have said earlier) – if they had ruled such large donations to be unlawful during an election campaign, the political consequences would have been huge and the Commission would have been at the centre of the storm.

In the last ten years, Bearwood Corporate Services has donated over £5 million to the Conservative Party. The Commission had to consider three issues: whether Bearwood was a permissible donor, whether Bearwood was acting as an agent for Lord Ashcroft, and whether the Conservative Party has fulfilled its duty to ensure compliance with the party funding laws.

On the first issue, the Political Parties, Elections and Referendums Act provides that only those companies ‘carrying on business’ in the UK can donate to a political party. The Commission found that it did carry on business here, after looking at the location of Bearwood’s employees and premises and some of its business activities. The ruling of the Commission suggests that this is a relatively low threshold for the company meet – the Commission itself says that the term is ‘interpreted broadly.’ The low threshold can also be seen in the Commission’s earlier decision last year in relation to 5th Avenue Partners’ donation to the Liberal Democrat.

The second issue concerned whether Bearwood was itself the donor, or whether it was acting as an agent for its parent company or for Lord Ashcroft. This is important because when a company acts as an agent, the person giving money to the company must be a permissible donor and that person must be recorded as the donor with the Electoral Commission. In the case of Bearwood, newspaper reports often give the impression that the company is acting on behalf of Lord Ashcroft. However, the Commission emphasised the need for clear evidence of an agreement or arrangement between the donor and the supplier of funds to establish an agency relationship (eg that money was given to the company with the understanding that the sum would be given to the party). While Ashcroft authorised the donations from Bearwood, and the internal documents of the Conservative Party referred to the Bearwood donations as the ‘Ashcroft donations,’ the Commission concluded:

There was however no direct, or cogent circumstantial evidence before the Commission of any channelling of funds for donation by Lord Ashcroft, either directly to BCS or via anyone else. Nor was there evidence of an agreement between Lord Ashcroft and BCS that BCS would make donations on his behalf.

Along with the 5th Avenue Partners decision, this test highlights that you really have to be quite explicit to form an agency relationship or leave a clear evidential trail – and if you did want to use a company to make a donation, you could probably find ways to avoid this.

On the third question, the party receiving the donation has to take steps to ascertain the true identity of the donor. The Commission found ‘since 2006, the party would have had reason to question whether the donor was Lord Ashcroft.’ However, they concluded that this depends on the state of mind of the party, and there was not sufficient evidence to determine whether the party was uncertain on the identity of the donor. In reaching this conclusion, the Commission noted their limited information and had to take the party’s statements at face value:

The Commission’s current powers do not allow it to require anyone to attend an interview. The Commission asked various officers and staff within the party to attend interviews on a voluntary basis, but these requests were not agreed to.

Without commenting on the outcomeof the case, the decision highlights some of the shortcomings of the law. First, as the Commission admitted, they had limited powers of investigation. They could demand disclosure of documents from a political party, but not a company. While Bearwood provided information voluntarily, you might wonder how rigorous an investigation can be without such powers. Same point in relation to its powers to question party staff. Given that only a summary of the decision is posted on the Electoral Commission’s website, it is hard to assess their treatment of the evidence.

Secondly, the low threshold for carrying on business in the UK and the difficulty in establishing that a donor acted as an agent means that the law really provides a fairly minimal limit on political donations. It is possible for someone to transfer their own money into a company’s general funds, and for that company to give money to a party – but under the current interpretation (and assuming no agency agreement can be established), only the identity of the company has to be disclosed to the Electoral Commission. When you couple the low threshold to be met with the Commission’s limited power of investigation, it seems rare that the a donation will be found to fall foul of these rules.

But even if these issues are addressed, there is a broader point about company donations. In most cases, such company donations will not raise the issue of an agency arrangement. A company can make a donation in its own right out of its own funds, but the owner of the company may  control or influence the company’s decision to donate. In that scenario, the individual does not transfer any funds to the company and the money clearly comes from the company (not on behalf of anyone else), but the donation to the political party may be seen as connected with that individual.

Those individuals that own a company thereby have an avenue to avoid the laws that might prevent them making a donation as an individual.  For example, donations from individuals not on the electoral roll are not permissible (a restriction of foreign donations) – but it is possible for a company owned by such a person (if it carries on business in the UK) to give money. In those circumstances, the Electoral Commission will name only the company giving the funds – and the individuals behind the donation may not be transparent.

If we are concerned about this, maybe the law on company donations should be revisited.  For example, direct company donations could be banned and companies required to set up a separate political fund from which to make donations. All money paid into that fund would then be required to come only from permissible donors and sums above a certain amount disclosed. While this may be more transparent, it adds a new layer of bureaucracy and there is a danger that new loopholes and grey areas will emerge.

The problem is not, however, confined to Ashcroft and applies across the board. All the main parties rely to some extent on company donations and it seems likely the grey areas of the law will continue to be exploited.