INSIGHTS: Charities Unclear and Uncertain about Disclosure of Political Donations and Expenditure

Important changes to funding and disclosure laws which apply to charities are on the horizon under proposed changes to Commonwealth Electoral Act 1918 (‘Electoral Act’).

Non-party Political Actors

Under the Electoral Legislation Amendment (Electoral Funding and Disclosure Reform) Bill 2017 (‘the Bill’) which was introduced into Commonwealth Parliament late last year, a new regulatory regime will:

• prohibit donations from ‘foreign sources’; and
• apply funding and disclosure laws to new categories of ‘political campaigners’ and ‘third party campaigners’.

• The Federal Government has asserted that the legislation is necessary to block donations by foreign entities attempting to influence Australian electoral outcomes.
• The proposed legislation is aimed at banning ‘foreign donations’ and imposes registration and disclosure requirements for a broader group of non-party political actors.

In particular, the Bill proposes the following changes which may impact charitable funding and compliance:

• The creation of new public registers, maintained by the Australian Electoral Commission (AEC) for ‘political campaigners’ and ‘third party campaigners’.
• Charitable entities will be required to register if they incur a certain amount of expenditure on a ‘political purpose’.
• Non-party political actors are required to lodge an annual return where their expenditure on ‘political activities’ exceed the threshold of $10,000, which must include detailed financial information, an auditor’s report, donor information and details about senior staff (including whether they are members of any registered political party).
• Obtaining a statutory declaration from every donor to verify that they are an ‘allowable donor’.
• The appointment of a financial controller, who may be personally liable for failure by the charitable entity to comply with the Electoral Act.

‘Political Purpose’ and ‘Campaigning’

The definition of ‘political purpose’ is extremely broad and problematic as it includes:

[T]he public expression, by any means, of views on an issue that is, or is likely to be, before electors at an election (whether or not a writ has been issued for the election).

 At a fundamental level, the proposed legislation runs the risk of interfering or inhibiting public interest advocacy and legitimate, charitable purposes conducted by a charity.

If the definitions of political expenditure and political purpose are not properly distinguished from legitimate charitable activities then, in our view, the Bill’s proposed re-classification of public interest issues based advocacy as ‘political campaigning’ may be inconsistent with the Charities Act.

In addition, there is a potential risk of overlap between international philanthropy for charitable purposes and foreign donations to political parties. The consequence is that charities found to be engaging in political activity could lose their charitable status.

Advisory report on the Bill

The Joint Standing Committee on Electoral Matters (the Committee) released its Advisory Report on the Bill in mid-April 2018. The Committee received 102 submissions from the charity sector, which expressed concerns about the unreasonable regulatory burden that would be imposed on charities by the proposed legislation and the “chilling effect” this would have on a charity’s advocacy activities.

In its Advisory Report, the Committee acknowledges the concerns raised and proposes 15 recommended amendments.

The committee agreed in principle to the passage of this Bill, subject to the government addressing the report’s 15 recommendations.  These recommendations provide greater clarity for charities and align definitions as closely as possible with the intent and principles of the Bill, while ensuring regulatory and compliance burdens are minimised.

The Key Recommendations

The Committee has recommended that:

• the Government reconsider the introduction of the term ‘political purpose’ into the Electoral Act to avoid confusion with the Charities Act meaning of the term, and that it should not clarify that it does not include the expression of the views, or the communication, broadcast or research, is solely for genuine satirical, academic or artistic purposes that are not intended to influence voter behaviour.
• the Government consider amending the definition of ‘political expenditure’ to define the type of expenditure which constitutes expenditure undertaken to influence voters to take specific action as voters, so as not to capture non-political issue advocacy.
• instead of the categories of ‘third party campaigner’ and ‘political campaigner’ being established as registration thresholds, the Government consider establishing a publicly available ‘Transparency Register’ be established that provides:
  • voluntary registration for all entities engaged in ‘political expenditure’;
  • mandatory registration for all entities engaged in activities that require disclosure of ‘political expenditure’ that reach a minimum ‘expenditure threshold’; and
  • disclosure obligations that are commensurate with levels of expenditure.
• the Government consider setting expenditure thresholds for triggering increased reporting obligations under the proposed Transparency Register be set at a level that could reasonably be expected to have a significant impact on voter behaviour and that these obligations be proportionate to levels of expenditure.
• the Government reconsider the definition of ‘associated entity’ proposed in the Bill, and instead consider retaining the definition of ‘associated entity’ currently in the Electoral Act.
• the Government consider replacing the definition of ‘allowable donor’ with a definition of ‘non-allowable’
• the Government consider removing the potential requirement for statutory declarations for all gifts, and simplifying the process for entities to verify whether a donor is a non-allowable donor.
• the Government consider removing the aggregation of donations received under the allowable amount, provided that appropriate anti-avoidance measures are implemented.
• the Government consider establishing a minimum expenditure threshold before requiring substantiation for public funding claims.

Problematic Activities by a Charity

Charities should consider whether their fundraising and other ‘public interest activities’ might be captured as political activity, political expenditure or donations from ‘foreign sources’, in particular in the following circumstances:

• negotiating future international funding or engaging with a United Nations body.
• expenditure on campaigning via advertising and the media during an election such as producing a publicly available research paper with a political purpose or consequence.
• accepting and assessing the total value of a series of gifts from a donor including anonymous donors.

What is apparent from an analysis of the Bill is that, aside from a myriad of compliance obligations and attendant costs, there are also a number of inherent unintended consequences that may impact harshly on charities and not-for-profit organisations, and which may undermine their leverage for public interest advocacy and fundraising, subject to the Government’s response to the recommendations and the passage of any amendments to the Bill prior to it passage into Law.

Meridian Lawyers can assist charities in assessing the implications of the Electoral Funding and Disclosure Reform Bill, implementing governance procedures or lobbying the Federal Government – please contact our Corporate Advisory team.

Disclaimer: This information is current as of May 2018. This article does not constitute legal advice and do not give rise to any solicitor/client relationship between Meridian Lawyers and the reader. Professional legal advice should be sought before acting or relying upon the content of this article.