Tomorrow, the House of Lords will debate the National Security Bill and has an opportunity to make an important intervention on tackling dubious money in UK politics. Both the current government, with the Security Minister’s Democracy Taskforce, and the opposition, with today’s Labour Party report on renewing democracy, have recognised the serious vulnerabilities to UK democracy posed by foreign and dodgy donations.
Scandals involving funds allegedly emanating from Russian bank accounts making their way into Conservative Party coffers have rightly occupied the headlines, but the problem spans the political divide. Peter Virdee, the “international fraud tycoon,” gave to both the Conservatives and Labour in 2018 and 2019 despite his prior criminal convictions, while Tony Blair’s courting of the Hinduja brothers and acceptance of £1 million came while they were being investigated for bribery. In 2005 the Lib Dems accepted £2.4 million from fraudster Michael Brown, even declining to pay it back after it emerged the money had been stolen.
What do the experts say?
Two years ago the Intelligence and Security Committee’s Russia Report noted that Russian elites with close links to Vladimir Putin had donated to UK political parties and called for the Electoral Commission to have greater powers to tackle foreign interference in elections.
And it is clear that the UK’s electoral finance laws remain outdated and fail to provide an effective shield. The main piece of legislation in this area, the Political Parties, Elections and Referendums Act 2000 (PPERA), includes ‘permissibility’ rules setting out who can donate to parties. But these are easily circumvented, leaving the UK’s party political finance vulnerable to foreign influence and unsavoury characters posing a reputational risk both to our parties and our electoral system as a whole.
In 2018 the Electoral Commission argued that introducing risk management principles adapted from money laundering (AML) regulations “could prevent foreign money being used in UK politics” by requiring political parties to introduce the kind of checks already undertaken by most businesses. Some treasurers have asserted that they follow Financial Conduct Authority AML guidance but there is no oversight or reporting to ensure this is done consistently and across the board.
In its 2021 report Regulating Election Finance the Committee on Standards in Public Life (CSPL) considered the case for AML style checks on donations, concluding that changes should be made to PPERA that would require parties to have in place both a risk-based policy for managing donations, and to introduce a statement of risk management in their annual accounts setting out how risks relating to the source of their funds have been managed.
In response to the CSPL report, the government committed to considering ‘further guidance’ to political parties to ensure they take a proper risk-based approach to donations. The government flagged that it “would likely set out ‘best practice’ approaches above and beyond what is required by the law to further reinforce the integrity of the system.” But over a year has passed and there’s no sign of that guidance.
Opportunities for reform
Earlier this year during debates in the House of Lords on the now passed Elections Act, Earl Howe speaking for the government stated “the balance is about right” between the current levels of checks on donations and the abilities of parties to generate funds. Proposed amendments to PPERA putting in place more robust checks on donations were rejected.
Russia’s invasion of Ukraine and its continued fallout, however, has refocused concerns over the role of tainted money in UK politics.
The government’s flagship National Security Bill heading to the House of Lords for scrutiny this week aims, in part, to “strengthen the resilience of the UK political system against covert foreign influence.” It will only truly deliver on its ambition if requirements are introduced for parties to have in place systems that better manage the risks to national security and to the reputation of Britain’s democracy that come with accepting donations from tainted sources.
The National Security Bill is not the only place for considering reform. Security Minister Tom Tugendhat announced a Defending Democracy Taskforce, in November, which met for the first time last week. The Taskforce aims to “protect the democratic integrity of the UK” from threats including “foreign interference in our elections and electoral processes.”
Both the House of Lords and the taskforce would do well to look closely at weaknesses in the current donations regime that have allowed actors with links to foreign governments, including seriously kleptocratic regimes, to establish themselves as major party funders.
Meanwhile, Gordon Brown’s wide-ranging policy review for Labour has flagged foreign money as a serious issue with democratic renewal. His review, now out for consultation, proposes some radical measures, such as the Electoral Commission being given powers to request information from parties on donations, and to seek a court order freezing any donation whose status was uncertain.
Could a “know your donor” policy for political parties provide a solution?
The UK’s anti-money laundering framework has been progressively tightened over the last decade, requiring businesses across the UK to undertake careful scrutiny of, and have strong internal procedures for, tackling dirty money.
The fact that political parties are not required to undertake proper and thorough checks on donations no longer make sense. We cannot and should not continue to allow our electoral finance system to be compromised by foreign donations or those from unethical, insalubrious and sometimes even criminal sources.
Some form of AML checks could easily be adapted for political parties. These should ensure that donations are permissible under UK election law, but should also be broadened to include protections for parties from the reputational risks associated with accepting donations from individuals and companies whose conduct puts them at odds with the UK’s values. This would additionally protect parties from actors who view party donations as an opportunity to seek influence and who apply pressure to obtain favours or special treatment. In our view donors should also be screened for conflicts of interest to avoid scandals where party donors appear to be given favourable treatment in both public appointments and in obtaining procurement contracts.
As part of these checks, political parties should be required to publish a ‘Donations Policy Statement’ setting limits on the types of donations the party is willing to accept and communicate clearly its policy on refusing donations which pose a reputational risk for the party, the UK’s political system or pose a national security risk to the UK.
In addition, parties would be required to establish risk assessment and due diligence controls, as well as including a statement of risk management in their annual accounts reporting on how risks relating to the true source of funds have been managed, and an overview of how many donations have been rejected under the policy.
These measures will only work, however, if they are robustly overseen by a fully empowered and properly resourced Electoral Commission, as the Brown report suggests.
What is clear is that a proper debate about how the UK can tackle the major damage inflicted on our democracy by endless and easily avoidable donor scandals is finally starting to happen. May it bear fruit.
