Election financing laws

5 October 2020

The scale and aggressive nature of foreign states seeking to interfere with democratic processes and policy making is on the rise around the world. New Zealand is not immune from this threat. One of the main ways through which these states seek to achieve their goals is by funding political parties and candidates in the hope of building influence.

New Zealanders donating to the political parties and candidates they support is a recognised part of the way democracy works in New Zealand. However, due to the threat of foreign interference, the Electoral Amendment Act 2019 introduced new limits for overseas persons donating to New Zealand political parties and candidates. Specifically, it is now an offence under section 207L of the Electoral Act 1993 for any person to enter into an agreement, arrangement or understanding that has the effect of allowing an overseas person to donate over $50 per calendar year to a political party or $50 per campaign to a candidate.

With strict limits on these donations, the risk of foreign states seeking to illegally use the products and services provided by reporting entities increases. Your risk assessment and AML/CFT programme are the first line of defence to ensure your products and services are not misused for this purpose.

Highest risk products and services

Most political parties accept donations through direct deposit/wire transfer or using web-based credit/debit card payments. The Department assesses there to be a risk that these may be misused to circumvent electoral finance restrictions.

The Department assesses additional risk from donations made by legal persons (such as companies) or legal arrangements (such as trusts) in New Zealand that are controlled by foreign states. These legal structures are formed for the purpose of donating to political parties while concealing their ownership structure and source of the funds. There may be a New Zealand-based nominee director and nominee shareholder.

Consequently, the Department assesses that the following products and services are at the highest risk of abuse:

Trust and company formation services
Acting as a nominee director or nominee shareholder
Money remittance services
Payment service providers (including stored value instruments)

AML/CFT Requirements

Foreign states trying to interfere in New Zealand’s democracy are likely to use reporting entities’ products and services for the same reasons as money launderers: to conceal the origin of the funds and avoid detection by authorities.

Customer due diligence, account monitoring and suspicious activity reporting

The key to protecting your business from misuse by foreign states for electoral finance offences is to know your customer. This includes establishing who any beneficial owner is and examining the source of funds for higher risk activities or transactions.

Higher risk indicators that may require further scrutiny are:

An inbound international wire transfer to a New Zealand political party or candidate.
International funds transfers into a New Zealand bank account with corresponding transfers to a New Zealand political party or candidate.
Formation of a company with a complex ownership structure where beneficial ownership appears opaque and overseas.
A payment service provider observes payments being made through New Zealand political party web donation portals.

Remember that your AML/CFT programme must include adequate and effective policies and procedures to comply with your account monitoring obligations. This includes a requirement to identify grounds for reporting a suspicious transaction or activity (SAR). Note that the circumstances in which a SAR must be submitted include where there are reasonable grounds to suspect an activity or transaction is, or may be, relevant to the investigation or prosecution of an offence under the Electoral Act 1993.

Wire transfer rules – requirement to transmit information with transaction

As well as making sure that you know your customer, a reporting entity that is an ordering or intermediary institution of a wire transfer is required to pass on originator information to the beneficiary institution (who are receiving funds for the beneficiary). For an international wire transfer, this means the originator’s full name and at least one of the following:

Address
National identity number
Customer identity number
Place and date of birth

If a beneficiary institution receives a payment that is not accompanied by this information, it must have effective risk-based procedures for handling the wire transfer. This includes deciding whether the transaction requires a SAR to be submitted. Any payments for a political party or candidate by international wire transfer without the required originator information accompanying it should be treated as high-risk.

Further requirements under the Electoral Act

Please also note that the Electoral Act requires any person knowingly involved in passing a donation from a donor to a political party or candidate to inform the party or candidate of the identity and address of the donor.

If one of your customers asks you to transmit funds on their behalf to a political party or candidate, this means that you also have an obligation to make sure the party or candidate receives the name and address of the donor (along with the donation) within 10 working days. To not do so is an offence under section 207F of the Electoral Act.

Further information is available on the Electoral Commission’s website under the heading “Donations through an intermediary (a transmitter)”.