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Modernizing the Electoral Process – Recommendations from the Chief Electoral Officer of Canada following the 37th general election

Part 5: Transparency in Election Financing

This Part addresses the issue of political financing. The Canada Elections Act contains a reporting regime under which registered parties and candidates are required to report contributions (and expenses). This disclosure is an aspect of the informed vote and is intended to maintain elector confidence in the system.

The recommendations in this Part are aimed at enhancing electoral confidence by improving and extending the disclosure obligations of the Act by implementing controls upon large political contributions, by clarifying and streamlining the provisions related to the filing of the candidate's return.

Chapter 1: Financial Disclosure

5.1.1 Preventing Contributions Intended to Hide the Identity of the Original Source

This report recommends tightening the reporting requirements of the Act with respect to donations received by candidates through intermediate bodies. Steps should also be taken to prevent the use of other indirect routes to hide the original source of a contribution.

There is a provision in the Act (405(1)) that no person may make a contribution to a registered party from money belonging to another person. This is intended to prevent transactions that hide the true identity of the owner, but it is possible to circumvent its intent by transferring ownership of the money to an intermediary, on the understanding that it later be contributed to a candidate, political party, political trust or local association. In such a case, the money is considered to belong to the intermediary who actually makes the contribution. To improve the effectiveness of s. 405(1), a prohibition should be added to the Act against making a contribution in a manner intended to effectively hide the identity of the true donor.

Recommendation: The Act should be amended to make it an offence to make a contribution in a manner intended to hide the identity of the source of the contribution.

5.1.2 Reporting Conditions on Loans

Many election campaigns are financed partly by loans in order to bridge the gap between the early expenditures and the flow of contributions. Although many loans to campaign are essentially personal loans from commercial lenders to the candidate, it is not uncommon for another person to co-sign or guarantee the loan.

A loan to a candidate is, for the purpose of the return, regarded as a contribution. In some cases, the co-signor may become liable for payment and thus, become a contributor.

The Act at present requires the candidate's return to include a statement of contributions, which in this context includes loans. However, in order to provide full transparency of financial support, the return should reveal all the conditions of a loan, including its terms, interest rate and the identity of any co-signor or guarantor.

Recommendation: The Act should be amended to require a candidate's return to reveal all the conditions of any loan, including its term and interest rate. Disclosure of the name and address of any guarantor should be required in the case of loans above the reporting threshold.

5.1.3 Reporting Transfers from Provincial Political Entities

The original source of contributions to parties or candidates is not necessarily reported when the contribution is made through transfers from provincial political parties and provincial electoral district associations. Money raised by a provincial party or association can be transferred to a federal party or candidate. In this case, it will be disclosed on the relevant federal return simply as a contribution from the provincial body, with no indication of the original contributors to that body.

It is important to close this gap and enhance transparency.

Recommendation: It is recommended that all transfers made from provincial political entities to registered and eligible parties, to local electoral district associations of a registered or eligible party, or to a candidate, be fully reported to the Chief Electoral Officer.

5.1.4 More Accurate Reporting of Source of Indirect Contributions Through Local Electoral District Associations and Trust Funds

Specified types of trust funds and local electoral district associations may collect individual contributions and pool them under the umbrella of the trust or association. Amounts can then be transferred from the trust or the association to a party or candidate.

The current provisions do not fully address the issue of the source of contributions under the umbrella of a trust or local association. Where a trust or association receives contributions in excess of the reporting threshold (currently $200), the source of the original contributions may not be disclosed where the association transfers less than the full pool of contributions to a party or a candidate. For example, if the association receives contributions from A, B, C, and D of $1500 each (forming a pool of $6 000), but only transfers $2000 to a candidate, the association has the option of identifying only two of A, B, C, or D as the source of the contributions. The nature of the association's pooled contributions makes it impossible to determine whether $500 from each of the original four contributions was transferred, whether the full contribution from one of the original contributors was transferred, or whether it was some other combination. This failing can be addressed by requiring the identification of all contributors over the reporting threshold to a trust or association since the last election, or since the end of the last reporting period, as the case may be.

Recommendation: The Act should be amended to provide that where a reporting party or candidate receives indirect contributions from a trust or electoral district association, the names and addresses of all of the contributors who made contributions over the reporting threshold to the trust or the association since the last report (in the case of the fiscal returns of parties), or since the last election (in the case of candidates), must be disclosed.

5.1.5 Threshold for Reporting Contributions

The reporting of election contributions is a balance between transparency and privacy – both of which serve important ends.

The purpose of electoral campaign disclosure is for the public to know the source of contributions to parties, candidates and third parties to allow it to judge the potential influence which those contributors may exercise upon the recipient or the commitment to which the recipient may be bound. The concept of the informed vote precludes the public being in the position of having to vote in ignorance of an important facet of political life.

The value of privacy is obvious. It is a matter of personal integrity and a constitutionally protected right. However, beyond this, confidentiality also plays an important role in the electoral process. Just as confidentiality preserves the integrity of the vote, confidentiality respecting contributions also allows individuals to financially support political options without fear of persecution or social pressure. It can thus enhance the political process and encourage participation in the political process. It indirectly enhances commitment to the democratic foundation of the nation.

The question is, and has always been, where the line is to be drawn between disclosure and privacy. At what point does the harm of undisclosed influence begin to outweigh the benefits served by the maintenance of confidentiality respecting contributions?

In the context of the reporting of political contributions, at the federal level the line between transparency and privacy is currently drawn at the relatively modest sum of $200. Where a party, candidate or third party is required to report contributions the total of all contributions must be reported by class of donor, but names and addresses of contributors need only be reported respecting those contributions which are in excess of $200.

The federal reporting threshold was originally set in 1974 at $100. The Royal Commission on Electoral Reform and Party Financing (the Lortie Commission) recommended in its report that this $100 limit be raised to $250. The Committee stated that "Raising the threshold for reporting at the federal level would not impair the public's knowledge of contributions that are large enough to be politically significant." Following the Royal Commission Report, the threshold for reporting was set at $250 for the purposes of the Referendum Act (s. 19) and raised to $200 in 2000 for the Canada Elections Act.

In the context of the 37th general election, the breakdown of the total reported contributions to candidates was as set out below. These contributions came from individuals, businesses, governments, trade unions, corporations and unincorporated groups. This breakdown indicates that, while only 3% of contributions to candidates were in excess of $1075, that small body of contributions accounted for almost half (45%) of the total dollar amount of contributions made. The remaining 55% of the total dollar amount of contributions made came from the remaining 97% of contributions.

It is evident from these numbers that anyone making a political contribution of less than $1075 will not stand out from the crowd nor would any contribution below that level likely carry with it much individual influence. A contribution in excess of $1075, however, would fall into a small universe consisting of the top 3% of a candidate's contributors and would likely be noticed.

In the context of impact on an individual candidate, the current threshold for detailed reporting of $200 amounts to less than 1 percent of the average election expenses of a candidate in the 37th general election. A contribution of $1075 amounts to 5% of that average. (The average election expenses for an individual candidate in that election amounted to $20824 -$37442329 total candidate election expenses divided by 1798candidates.)

The numbers grow even more distant when placed in the context of party expenses and contributions.

In the above breakdowns, the figure of $1075 was chosen with a view to the existing tax credit system. The maximum tax benefit to a contributor occurs at the $1075 level.

Thus, the intended purpose of detailed election contribution disclosure does not appear to be particularly served by a requirement to report contributions of less than $1075. The detailed reporting of such contributions, consequently, does not allow the public to judge the ties of the recipient in any better way than the required general reporting of total contributions and the reporting of contributions on the basis of category of donor. It remains important that detailed records of all contributions be kept and available for inspection by the Chief Electoral Officer, particularly as a necessary enforcement mechanism respecting the recommendations in this report relating to limits on contributions. However, there appears to be no particular public interest served in the public disclosure of these small amounts generally or in the public dissemination of the names and addresses of the contributors who make contributions up to $1075.

Permitting small contributions of this nature to be made in confidence may also have the beneficial effect of increasing the willingness of persons to support the electoral process by alleviating concerns that by so doing they publicize their personal political views.

Recommendations: In order to enhance the privacy interests of Canadians and to encourage the political participation of Canadians, where contributions are required to be reported to the Chief Electoral Officer, the reporting threshold for the specific reporting of names and addresses for contributions should be raised to $1075.

Reporting entities should be required to continue to keep detailed records of contributions, including the names and addresses of contributors who make contributions in excess of $200.

These detailed records should be producible on request to the Chief Electoral Officer or the Commissioner of Canada Elections, and be available for the purposes of the Act, including for the purposes of any enforcement action by the Commissioner of Canada Elections. There would be no obligation to publish them, nor should they be publicly available except as may be required in a prosecution by the Commissioner of Canada Elections.

It should be an offence for a person who is required to produce a detailed record of contributions to wilfully fail to do so on the request of the Chief Electoral Officer or the Commissioner of Canada Elections.

Chapter 2: Streamlining and Clarifying the Reporting Requirements for Candidates

5.2.1 No Bank Account Required if No Financial Transactions Other than Payment of Deposit

At the beginning of an election campaign, every candidate has to appoint an official agent to deal with the finances of the campaign. The official agent has to open a bank account. However, for candidates who receive no contributions and incur no expenses (other than the nomination deposit), opening a bank account and submitting detailed returns seems unnecessary and may be a barrier to new candidates. Removing the unnecessary paperwork is not only good administration, but encourages participation by new candidates.

Furthermore, the nomination deposit should not be considered a loan, contribution or election expense. In the interests of transparency, and for refund purposes, the source of funding for the deposit should be declared.

Recommendations: Opening a bank account should only be required of a candidate when a monetary transaction occurs, other than the payment of the nomination deposit.

A declaration of "nil return" should be provided by the candidate and official agent in caseswhere there have been no contributions, election expenses, or personal expenses. The candidate's deposit should be excluded from the definition of loan, contribution, and election expense. The source of funding for the deposit should be disclosed.60

5.2.2 Removal of the Requirement for a Witness to the Official Agent, Chief Agent and Candidate Declarations Accompanying the Return

Section 451 of the Canada Elections Act requires that the official agent and the candidate must both make a declaration in the prescribed form respecting the return. These declarations essentially certify the correctness of the information. They must be witnessed. The witness is not required to know anything about the return. The witnessing is merely to attest to the execution and adds nothing to the validity of the information. Furthermore, s.463(1) of the Act prohibits the inclusion of a false statement in a return by the official agent or candidate and s.497(3)(v) makes such an act an offence. This further reduces the necessity for a witness to these declarations.

Recommendation: The requirement for a witness to the signatures of the chief agent, the official agent and the candidate on the declarations respecting returns should be dropped.

5.2.3 Clarification of the Nature of the Candidate's Declaration of Personal Expenses

The Canada Elections Act (s.456(1)) requires a candidate to submit a statement of personal expenses to the official agent within three months after election day. Paragraph 451(2)(c) requires the agent to include this statement with the electoral campaign return.

Confusion has arisen concerning the nature of this statement and in some cases this has unnecessarily delayed the submission of the return. The statement is not itself intended to be a return to the Chief Electoral Officer. It is intended to serve as supporting documentation for information contained in the return. If it is not sent with the return, this should be treated as a late claim, not as an invalid return.

Recommendation: The Act should be clarified to show that the candidate's statement of personal expenses is a claim for payment and that if it is not submitted within the timeframe prescribed by the Act, the matter should be treated as a late claim for payment, but it should not render the return invalid.

5.2.4 Clarification of Responsibilities of the Official Agent and the Candidate for Filing the Campaign Report and Their Exposure to Penalties

The Canada Elections Act requires the official agent to prepare and submit the electoral campaign return (s. 451). Most of the responsibility for the return is on the shoulders of the official agent. However, the return has to include two documents prepared by the candidate:

  1. the candidate's statement of personal expenses, which is essentially a listing of personal expenses paid by the candidate, and included pursuant to s.451(2)(c); and
  2. the candidate's declaration in the prescribed form referred to in s.451(1)(e), which states essentially that, to the best of the candidate's knowledge, the information in the return is correct.

The candidate is not directly responsible for preparing the rest of the electoral campaign return. However, the agent is appointed by and may be removed and replaced by the candidate. The candidate is responsible for the completion of the agent's duties and cannot simply divorce himself or herself from the requirement to file. The Act contains a provision that a judge may relieve a candidate of the consequences of failing to provide the return (s.461), but only if the candidate shows that the failure was without the candidate's knowledge or acquiescence and the candidate exercised due diligence to avoid it.

It appears that there is some confusion among candidates and official agents concerning the particular responsibility of the candidate in the filing process. In order to make the responsibility clear, the Act could expressly stipulate that the candidate is responsible for filing the return, while the official agent is responsible for its completion. This should not prohibit the official agent from submitting a return on behalf of a candidate. It would merely require that the ultimate responsibility for proper filing reside with the candidate.

Recommendation: The Act should be amended to expressly provide that the responsibility for properly submitting a return resides with the candidate, while the duty for completing that return rests with the official agent.

5.2.5 Vouchers

After an election, a candidate's official agent must provide to the Chief Electoral Officer an audited electoral campaign return. This has to show contributions and expenses and also has to include the vouchers relating to the expenses. Vouchers are the documents that evidence expenses shown in the return and consist of such items as bank statements, deposit slips and cancelled cheques. The requirement for vouchers is presently provided for in s. 451(1) of the Canada Elections Act. Subsection 451(4) provides that all the documents referred to in s.451(1) must be provided to the Chief Electoral Officer by the deadline of four months after election day. There are potentially serious consequences for failing to comply with this requirement, as it renders the return invalid.

Not all of the documents listed in s. 451(1) are critical to the return itself. Those documents that are critical are the auditor's report and the agent's and candidate's declarations of the accuracy of the report. However, although the vouchers are needed as evidence to support the financial return, they are not so critical that their late presentation should render the return invalid. Experience has shown that many delays or failures to provide the return by the deadline are caused by delays in receiving all these supporting documents.

Recommendations: The requirement for vouchers should be removed from s. 451 and moved to a new s. 451.1; the failure to file complete vouchers should not affect the validity of a return.

However, in the event that insufficient vouchers are filed, the Chief Electoral Officer should be given the authority to direct the filing of additional vouchers in order to evidence the expenses set out in the return. It would be an offence to wilfully fail to comply with a direction by the Chief Electoral Officer for supporting vouchers.

5.2.6 Receipt and Reporting of Contributions Made After Election Day

Complete and accurate disclosure of all contributions and expenses related to an election campaign is fundamental to the principle of transparency in election financing.

In addition, various provisions of the Act support the principle that a person should not receive personal financial gain from running as a candidate. In particular, the calculation and disposal of surplus campaign funds, which is based on the complete and accurate recording of all contributions and expenses, underlines this principle. In order to properly disclose all transactions related to the election and to arrive at an accurate calculation of campaign surplus, there must be timeframes established both for the presentation and payment of claims and the receipt of contributions.

In this regard, the Act is clear on the treatment of campaign expenses, and provides for strict control concerning reporting and deadlines. For example, claims are to be submitted no later than three months after election day, and if this deadline is not met, a claimant or an official agent can apply for authorization to present a late claim for payment. In addition, authorization to pay an unpaid claim must also be obtained for claims presented that remain unpaid four months following election day. In these circumstances, the official agent must update the candidate's return to reflect these new transactions.

The Act provides for the receipt of contributions after election day, however, the reporting requirements for those transactions are somewhat unclear. There are some restrictions on the conditions under which those contributions can be made. For example, there is a provision (s.476), which prohibits the transfer of contributions to a candidate after election day except to pay unpaid claims as disclosed in the candidate's return. However, this restriction only applies to transfers from parties and local associations. The receipt and recording of contributions after election day should be clarified.

Recommendations: No contribution should be allowed to a candidate's campaign later than four months after election day, unless the contribution is expressly allowed under the Act.

All contributions received after election day must be disclosed in the candidate's return, or in an updated version, thereof, if the contribution is received subsequent to the filing of the return.

Chapter 3: Deadlines for the Filing of Returns

5.3.1 Evidence Required to Support Application to the Chief Electoral Officer to Extend Filing Deadlines or to Make Corrections or File Updated Documents

Section 458 of the Canada Elections Act provides the means whereby a candidate or his or her official agent may apply to the Chief Electoral Officer, in writing, for an extension to filing deadlines respecting an election campaign return or a correction to such a return, or for authorization to correct or update information. The Chief Electoral Officer can only grant the authorization sought if he is satisfied that the need for the extension was caused by: (a)illness of the applicant; (b) absence, death, illness or misconduct of the official agent; (c)absence, death, illness or misconduct of an agent, a clerk or an officer of the official agent; or, (d) inadvertence or honest mistake of fact.61

However, the Act does not provide any guidance as to what information the applicant should provide with the application to enable the Chief Electoral Officer to make the required determination. Although, under the common law, the Chief Electoral Officer can accept a wide variety of information provided that it may logically establish the required fact on a balance of probabilities, most applicants fail to provide any supporting information beyond their simple assertion of the fact in the application. In practice, the Chief Electoral Officer would be better placed to make the necessary determination if the need to make an adequate case was made clearly known to the applicants in the statutory authority. Although it would not, in fact, change the substantive operation of the process, the process would be made clearer to the applicants if the Act expressly referred to the need to provide support for claims advanced in applications. As the application is a written process, the Act could be improved by providing that an application be supported by a statutory declaration or other evidence to establish the grounds on which the application is sought.

Recommendations: The Act should provide that an application to the Chief Electoral Officer under s. 458 be supported by a statutory declaration or other evidence to establish the grounds on which the application is sought.

For the sake of clarity and consistency, s. 447 (irregular claims or payments) should be similarly amended.

5.3.2 Deadlines Respecting Applications to Judge

Under s. 459, a candidate or his or her official agent may apply to a judge for an order relieving the candidate or official agent from various filing deadlines or requirements to file documents or corrections, or updates to documents. This application would be made if a prior application had been made to the Chief Electoral Officer under s. 458, and either a further authorization has been deemed necessary, or the Chief Electoral Officer has refused the original application. Generally, the section requires that the application be made to the judge within two weeks of the expiry of the relevant deadline.

This two-week period does not allow sufficient time for Elections Canada to check the relevant return and advise the candidate or official agent if the return is defective. The candidate or official agent will often, therefore, not be aware of the need to make the application to the judge before the expiry of the deadline.62

At the same time, the Act does not set any limit to the additional time that a judge may allow as a result of the application.

Both of these problems could be addressed if the two-week deadline to make an application to a judge, as specified in s. 459, were expanded to two months. The Act could also specify that the judge cannot authorize a filing deadline any later than two months after the event that triggered the application.

Recommendation: The current time limit of two weeks to make an application to a judge as specified in s. 459, should be extended to two months. This period should also be the maximum period which the judge may authorize as a result of an application to the court.

5.3.3 Party Failure to File Return

It is an offence under the Act for a chief agent to fail to file a financial return required under the Act (ss.497(1)(m), 497(1)(q)). The Chief Electoral Officer also has the discretion to deregister any registered party whose chief officer fails to make a required return (s. 387). The failure also results in the automatic loss of the right to reimbursement of election expenses (s.435).

The loss of party status, and the consequent loss of all rights associated with that status, is a harsh penalty for the failure to file a return or to file a late return. It carries with it consequences that are not always logically connected with the failure to file. It will, for example, result in the loss of the right to have one's party name on the ballot in any by-election called before the next general election (which may operate to the confusion of the electorate) and it will remove the party's right to receive lists of electors. However, habitual non-compliance should result in serious consequences.

Recommendation: Loss of political party status should be removed as a potential consequence of failing to file a single financial return as required under the Act. However, a party that consecutively fails to file two required reports in accordance with the Act should automatically lose its party status under the Act.

Chapter 4: The Problem of Unregulated Contributions

5.4.1 Regulatory Controls upon Contributions – A Necessary Counterpart to Disclosure

Controls upon contribution amounts serve a different role than regulatory controls based on disclosure. As noted by the Lortie Commission, "regulatory systems based on contribution limits are not primarily concerned with the amount of money spent, but with preventing undue influence by eliminating donations whose size and/or source might make them suspect." (Final Report of the Royal Commission on Electoral Reform and Party Spending, 1992, vol. 1, p. 435.)

The Lortie Commission chose not to recommend controls upon contributions because of implementation concerns, because compelling evidence of undue influence being gained through large contributions was lacking, and, ultimately, because it believed its recommendations respecting spending limits and disclosure would be sufficient to maintain the confidence of the public in the electoral system.

While disclosure allows the public to consider the existence of contributions to various political entities, it does little to actually reduce the perception of influence that contributions may have upon the recipient.

Spending limits also do not fully address concerns arising from unrestricted contributions. Not every aspect of spending is controlled by spending limits.

For the public to have confidence in the electoral system, it is as important that electors believe a party or candidate to be unmotivated by purchased influence as it is that a party or candidate be actually free of such influence. Reasonable perceptions can be as important in elections as reality. There is evidence that the current regulatory controls respecting spending and disclosure do not fully engender that confidence. In the 2000 Canadian Election Study, which asked if people should be allowed to give as much money as they wanted to parties and candidates, 62.6% of respondents felt that there should be a limit. Just over a third (34.6%) felt that no limits were required.

The time has come to consider the value of imposing regulatory controls upon contributions, to ensure that political parties, their local electoral district associations, and candidates do not become enmeshed in nets of financial obligation or inclination arising from substantial contributions from specific interest groups, bodies or individuals – contributions that the electorate may be unaware of at voting time, or simply not in a position to consider adequately. Such controls would not be particularly innovative in Canadian politics. Seven provinces and territories have already imposed controls, to differing degrees, on political contributions: Ontario, Quebec, Alberta, Manitoba, New Brunswick, Northwest Territories, Nunavut.63

Appendices 3 and 4 set out contribution figures made to candidates and registered parties in the year 2000.

In order for controls to be effective, the application of the Canada Elections Act should also be extended to contests for candidate nominations. The rationale for subjecting these contests to some electoral regulation is explained in more detail in Part 8 of this report, in the discussion respecting the extension of reporting requirements under the Act. The effectiveness of controls placed solely on contributions to parties, local associations and candidates might be reduced if nomination contests remain unregulated. Substantial contributions that may have been made to winning contestants, could readily be carried forward to other electoral events. In any event, the connection of nomination contests to the actual electoral event is so intimate that the rationale for controls on electoral contributions extends equally to nomination contests.

There may be, similarly, a need to impose controls upon contributions to leadership contests. However, there is insufficient data available at this time upon which to formulate a recommendation.

Recommendations: Limits should be placed on contributions to registered and eligible parties, local electoral district associations, and candidates.

The duty to comply with the limit should be imposed upon the entity making the contribution, rather than the recipient, to avoid the imposition of an undue administrative burden upon that recipient.

Entities making contributions to political recipients should be restricted to the following limitations:

Annual: $50000 to each registered/eligible party
$7 500 aggregate to all local electoral district associations of each party
General election: (In addition to the annual limits)
$50000 to each registered/eligible party
$7500 aggregate to one or more candidates of each party
Single or simultaneous
(In addition to the annual limits)
$7500 aggregate to one or more candidates of the same party
Nomination contests: (In addition to the annual limits)
$7500 aggregate to all contestants of the same party

It should be an offence for a contributor to breach these limits knowingly.