To date, media and political reaction to the Federal Accountability Act (FAA) has focused on whistle-blowers, floor-crossers, and access to information. Little attention has been paid to the amendments to the Canada Elections Act (CEA). Those amendments promise to lower the ceilings on campaign donations, regulate political trust funds and tighten up the enforcement of the entire election finance regime. The first of these items is an incremental change to the strict new regime introduced by the Chrétien government (as several Liberal MPs pointed out at second reading). The others are both new and long overdue.

Recovering Gomery addicts will most vividly recall the revelations about alleged violations of the party finance laws. (I analyzed those allegations in the June 2005 issue of this magazine.) The enduring impact of Jean Brault’s testimony, particularly the anecdotes concerning cash-stuffed envelopes, is reflected in the Harper government’s rhetoric about the FAA. On April 11, at the formal launch of the Bill, Treasury Board President John Baird boasted that “The days of kickback schemes and envelopes [filled] with cash are over.” It is perhaps unnecessary to point out the fatuity of this claim: as long as there are hard-fought political contests, a few people will be tempted to break the rules. So the real question is the extent to which the FAA might address the problems uncovered by Justice John Gomery.

Baird’s reforming zeal is nothing new. The history of election finance laws, in Canada and elsewhere, follows a recurring pattern. When alleged improprieties become public, politicians compete for the moral high ground. Striking noble attitudes, intoning variations on the theme of “It is a far, far better thing I do than I have ever done before,” they solemnly promise to clean out the stables. Alas, scandal-inspired amendments to election finance laws are rarely as effective as they appear. In the first place, they often impose unrealistic demands on untrained volunteers, such as a requirement to record and disclose every penny raised and spent by a local constituency association. Such laws produce countless inadvertent infractions, which makes them impossible to enforce properly. Their very complexity makes them relatively easy to evade. The cumulative effect is to bring the entire regime into disrepute.

Second, ostensibly tough laws often contain hidden loopholes which can be exploited by clever party operatives. Some of these are the inadvertent products of undue haste and praiseworthy idealism; others may be deliberate. Either way, a law publicly portrayed as a crackdown on corruption ends up as little more than a political fig leaf.

Third, and most serious, “reforming” laws rarely address three central problems in the regulation of political finance: the ease with which money can be hidden, despite strict disclosure requirements; the weakness of the enforcement mechanisms; and the powerful incentive to circumvent the rules. In the absence of equally powerful disincentives to cheat, lofty platitudes about integrity and transparency have no practical effect whatsoever.

As the formal rules of election finance become increasingly complex and onerous, they diverge more and more widely from the informal rules of the political game. Those informal rules are simple: do whatever it takes to win as many seats as you possibly can. Although money is not the only factor in electoral success, it can make a big difference in a tight race. British studies show that generous campaign spending is positively correlated with vote shares in constituency contests. All other things being equal, a campaign which can hire full-time workers, paper the riding with signs and equip its headquarters with the best available technology will have a significant advantage over a cash-strapped effort with a few volunteers. Therefore, political parties— especially those which aspire to govern— have an overwhelming incentive to raise and spend as much money as they can, by any means necessary. Given widespread public suspicion toward politicians, they also have a strong incentive to conceal improper financial transactions. As Gomery remarked in his first report, apropos of Jacques Corriveau’s testimony, “Persons participating in corrupt practices usually take great care to avoid documenting or recording their illicit activities.”

I do not mean to suggest that corrupt practices are commonplace in our party politics, or that most partisans are motivated by anything other than idealism and team spirit. Indeed, a survey of Canadian party members by William Cross and Lisa Young shows that the large majority have no interest in personal gain; instead, they are driven by an attachment to party principles and a powerful sense of “family.” Importantly, however, the same survey found that most constituency associations have few active members and little in the way of financial resources. Under those circumstances, the informal rules of electoral competition will occasionally trump the best intentions of dedicated volunteers.

The power of the financial incentive is clearly evident in Justice Gomery’s first report, which describes the desperate plight of the Liberal Party of Canada in Quebec (LPCQ) before and after the 1997 general election. As the election call approached, the LPCQ office in Montreal was broke and understaffed. Jean Brault was pressured to put three party workers on the Groupaction payroll. He agreed, as he did when he was asked to pay invoices for a party fundraising event and a promotional television series. After the election, when the party was struggling to cover basic office expenses, Brault was tapped for illegal cash donations. This pattern recurred after the 2000 election: the infamous dinner at Restaurant Frank, during which Brault recalled leaving an envelope full of cash on the table, occurred in 2001. Jacques Corriveau, whom Gomery identified as the central figure in the kickback scheme involving sponsorship contracts, assisted the LPCQ in the run-up to the 1997 vote by providing at least $100,000 in unreported cash for disbursement in “orphan” Quebec ridings— i.e., those without Liberal incumbents. Much of the money seems to have gone to pay “volunteer” organizers (who, it may confidently be assumed, did not report this income to the federal government).

Campaign finance is often described as “the mother’s milk of politics.” Given the situation just described, it might be more accurately likened to a river (with apologies to NiccoloÌ€ Machiavelli). During election and leadership campaigns, particularly those involving the party in power, the river rises and threatens to overflow its banks. If the channels constructed to control and direct the flood are too narrow to contain it, the torrent will spill over into unmonitored channels. At other times, the river shrinks to a sluggish trickle. Those tasked with maintaining party organizations between elections take their little buckets to the riverbank and come away thirsty. If they cannot obtain water from the proper source, what is to stop them from divining elsewhere?

It is certainly possible to contain much, if not most, political finance within the legal channels. But this occurs only when the supply of and demand for money are carefully balanced, and when the incentive to break the law is outweighed by strong disincentives. Put bluntly, there was little to deter the participants in the LPCQ sponsorship scheme from doing what they allegedly did. They assumed that they could get away with deliberately circumventing the disclosure requirements in the Canada Elections Act: either their machinations would go undetected or, if they were detected, the persons involved would not be charged with criminal offences under the Act. Eventually, of course, the “kickback scheme” did become public knowledge. Nonetheless, the second assumption still holds true: none of the individuals identified by Gomery has been prosecuted for breaking the election finance laws.

As previously noted, those alleged violations drew more public attention than most of the other issues raised at the Gomery Inquiry. After all, allegations of political corruption are easier to understand than, say, the division of responsibilities between a minister and a deputy minister. Under those circumstances, the relative lack of public and media reaction to the Canada Elections Act (CEA) amendments in the Federal Accountability Act is surprising. The changes to the contribution limits established in Bill C-24 have received some scrutiny, but not much. As I explained in my previous article, that Bill (enacted in 2003) prohibited corporate and union donations to registered political parties and capped annual donations from these sources to constituency associations, candidates, and leadership and nomination contestants at $1,000 apiece. The FAA extends the ban on corporate and union donations to the local level, cutting off the last remaining legal channel of financial support to constituency associations and candidates from those lush tributaries.

Bill C-24 also introduced ceilings on individual donations, including those made by a political aspirant to his or her own campaign for a nomination or party leadership. A given individual could donate a combined total of $5,000 per year to a registered party, its constituency associations, candidates and persons seeking nominations under its banner. The FAA replaces the universal $5,000 cap with specific $1,000 ceilings on contributions to registered parties, constituency associations, candidates and nomination contestants. This potentially reduces an individual’s total yearly giving by $1,000. (The Act also lowers the ceiling on personal contributions to leadership contestants from $5,000 to $1,000, including donations from the contestant’s own funds; this provision could pose problems for contenders in the current Liberal leadership race and may already have forced at least one potential candidate to withdraw.)

Finally, the FAA bans cash donations greater than $20. The threshold for recording and disclosure of contributions has been reduced from $25 to $20, presumably to reinforce that particular provision. Pity the poor constituency treasurer who has to meet this unrealistic standard of disclosure, with little if any assistance from the well-funded national party office. NDP MP Irene Mathyssen offered another criticism of this amendment at second reading: she argued that many seniors prefer to give cash donations, and that the new ban could deter them from contributing at all.

With all due respect to the Honourable Mr. Baird, the tighter contribution rules in the FAA are unlikely to clean up political finance. If anything, they could have the opposite effect. Recall the earlier metaphor of a river: when the approved channels narrow, more water spills over into illicit paths. The FAA does not lower the legislated spending limits for parties and candidates. Nor does it raise the annual allowances paid to party headquarters or require that these be shared with the constituencies. Consequently, the ban on corporate and union donations and the lower ceiling on individual donations reduce the legal supply of money for constituency associations, while the demand for funding remains the same. This is cause for concern, for at least two reasons. First, constituency associations are the foundations of our political parties. Should they atrophy further, our representative democracy will suffer. Second, the major beneficiaries of the LPCQ “kickback scheme” appear to have been local constituency associations— the “orphan ridings”— and candidates in Quebec. If constituencies are indeed the primary locus of improper financial dealings, damming the flow of legal funds could encourage undisclosed cash donations instead of deterring them.

A similar disjunction between appearance and reality afflicts the FAA provisions concerning political trust funds, notwithstanding the fact that regulating secret political bank accounts is a very good idea. The failure to do so was a serious flaw in the CEA. The lack of disclosure makes it impossible even to speculate about the number or size of trust funds associated with constituency associations, incumbent MPs, defeated candidates and retired politicians. Anecdotal reports suggest that some trusts— those held on behalf of long-serving incumbent MPs and/or their constituency associations— have held tens of thousands of dollars in assets. After an MP retires or is defeated, the trust may be wound up and the money used for personal expenses. The potential for improper political influence, if not outright corruption, is troubling.

To make matters worse, some trust funds have been used to circumvent the election finance regime. In his 1996 report to Parliament, Strengthening the Foundations, Elections Canada CEO Jean-Pierre Kingsley argued that party and candidate trust funds made it impossible to determine the true source of some political donations and the true extent of campaign spending. However, he did not call for the outright abolition of party trust funds, because some— in particular, those dedicated to increasing the numbers of female candidates— served a useful purpose. Instead, he recommended the appointment of an official agent for each trust fund associated with a particular party, candidate or constituency association and the full annual disclosure of its assets, donations and disbursements.

Part of this recommendation was enacted into law in 2000, as part of an omnibus package of amendments to the CEA. Only trust funds established by registered parties for explicitly electoral purposes were required to file annual reports; funds associated with local candidates and constituency associations remained unregulated. Kingsley’s 2001 report, Modernizing the Electoral Process, repeated the call for full disclosure of all trust funds. Instead, the weak 2000 provision was repealed in 2003— by Bill C24, the legislation which supposedly initiated a new era of transparency in political finance!

The FAA ostensibly requires MPs to disclose trust funds to the new conflict of interest and ethics commissioner. It is worth pointing out that these provisions are framed as amendments to the Parliament of Canada Act. Therefore, they apply only to sitting MPs, not to constituency associations, defeated candidates or retired politicians. As MP Mathyssen pointed out at second reading, “The ship has sailed on trust funds and I rather strongly suspect that those trust funds are now in the hands of riding associations.” This might be a reference to a long-serving Liberal MP who lost his seat in January, and who had long been rumoured to have a trust fund worth tens of thousands of dollars; the fate of that money may never be known.

Once the commissioner becomes aware of a trust associated with a sitting MP, he or she can order the MP to wind it up without profiting from the proceeds. An MP who accepts “any benefit or income from a trust established by reason of his or her position as a member of the House of Commons,” directly or indirectly, or who takes any deliberate action to circumvent that ban, “is guilty of an offence and liable on summary conviction to a fine of not less than $500 and not more than $2,000.” Moreover, MPs may not use trust funds “for the purpose of financing a nomination contest, a leadership contest or an electoral campaign.” Problem solved— right?

Not exactly. Like most laws respecting political finance, these new trust fund provisions are premised on full disclosure. Trusts which are not reported to the commissioner cannot be policed. If there are MPs who might be tempted to conceal the existence of a fund, they must be given compelling reasons to overcome that temptation. Unfortunately, the provision requiring the disclosure of trust funds is explicitly exempted from section 126 of the Criminal Code. This is in addition to the general exemption of the FAA from the effect of section 126, which reads as follows:

(1) Disobeying a statute— Everyone who, without lawful excuse, contravenes an Act of Parliament by wilfully doing anything that it forbids or by wilfully omitting to do anything that it requires to be done is, unless a punishment is expressly provided by law, guilty of an indictable offence and liable to imprisonment for a term not exceeding two years.

(2) Attorney General of Canada may act— Any proceedings in respect of a contravention of or conspiracy to contravene an Act mentioned in subsection (1), other than this Act, may be instituted at the instance of the Government of Canada and conducted by or on behalf of the Government.

The effect of exempting the entire FAA from section 126 is to protect deliberate violators from prosecution under the Code. This is appropriate in cases where the FAA itself provides for criminal or civil penalties. But the Act imposes no such penalty for wilfully failing to disclose a political trust fund— an infraction which, as just noted, is very specifically exempted from section 126. There are criminal sanctions for failing to comply with the commissioner’s order to terminate a trust and for using trust funds to finance political activities, but not for failing to disclose the existence of the trust in the first place. The corresponding lack of civil penalties is in stark contrast to the new ban on accepting gifts before and during a campaign period (section 40): an elected candidate who fails to report such a gift may be barred from sitting in the Commons until such a report has been made.

In fairness, the provisions immunizing the FAA from section 126 of the Code may be poorly drafted. Perhaps they were intended only to exempt the new Act from section 126(2), as part of the transfer of prosecutorial discretion from the attorney general to the new director of public prosecutions, and not from the criminal penalties provided in subsection (1). But given the perpetual gap between the tough-looking laws adopted in the wake of scandal and the gentle effects of those laws on politicians, the broad grant of immunity just might have been deliberate.

As I suggested in the June 2005 article, the chief failing in our political finance laws is not a lack of criminal offences or penalties. It is the failure to enforce those offences and impose those penalties. Since 1977, the Commissioner of Canada Elections (CCE) has been responsible for enforcing the CEA. He and his staff of investigators operate separately from the RCMP, which has no role to play in relation to election finance and other provisions in the CEA.

The procedure to be followed by the CCE in a particular case depends on the nature of the alleged offence. The CEA defines two broad categories of infractions: (1) regulatory offences, which carry relatively light penalties, and (2) criminal offences, which are punishable by large fines and/or jail terms. The primary difference between the two types of offence is the presence or absence of the mental element (mens rea). In general, regulatory offences are defined in terms of strict liability: proof that the accused committed the act is sufficient to secure a conviction. Criminal offences, on the other hand, require the Crown to prove beyond a reasonable doubt that the accused deliberately and wilfully committed the act in the full knowledge that it was against the law. The difficulty of meeting this standard, particularly in relation to a complex statute like the CEA, is compounded by the fact that many of the people bound by the Act are volunteers with little or no formal training in the minutiae of election law, while the vast majority are citizens whose contact with the electoral process is casual and intermittent. Under these circumstances, it is proper to assume that most violations of the Act are inadvertent— in other words, regulatory offences.

The CCE usually resolves a regulatory infraction by negotiating a compliance agreement with the offender. The latter acknowledges the violation, undertakes not to repeat it and often performs some community service; in return, the CCE closes the case. (Compliance agreements are posted on the Elections Canada Web site.) This is entirely appropriate for minor or unintentional infractions, such as a voter’s mistakenly removing a ballot from a polling place. But compliance agreements are not appropriate in cases which directly engage “the integrity of the electoral process,” as the CEO acknowledged in his 1997 report to Parliament, or in relation to offenders who knew or ought to have known that their actions broke the law. Some of the matters which have been resolved via compliance agreements raise questions about the willingness of the CCE to enforce the election finance laws effectively.

A more serious problem arises when the CCE declines to prosecute an apparently deliberate and widely publicized criminal offence. The apparent failure to investigate any of the individuals named by Justice Gomery is inexplicable. Prior to the FAA, the CEA allowed the CCE to initiate a prosecution within seven years from the commission of the offence— subject to an 18-month maximum period between the first report of a possible infraction and the initiation of the prosecution. Surely the CCE and his staff are aware of the corrupt practices described at the inquiry; indeed, it was difficult for any well-informed Canadian to miss the details of Brault’s testimony (once the embargo was lifted). True, some of the more egregious violations allegedly occurred in 1997 and 1998. By the time of the Gomery hearings in 2005, these were shielded from prosecution by the passage of time. Moreover, testimony given before a commission of inquiry may not be used as evidence in a criminal prosecution against the witness. But why is there no sign that the CCE is conducting his own investigation into these well-publicized and apparently intentional infractions of the Act which he is tasked with enforcing?

Two particular provisions in the FAA appear to be intended to strengthen the enforcement regime, and thereby to create real disincentives for those who might be tempted to violate the rules. The first is the transfer of prosecutorial power under the CEA to the new Director of Public Prosecutions (DPP). While the power to investigate possible violations of the CEA will remain with the CCE, as will the responsibility for resolving regulatory offences, the DPP will assume the responsibility for initiating and conducting prosecutions for alleged criminal offences. The DPP will also handle breaches of compliance agreements. On the surface, this looks like a promising step toward effective enforcement of the election finance laws.

Scratch the surface, and a somewhat different picture emerges. The CCE retains two crucial powers, on which the entire enforcement edifice rests: the decision to open an investigation, and the discretion to withhold the results of any such investigation from the DPP. Section 132 of the FAA states that the CCE “may” refer a case to the DPP. Therefore, the CCE can block a prosecution by declining to inform the DPP of a possible criminal offence. If the government were really determined to enforce the criminal offences in the CEA, it could have used the word “shall” in that section. As it stands, however, the FAA does not require the CCE to give up carriage of alleged infractions. Once the CCE has concluded a compliance agreement, the DPP has no role to play unless that agreement is breached. Yet again, close scrutiny of a tough-looking law reveals a potentially fatal loophole.

The second enforcement-related provision is section 59, which extends the statute of limitations for a prosecution under the CEA. The FAA gives the new DPP up to five years from receiving the first report of a possible offence to launch a prosecution (as opposed to 18 months). The general statute of limitations is extended from seven to ten years after the alleged infraction was committed. This amendment may have been partly inspired by the Gomery testimony, although it bears repeating that some of the criminal offences which came to light in 2005 occurred less than five years earlier. If the new DPP is established quickly, he or she will have the legal capacity to pursue prosecutions against some of the individuals— both inside and outside the LPCQ— who were allegedly involved in deliberate circumventions of the CEA from 1997 to 1999. Of course, this would happen only if the CCE decided to conduct an investigation and to refer the fruits of that investigation to the DPP.

Readers might wonder if section 59 of the FAA will have any effect on the participants in the LPCQ “kickback scheme.” After all, the 1997 and 1998 violations of the CEA were allegedly committed under the old statute of limitations. To prosecute them now would require the retroactive application of the FAA, a highly irregular procedure with serious implications for the rule of law. On my reading of the jurisprudence, however, there is no legal barrier to prosecution for alleged infractions committed before 1999. In 2004 the Supreme Court of Canada upheld the use of “investigative hearings”— as established in the 2001 Anti-Terrorism Act— in the prosecution of the 1985 Air India bombing. The majority distinguished between a procedural provision, which can be applied retroactively, and a substantive offence (which cannot). Given the procedural nature of section 59, there is no reason to suppose that the courts would block an attempt to prosecute alleged violators of the CEA for infractions which may have occurred almost a decade earlier.

The real-world effects of the FAA amendments to the election finance regime are difficult to predict. If the new offences and enforcement provisions are reinforced by the heightened public concern about political corruption, the informal rules of election finance might change. Should that happen, more of the money raised and spent in electoral competition will flow through the legal channels. But it bears repeating that the official spending limits have not been adjusted to compensate for the loss of legal revenue at the constituency level. Nor is the CEA amended to permit a registered party to share its annual allowance with its constituency associations (it is currently permissible to divide the allowance with a provincial wing). Consequently, the widening imbalance between the supply and demand for constituency campaign funds could induce some individuals to find or create illicit channels. The loopholes in the trust fund rules and the incomplete transfer of prosecutorial discretion to the new DPP raise serious questions about the power of the new disincentives to deter such conduct.

There is one final, depressing lesson to be drawn from the Gomery Inquiry, which is as relevant to the FAA as it is to all previous election finance laws: if new sources of money do appear underground, it will likely be a very long time before they are uncovered— if at all.