+++ OFFICIAL: Lib Dems cleared by Electoral Commission over Michael Brown’s £2.4m donation

Here’s the full statement just released by the Electoral Commission:

Donations by 5th Avenue Partners Limited to the Liberal Democrats: statement

20 Nov 2009

The Electoral Commission, the independent elections and party finance watchdog, today announced the outcome of its investigation into donations made by the company 5th Avenue Partners Ltd to the Liberal Democrats. Donations totalling over £2.4m were made in 2005.

The investigation considered whether there had been breaches of the Political Parties, Elections and Referendums Act 2000 (PPERA). In particular, it looked at whether the company, reported as the donor, was a permissible donor. It also considered whether the company was in fact the true donor. If a party accepts impermissible donations, the Electoral Commission can apply to a court to seek forfeiture of an amount equivalent to the sum accepted.

To be a permissible donor, a company must be registered under the Companies Act 1985, incorporated within the UK or another EU member state, and be carrying on business in the UK. The Commission has concluded that 5th Avenue Partners Limited met these requirements at the time the donations were made, and therefore was a permissible donor.

The Commission also considered whether there was a basis for concluding that either Michael Brown, as an individual, or 5th Avenue Partners GmbH (the parent company of 5th Avenue Partners Limited) was in fact the true donor. Neither of them would have qualified as permissible donors under PPERA.

The Commission has concluded that there is no reasonable basis to conclude that the true donor was someone other than 5th Avenue Partners Limited.

Commenting on the outcome of the investigation, Electoral Commission Chair Jenny Watson said:

“The law sets out who can make donations to political parties and makes sure that information about where parties get their money from is in the public domain, so voters can see for themselves how politics is funded. Our job is to make sure those rules are followed.

“Parliament considered carefully the rules on company donations in 2000, and set out specific requirements, including that a company must be carrying on business in the UK in order for it to be a permissible donor.

“We have conducted a thorough investigation into these particular donations to the Liberal Democrats, and considered a substantial body of evidence: evidence from the criminal proceedings against Michael Brown; documents obtained from the City of London Police, including analysis by forensic accountants; and evidence provided by the party.

“Having considered all the evidence in this case, we have concluded that 5th Avenue Partners Limited met the requirements to be a permissible donor. The Electoral Commission will be taking no further action in this case.“

The full case summary is available on our website.

The saga of Michael Brown’s donation has dragged on for years – you can catch up with the archive of LDV posts (dating back to September 2006, the month LDV was launched) here.

There’s no doubt the story has done the party’s reputation a great deal of harm, not least because the Lib Dems were unable fully to capitalise on the ‘cash for peerages’ row which erupted towards the tail-end of the Blair premiership. Every time the party called for a proper clean-up – an end to the Labour/Tory practice of giving favours for donations – the words ‘Michael Brown’ were thrown back at us.

The fact that the party promised Michael Brown nothing in return for his donation – the fact that one of the party’s biggest donors, Paul Marshall, has had to scrap it out in an internal party election process to get on the list of future Lib Dem peers – has been obscured.

None of which is to say the party hasn’t lessons to learn from the Michael Brown episode. But it is undoubtedly a relief (not least from a practical financial point of view) to have confirmed that the Lib Dems did follow the necessary processes, and did act in good faith when accepting Michael Brown’s largesse.

More reaction will follow as we get it …

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33 Comments

  • Bill Kristol-Balls 20th Nov '09 - 11:18am

    Farage is goit to EXPLODE.

    I want to be there 🙂

  • Stick that in your pipe Iain Dale and smoke it!

  • Herbert Brown 20th Nov '09 - 12:32pm

    “But it is undoubtedly a relief (not least from a practical financial point of view) to have confirmed that the Lib Dems did follow the necessary processes, and did act in good faith when accepting Michael Brown’s largesse.”

    That’s not what the statement was about, though – it says only that the EC has concluded that the company was carrying on business and that the donation really did come from the company. So the donation was permissible.

    Of course, the question of the money – or at least part of it – having been stolen is a separate one.

  • cheltenham Robin 20th Nov '09 - 12:36pm

    Strangely enough this story hasn’t broken on Conservative Home yet.

  • That’s a relief but may no be quite the end as a couple of the people Brown defrauded have talked about sueing the party for recovery of the money they lost. Though that was always a pretty thin case and this ruling won’t have improved it.

  • Relieved, but let’s make our motto ‘Beware of Geeks bearing gifts’

  • Mark Williams 20th Nov '09 - 1:05pm

    Geoffrey Payne
    “I looked at the summary and I found no criticism of the Liberal Democrats whatsoever. Yet this story has been hanging over the party for years.”

    Then read between the lines. Brown’s donations were made in Feb/Mar 2005 and he was courted by C.Kennedy before that. The Electoral Commission say that the company took a number of actions that were consistent with operating a business, e.g. corporate resolutions, opening bank accounts, moving money and executing options trades, but it doesn’t actually say it was operating a business. If you think about it the corporate resolutions are required to open a business bank account and the business bank account is needed to handle money, so that would be a required step whether or not the company was actually in business.

    What the Electoral Commission neglected to say was that the High Court found that the options trades were merely executed to create the dealing slips to give the impression of a business to defraud further investors. There were no staff, no VAT registration, no FSA registration, and frankly no business.

  • Mark Williams 20th Nov '09 - 1:32pm

    “The solution to stop this is to have state funding of political parties. Companies should not be allowed to donate to political parties.”

    You don’t have to go that far. Just handing back stolen money or returning donations from companies controlled by convicted fraudsters would be enough.

  • Mark – I appreciate that an article of faith that has sustained you for years has been destroyed but read the EC statement above

    “To be a permissible donor, a company must be registered under the Companies Act 1985, incorporated within the UK or another EU member state, and be carrying on business in the UK. The Commission has concluded that 5th Avenue Partners Limited met these requirements at the time the donations were made, and therefore was a permissible donor.”

    “Met these requirements” – ie in the opinion of the Electoral Commission, 5th Avenue Partners was carrying on business.

  • Herbert Brown 20th Nov '09 - 2:07pm

    “Reading through the ruling, it appears to be saying that because Brown was committing systematic fraud and needed a paper trail, the party is off the hook because it means the money which went to the party came from defrauded investors not a source deemed illegal under the PPERA 2000.”

    I don’t think it’s quite as simple as that. Most of the money came ultimately (and £30K directly) from the parent company, which wouldn’t have been a permissible donor.

    The crucial question seems to have been whether in acting as a conduit for the money, the UK company was acting as its agent. The EC seems to have concluded that it wasn’t because (i) there was no “express agency agreement” and (ii) because there was no motive for the parent company to make a donation, because any benefit from it would relate to the UK company.

    That last bit of reasoning seems pretty remarkable, coming from the Electoral Commission, implying as it does that any donation from a company to a political party can be assumed to be a payment made in anticipation of a future “benefit”!

  • Terry Gilbert 20th Nov '09 - 2:09pm

    “The party promised MICHAEL BROWN nothing in return for HIS donation”?

    Surely ” the party promised 5TH AVENUE PATNERS nothing in return for IT’S donation”….

  • Mark Williams 20th Nov '09 - 2:46pm

    Hywel, I am sustained by far more than caring about whether the Lib Dems contribute to the corruption of politics by accepting tainted and impermissible donations.

    “Met these requirements” – ie in the opinion of the Electoral Commission, 5th Avenue Partners was carrying on business. In the opinion of the High Court 5th Avenue Partners never traded. The Electoral Commission never says that they consider that 5AP conducted a business, merely that they undertook some activities that were consistent with a business.

    Well blow me. The company was running a full blown fraud, and it was found out. Of course it undertook some activities that were consistent with running a business. They had to do that to fool their victims. That doesn’t mean they were running a business. A business is an activity carried on with a view to a profit. Stealing other people’s money is not a profit making activity in law because the proceeds are not the property of the thief. Any half decent barrister would have had the Lib Dems/Brown over a barrel if this had ever got into court, which the Electoral Commission clearly never wanted to do.

    If your party wants to live off the proceeds of crime (I don’t think that is at all in dispute), then so be it, but don’t expect people to vote for you.

  • Mark Williams 20th Nov '09 - 3:17pm

    “Surely any donation by any company must be a payment made in anticipation of a future benefit, else the shareholders can sue the directors of the company for misfeasance, ie for not trying to make as large a profit as possible – which is, of course, the legal obligation of every company.”

    Um, no it isn’t. And I think you mean malfeasance. The obligation of the directors is to make the company successful which does not necessarily imply maximal profitability. The directors might decide that the company benefits from existing in a healthy democracy and hence assists more than one party.

    If it did, directors of a company that supported a politician who later increased corporate taxes might be sued.

  • Herbert Brown 20th Nov '09 - 3:27pm

    Richard

    You’re surely not suggesting that every time a company makes a charitable donation its directors are guilty of “misfeasance”?

  • Andrew Suffield 20th Nov '09 - 4:34pm

    Just handing back stolen money or returning donations from companies controlled by convicted fraudsters would be enough.

    You know, I’m getting a little tired of hearing this same thing over and over again. Where do you propose the party is going to get this money? Why exactly do you think the party should give Michael Brown his money back? The guy’s a criminal. I don’t think giving him money is a good idea.

    There is no legal basis for handing the (non-existent) money to some random rich guy who got defrauded by Brown – in fact, I think there are laws expressly prohibiting it; political parties are supposed to either use donations for their own purposes, or return them to the donor. If the EC had found that the donation was not permissible, then the money would have been returned to Brown in whatever haven from extradition he’s hiding in – that is what the law requires. A court can’t even take it from him, because he’s only been convicted of fraud, not sentenced for it. The maximum thing that could be done would be to get the court to freeze his assets, so that the money would sit in his UK bank account until he dies, and never be returned to the people he got it from.

  • Herbert Brown 20th Nov '09 - 4:43pm

    “If the EC had found that the donation was not permissible, then the money would have been returned to Brown in whatever haven from extradition he’s hiding in – that is what the law requires.”

    No, it isn’t. The money would have been forfeited, not returned to the donor.

  • Paul Griffiths 20th Nov '09 - 10:01pm

    The party has neither a legal nor a moral obligation to compensate Mr Brown’s victims. Those obligations rest entirely with Mr Brown. Any voluntary payment to a victims’ compensation fund would be a supererogatory act of charity. Given the current state of the party’s finances, and the impending general election, I suggest it is a gesture the party cannot afford.

  • Andrew Suffield 20th Nov '09 - 10:42pm

    The money would have been forfeited

    Ah, I missed that bit. Wonder who gets it – the government?

  • Herbert Brown 21st Nov '09 - 8:19am

    “The party has neither a legal nor a moral obligation to compensate Mr Brown’s victims.”

    Look. I can see the difficulty of the party’s position, and it does seem unfair if it accepted the money in good faith and then spent it all.

    But it’s altogether too glib just to say that the party has no moral obligation to the people the money was stolen from. In everyday life, if someone received a large and unexpected gift from a comparative stranger, and it later turned out that the money had been stolen, I think in most cases that person would feel a very strong moral obligation to the victims of the theft. In fact I think most honest people would return the money without hesitation if they were in a position to do so.

  • Tough shit Herbert Brown……now change your broken Tory record & get a life. arf

  • Herbert Brown 21st Nov '09 - 11:35am

    ColinW

    “Tough shit Herbert Brown……now change your broken Tory record & get a life. arf”

    Tory? I’ve never supported the Tories in my life, and I can’t imagine ever doing so.

    Still, mindless abuse is always a pretty good indicator of the absence of a counter-argument, so you weren’t entirely wasting your time in posting the comment above. (Even so, I hope you didn’t spend too long over it …)

  • Paul Griffiths 21st Nov '09 - 11:42am

    I’m using the word “obligation” literally, whereas you seem to mean something closer to “sympathy”.

    Moreover I don’t think you can safely draw parallels from “everyday life” where none exist. Outside of fiction, when did you last hear of someone receiving a large and unexpected gift from a comparative stranger?

    The question of which things people are morally obliged to do, and which are morally good but not obligatory, is a fascinating one. The philosopher Peter Singer, for example, has argued that the former are more extensive and demanding than many would like to admit.

    But I doubt if even Prof Singer would regard it morally obligatory to sacrifice a sum roughly equivalent to 45% of your annual income out of sympathy with a fraudster’s victims.

    Look. I concede that a charitable donation to a victims’ compensation fund would be an admirable gesture towards the people Michael Brown conned, and might even (incidentally, of course) help to restore whatever damage this affair has done to the party’s reputation. I only doubt, to borrow your phrase, that the party is “in a position to do so”.

  • Herbert Brown 21st Nov '09 - 1:53pm

    Yes, I realise the party’s position is rather different from that of an individual, and that the money has all been spent, and – as I said – I can see the difficulty of its position. I can even see why for legal reasons the party would not want to acknowledge publicly any moral obligation to the victims.

    But that doesn’t mean it’s appropriate to go to the other extreme and make statements that may sound quite obnoxious to the average voter. Surely it’s possible for the party to give some expression of concern and regret without weakening its legal position?

    At any rate, for people to be saying things like “Tough shit” really doesn’t look good!

  • Paul Griffiths 21st Nov '09 - 2:41pm

    If my statements sound obnoxious, I apologise. That was never my intention. But I am not in the least concerned about any “legal reasons” and, obviously, I don’t speak for the party. I just think it’s important to counter – strongly – any notion of guilt by association. Party officials behaved recklessly, but they didn’t defraud anyone. Guilt, criminal responsibility and the obligation to compensate victims all fall on Michael Brown. For the life of me, I can’t understand the eagerness of some people within the party to shoulder his burdens.

  • Herbert Brown 21st Nov '09 - 2:52pm

    Paul

    Tell me, if the party had been told soon after the donation was made – and before it had been spent – that the money had been obtained fraudulently, would you be arguing that the party should keep the money and spend it?

  • David Allen 21st Nov '09 - 6:50pm

    Herbert, no, of course not. That would be acting as an accessory to the crime. It would be a completely different and wholly hypothetical situation.

    I don’t think the party should feel guilt about the theft of the money. They weren’t involved in the theft. Given that the money has now been spent, they have no moral responsibility towards the fraud victims – that responsibility lies wholly with Brown.

    I do think the party should feel guilt about accepting such a large donation without the slightest understanding of what the donor’s motives were. It must be axiomatic that all large donors could have dubious motives. All large donors should therefore be thoroughly checked out to identify their motives and decide if those motives are politically acceptable. Just to put forward one plausible fantasy scenario, what if Brown had turned round after we had spent the money and told the party that his £2M had been made by means of a dubious land deal, and that he would go public on that fact unless the Lib Dems made sure that a local council they ran gave him the planning decision he wanted?

    The party should apologise, not to Brown’s victims, but to its own supporters. The party should demonstrate that it will put measures in place to make sure it does not accept similar donations, whether legal or not, in the future.

  • Herbert Brown 21st Nov '09 - 11:57pm

    I thought the argument was that the Lib Dems stood in the same relationship to the fraudster as the newsagent from whom he bought his morning paper. Just an innocent bystander accepting payment in good faith, with an absolute right to hang on to the sponduliks, regardless of their ultimate source.

    Your response to my question – “of course not” – confirms my own feeling that that position really isn’t a very convincing one.

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