Michael Brown donation: we got lucky

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So the Lib Dems won’t be handing back the £2.4m donation from 5th Avenue Partners Ltd after all. Yay.

I do hope however (against all the evidence?) that this won’t now result in large numbers of Lib Dems crowing about how the party’s actions have been vindicated and that the was never any question that the legitimacy of the donation was ever in doubt. The simple fact of the matter is that we cocked up, we got lucky and the law is deeply flawed.

Reading the case summary, it would appear that the party has been saved by the fact that Michael Brown has been found guilty of fraud. The question rested on whether 5th Avenue Partners Ltd was acting as an “agent” to siphon money from Michael Brown or his German company 5th Avenue Partners Gmbh, both of which could not legally donate directly. But because it emerged that the money came from investments made by 5th Avenue Partners Ltd’s clients – i.e. Robert Mann et al – then it is legitimate. Of course, Robert Mann and the Fraud Squad might demur from the word “legitimate”.

Now, the party had no way of knowing the extent of Michael Brown’s deception. Nor can it be denied that it went out of its way to establish whether there was anything out there to suggest Brown was not a man they should be doing business with. But the fact of the matter is the world is a big place and with the benefit of hindsight it is clear the party was looking in the wrong place.

Fundamentally, it has never been clearly established who took the decision to accept the donation. Treasurer Reg Clark resigned shortly before the first donation in circumstances that have never been made clear. The party’s federal executive was not involved, nor was the finance and administration committee. And you don’t need hindsight to tell you that accepting £2.4m from a man who comes out of nowhere, who isn’t resident in the country, whose company hasn’t yet filed its first set of accounts to Companies House and whose donation has come so late you can’t properly spend in the general election anyway, is an unacceptable risk. But then I suppose Lib Dem politicians were as goggle eyed with the glamour of the hedge funder as all other politicians at the time, and had lost all perspective. Exerting caution only makes sense if you aren’t wined and dined by city wideboys on a weekly basis.

Suffice to say, a law which lets one party off on a technicality like that, while forcing another party to repay hundreds of thousands of pounds simply because a donor dropped off the electoral roll for a couple of months, is an ass. And an Electoral Commission which takes so long to establish such technicalities has deep organisational problems as well. We need a system which doesn’t potentially force political parties to go bankrupt because of the mistakes of a couple of officials by allowing parties to get the Electoral Commission to clear large donations in advance.

And so we turn to Michael Ashcroft and Bearwood Corporate Services Ltd. Here again, the Electoral Commission have been dragging their heels for months. On the one hand, things look precarious for the Tories because, on the face of it anyway, it does not appear that Ashcroft has been defrauding any UK investors. But if the Electoral Commission have managed to conclude that 5th Avenue Partners Ltd was trading legitimately then I wouldn’t hold your breath. As for what is really going on, that’s anyone’s guess.

Note: I was a member of the Lib Dems’ Federal Executive from January 2003 until I resigned in November 2005. I was a member of the Federal Finance and Administration Committee from February 2005 until my resignation from the FE.

13 thoughts on “Michael Brown donation: we got lucky

  1. Seems a fair analysis, clearly put.

    The danger is in slippery claims about the Electoral Commission: such as “the Electoral Commission has brought itself into disrepute over this case”, “it does make you wonder what kind of priorities the Electoral Commission has” (Iain Dale)

    If there are fair criticisms to be made, they need to be made. But I worry about stoking ever greater public cynicism about politics – to the extent of risking the credibility of the electoral process itself – simply because of lazy partisanship.

  2. Something has slipped from the keyboard here I think:

    “But because it emerged that the money to investments made by 5th Avenue Partners Ltd’s clients [sic]– i.e. Robert Mann et al – then it is legitimate.”

    I have emboldened the bit that I don’t understand. Do you mean that the money donated to the party did not come from Mr Brown personally but from the investors he fleeced? If so I agree that this is hardly a nice result!

  3. What I’m saying – and I think this has been pretty clearly demonstrated in court – is that 5th Avenue Partners Ltd’s money came almost entirely from the investors Michael Brown swindled and not Michael Brown himself. The Electoral Commission has concluded that that makes it legal, which is not something the party should be especially proud of.

  4. I think the agency point is largely beyond doubt at one level, but when you start to look at the whole situation, a very different legal analysis might be drawn up.

    On whether the company was engaged in business was not properly addressed by the Electoral Commission, and a court might take a different view. The test in the PPERA is whether the company is actually in business. The Commission said that it had done several things that were consistent with running a business.

    An astute barrister would say of course they did many things that looked like they were in business. They did so because 5th Avenue partners were making up a fake business to defraud customers.

    So of course they had bank accounts (and you can’t even make an impermissible donation without a bank account unless you pay in cash), and they did some option trades so they could show the trades to clients, but that doesn’t make it a business.

    As the High Court concluded, 5th Avenue Partners never traded.

  5. Well, it clearly isn’t “beyond doubt” because the Electoral Commission concluded differently. You are entitled to your opinion, but it isn’t worth a great deal.

  6. “But because it emerged that the money came from investments made by 5th Avenue Partners Ltd’s clients – i.e. Robert Mann et al – then it is legitimate.”

    Except that—as I understand the law—since the money was obtained by fraud from Robert Mann et al, it should be returned to the original investors.

    DK

  7. James Graham :
    Well, it clearly isn’t “beyond doubt” because the Electoral Commission concluded differently. You are entitled to your opinion, but it isn’t worth a great deal.

    I think I was saying that taking it at face value it is beyond doubt that 5th Avenue was acting for its own account because it took all the right corporate actions, so at face value the decision looks correct.

    But when you look a little deeper (i.e. that the whole “business” was a sham) then the idea that the company was “in business” it all falls apart.

    If you are also privy to the December 2004 management accounts that show about £2.9m held on deposit funded by a loan from the Swiss company for about the same amount and conclude from that since there were no records of later equity increases at Companies House, then it is obvious that the only way the company could pay out £2.5m in donations was to run up a £2.4m deficit on its accounts,. which it could only really do with support from its parent (i.e. it was in reality acting as a conduit whatever the EC might say).

    Furthermore if you were privy to the conversation that a senior Lib Dem had with a reporter at the Times, then you would know that the donation was agreed between Brown and Charles Kennedy in principle at the 2004 Lib Dem conference, from which one might reasonably conclude all the setting up of companies was presumably a sham to funnel the donation.

    But hey, that’s just my opinion.

  8. Good post, James.

    WRT UKIP and their mistaken donation, that money was not returned to the donor but was confiscated by the Treasury. UKIP and the donor do not deserve such treatment. The scenario is a much stronger argument for review of the Electoral Commission’s than the Michael Brown fiasco.

  9. James,

    Don’t know who the “senior Lib Dem” was who told you that the donation was agreed between Michael Brown and Charles Kennedy at the 2004 Conference – but they were completely wrong.

    Charles Kennedy did not have any contact with Michael Brown until late 2004 (post Conference). Brown offered an initial donation of £250,000 which was accepted by the then Treasurer – Reg Clark – at the very end of December. Reg informed the Chief Officers Group (Leader, Deputy Leader, Chief Executive, President, Chair of POLD, Chair of the FFAC) of his discussions with Michael Brown. Reg, as Treasurer, did the initial checks on Brown. The first donation actually came through from Brown in the early spring of 2005 – by which time Reg had resigned from his post.

    Michael Brown attended the 2005 spring conference and at the end of it wrote to Charles offering a second, larger donation. He asked Charles to put together some figures showing what it cost to run the Party for a year and/or what we needed for a General Election campaign. The Chief Executive produced these figures. Michael Brown (5th Avenue Partners) consequently offered to donate £2.5m.

    Charles – who did not normally get involved in any direct discussions over donations – had serious doubts about accepting such a large donation, particularly from someone who did not have a long history with the Party. He therefore asked for the right of veto – which he would use if he was not happy with further checks that he asked to be carried out. These further checks included contacting Michael Brown/5th Avenue’s lawyers who confirmed that 5th Avenue Partners were trading legitimately in the UK. Sorry, without the papers in front of me (copies of which were passed to both the police and the electoral commission) I can’t remember the name of the firm, though I do remember that it was one of the major City partnerships. We also took advantage of the fact that as it was so close to the election Charles had a Special Branch team assigned to him, and asked Special Branch to run a Security Check on Michael Brown. Special Branch have confirmed that they ran such a check and that whilst it was not their job to advise on the desirability of accepting such a large donation, they could see no reason on the basis of lack of funds/criminality/some factor that would come back to haunt us, not to do so.

    The Special Branch check was not concluded until a few weeks before the General Election campaign and it was only at this point that Charles gave his permission for it to be accepted. It was almost certainly the case that by this stage much of the money had been notionally spent on the campaign – leader’s tour, advertising hoardings etc – but until Special Branch gave the all-clear, and Charles his ok, it looked as though we could be heading for a campaign that we would struggle to pay for.

    None of which, of course, mitigates from the fact that – in retrospect – the Party made the wrong decision.

  10. Don’t know who the “senior Lib Dem” was who told you that the donation was agreed between Michael Brown and Charles Kennedy at the 2004 Conference – but they were completely wrong.

    Er, I think you are thinking of Mark Williams. I never claimed such a thing.

    As for my view of Charles Kennedy’s role, I have never believed he was pivotal – far from it. I think the anecdote about Special Branch’s role is irrelevant, although I know a lot of people tend to consider it to be crucial. Fortunately, we don’t live in a police state – let alone a global one – in which the police know everything that has ever happened around the world. To ask them was to create a false impression that Brown had passed with flying colours, when the fact is that it was always a risky move and that Special Branch would have to know where to look.

    Charles should have stuck by his instincts and not let the people around him dismiss his concerns. He was right; it was an unacceptable risk. But, to be brutally honest, you could say that about a lot of decisions that were made in the run up to the 2005 general election.

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