The Ashcroft Loophole

Tweet At first sight, the announcement by the Electoral Commission last week seemed to be saying that there was nothing at all wrong with the donations made to the Conservative Party through Bearwood Corporate Services (BCS). However, when one looks at the detail, it seems to be, as the Sunday Times put it yesterday, more a case of 'not proven' than 'not guilty'.

The paper went on to say:

'The commission made it clear that it had been unable to find out exactly where the money donated to the Tories by BCS had originated. Papers had been destroyed and the commission had been “unable to obtain any meaningful information” from a Belize company that owned shares in BCS.'

In short, many months of investigation by the Commission have not got to the bottom of the matter, and that has been a result, in no small part, of the Tory leadership being evasive and obuscatory, the relevant Tory officers and staff refusing to attend interviews with the Electoral Commission, and those others directly involved in the matter being singularly uncooperative.

Even the key finding, which is that BCS was 'trading' in the UK, and therefore eligible to donate seems to skip over the fact that the donations were definitely not the result of that UK trading. This seems to expose something of a loophole in the law. On this basis, any company which processes at least one invoice for goods or services supplied in the UK can then proceed to donate millions of pounds without having to disclose where those millions came from.

I don't know what the expectations of those passing the law were, but I would have thought that they would have supposed that a company would be making donations from the profits on its UK activities, yet BCS appears to have made massive donations even when trading at a loss.

In fact, BCS seems to have created millions of new shares in itself, sold those shares to another company or companies in the Ashcroft empire, and used that new-found capital to make its donations. Since the shares were not traded on any open market, it's hard to calculate their worth at the time of their purchase; but the decision to then donate the capital raised to the Tory Party effectively rendered those shares worthless thereafter, since the company had turned capital inflows into revenue outflows.

This loophole, which effectively allows donations from overseas which would be illegal if made directly to then become legal, needs to be plugged. It makes a complete mockery of the law, and politicians exploiting loopholes to avoid the intention of the law should be ashamed of themselves.

Still Digging

Tweet The news that Cameron didn't know about Ashcroft's tax status until this week, and that Hague didn't know until a few weeks ago, is pretty astonishing, given that questions and rumours have been circulating for so many years. After all, his lordship has been a key member of the top campaign team for several years and has an office as part of the Conservative HQ structure; successive Tory leaders must have been talking to him on a fairly regular basis.

Yet, assuming that the current Tory leader is telling the truth (and I think we should), we are effectively expected to believe one of two things.

The first is that Cameron (to say nothing of Hague, Duncan-Smith, and Howard before him) never felt that there was any need to ask Ashcroft the question, despite it being asked of him on a regular basis. He preferred to ride out the regular criticism and questioning than to ask one simple question. If this is true, it's diffficult to avoid the conclusion that he had a pretty good idea what the answer would be, but preferred to retain what Nixon memorably called 'credible deniability'.

The alternative is that he did ask the question, but was told to mind his own business, a response which he quietly accepted and did nothing more about. I find it hard to believe either of these, but surely one or other must be true.

All parties, from time to time, have people who for one reason or another are a potential source of embarrassment. I've always believed that it's better in the long run to risk a bit of bad publicity for trying to deal with a problem when it comes to light than to risk a great deal of bad publicity by turning a blind eye.

It looks very much as though four successive Tory leaders have preferred to attempt to ride out the storm for a whole decade - blinded by the vastness of the fortune directed their way. At the moment, I seem to be hearing the sounds of chickens coming home to roost.

Avoiding both tax and the question

Tweet After ducking and diving for 10 years, Lord Ashcroft has finally admitted what most of us suspected all along – he doesn't pay full UK taxes. It's still not entirely clear whether his donations to the Tories are from his UK earnings or from the overseas earnings on which he's avoided paying UK tax.

The Electoral Commission are still investigating whether the company used to make most of the donations is actually trading in the UK or whether it's just a device to channel money from Belize to the Tories, which would otherwise be illegal. Their investigation has taken a long time. It could have taken less, of course, if the Tory leadership had not been so "evasive and obfuscatory", presumably in the hope that all would not become clear until after the forthcoming election.

The proceeds of Ashcroft's tax avoidance do not seem to have found their way directly into local Tory coffers, but their own annual accounts reveal that staff from Ashcroft's office are regular attendees at their campaign meetings. Of course, they do not need money from Ashcroft locally, because they are largely financed from the proceeds of hedge funds with the single objective of repealing the Hunting Act.

(As I've noted before, one of the advantages of the way in which hedge funds are generally structured is that the profits are treated as being capital gains rather than income, and therefore taxed at a lower rate. It's another legal form of tax avoidance, and one which Plaid are pledged to stop.)

What I found hardest to believe was Cameron's response to Ashcroft's revelation. The first part was that everything is all right now, because after 10 years of ducking the question, we now know the truth, and the second is that there are one or two Labour donors who make use of the same tax avoidance loopholes. Wrong on both counts.

Finally admitting that one of their donors is avoiding UK tax on a massive scale, and pointing out that others do the same is not enough to excuse it. The second part simply means that Labour also have questions to answer; it's absolutely no reason to condone the practice.

After all that's happened recently, it just amazes me that they still don't get it. They really don't seem to understand why anyone would think that there's anything at all wrong with someone who avoids paying UK tax on most of his income sitting in the UK legislature and using his money to influence the results of a UK election.

Will it all unravel?

Tweet It's been clear for a while that the Tories have been taking a major risk by accepting massive donations from Lord Ashcroft, but I was still astounded at the news that they are compounding that risk by including him in formal meetings overseas, let alone potentially lining him up for a senior role in government.

The Electoral Commission have yet to conclude their investigation into the legality of around £5 million of donations which have been channelled through a company which seems to do very little other than donate money to the Tories. It remains a possibility that all the money will have to be repaid. The investigation seems to revolve around the definition of 'trading within the UK' by a company which seems to have only one client (which just happens to be another Ashcroft company), and whose annual losses bear a remarkable resemblance to the size of its donations to the Tories.

It's not clear why the investigation has already taken 12 months with no stated completion date in view, but it's pretty obvious who has the biggest vested interest in delaying any potentially embarrassing result until after a general election.

There also remain outstanding questions about his tax status, which he and his party have consistently refused to confirm. The obvious question, however, is that if he is indeed a UK voter and taxpayer (which is what he promised to become when accepting his peerage), why go to all the trouble of funnelling money through a string of companies instead of just donating it directly?

The way in which the Tories have been prepared to accept funding from a range of questionable sources could yet prove to be their undoing.

PS - although Ashcroft has had a hand in the Tory campaign in this constituency, with a representative from his office attending campaign meetings, I have yet to see any declaration of donations, whether cash or in kind.

Paradise for Lord Ashcroft?

Tweet As an update to yesterday's post, it seems that it's not only here in the UK that people have doubts about the way the tycoon's money is used to impact on politics. His adopted homeland of Belize is having second thoughts as well.

The Ashcroft Connection

Tweet It wasn't just the membership figures which made interesting reading in the Tories' annual report for this constituency - there's a host of financial figures as well.

Given the largesse which has been distributed to a number of Tory constituency associations by Belize-based tycoon Lord Ashcroft, it's surprised me for some time that there has been no obvious connection between him and the Tories in this area.

I knew, of course, that they were not really short of a bob or two from fox-hunting hedge fund managers. Indeed, far from being financially challenged, their latest accounts show that they have a very healthy bank balance with £50,000 on deposit for a rainy day, and a further £35,000 in cash and bank accounts available to spend as and when they wish. It's the sort of resources which most parties in most constituencies can only dream of. Investment income alone contributes almost £4,000 to their annual income.

Nevertheless, pre-existing bank balances haven't stopped Lord Ashcroft 'investing' in a range of constituencies, and then keeping a close eye on what happens to his little investments. The noble lord himself may or may not be a tax exile; his party have consistently declined to confirm whether he is or is not a UK resident and tax-payer, as was promised at the time of his ennoblement. His donations are, however, all legal, of course. Although tax exiles cannot donate directly to political parties, UK-based companies can - and Lord Ashcroft seems to have a few convenient UK companies through which to channel his funding.

There are, as far as I can trace, no direct donations from Ashcroft to the Conservatives in Carmarthen West and South Pembs – none that have been declared to the Electoral Commission at any rate. It was interesting, therefore, to read in their annual report to the Electoral Commission that representatives from Lord Ashcroft's office regularly attended local campaign meetings. Perhaps some of the £8,600 which they received from HQ was actually Ashcroft money?

It surprised me that Ashcroft has 'an office' which can send staff to meetings all over the country. I assume that this is declared somewhere as a notional donation from one or other of his companies, but haven't so far been able to find it.

I'm jealous of their funding, of course – who wouldn't be? But my real concern is twofold. Firstly, no party should be able to try and 'buy' an election by out-resourcing its opponents. That's one of the worst aspects of US politics. And secondly, when campaigns are being funded on the back of anti-social behaviour such as short-selling bank shares and sterling, and possibly tax avoidance as well, it is simply not enough to say that 'it's within the rules'. As MPs of all parties have found out recently, that excuse simply won't wash – they need to be able to justify it in moral terms as well.

The Ashcroft Loophole

Tweet I thought that last night's Dispatches programme from Channel 4 went a little bit over the top in its treatment of the Tory funding scandal. I've never been a particular fan of 'doorstepping' unwilling interviewees, and the 'drama' of being 'excluded' from Cameron's little meeting was wholly unnecessary as well. Apart from anything else, the story stands up well enough in its own right - it doesn't need that sort of treatment.

There wasn't a lot that was new, however. In large measure, this was a story already covered by the newspapers in some depth. But as long as the Tories continue to refuse to deal with the key questions, it's one that won't go away.

The issue of where Lord Ashcroft lives is of comparatively minor interest. It was useful mostly in highlighting the way in which Cameron refuses to answer a very simple question with a straight yes or no. It makes him come across as shifty and devious - he's surely bright enough to understand that failing to simply say 'yes' when asked whether Ashcroft has kept his promise to live and pay taxes in the UK will inevitably be interpreted by most people as being a 'no'.

But the real issue remains about the legality and morality of the Tories' funding. In the case of their hedge fund backers, the question is primarily a moral one. Many of us are blaming the activities of these sorts of people for bringing the banking system to its knees - how can the Tories justify being funded on the profits? Merely repeating the mantra – 'the donations are legal' – is simply not good enough. Do they, or do they not, think that there is a moral dimension here as well?

In the case of Ashcroft's millions, the donations seem to be sailing very close to the wind. There's a good explanation here by one of the contributors to the Sunday Times article. In essence, the company used as a vehicle to donate millions to the party was making a trading loss in each of the last three years in which it made large donations. Those donations served to increase the losses significantly.

Now there's nothing illegal about a company which is making a loss deciding to increase the scale of that loss by donating to a political party, but how is that loss to be funded? In this case, it seems that the losses (and therefore the entire donations to the Tories) were funded by issuing more shares, all of which were then purchased by another Ashcroft company based in Belize.

So, in effect, there is no doubt at all that the money donated to the Tories came from Belize – a transfer which would have been illegal had it been a direct payment. It highlights a key failure in the legislation, which only insists that the donating company is 'trading' in the UK. Clearly, those drawing up the legislation would have made the logical assumption that donations would have been made from trading profits, and I can't blame them for making that assumption. I don't think that I would have considered the possibility that a company would deliberately choose to make massive losses in order to donate, and sell more shares abroad to cover those losses.

It's a loophole, obviously, and people who depend on loopholes rather than the intention and spirit of the legislation will always look dodgy. It didn't help the Tory case for last night's programme to show one of Lord Ashcroft's (very) few appearances in the House of Lords; an opportunity which he used to seek to argue that the law should be changed to allow him to continue to fund his party from abroad. A flagrant attempt to open the floodgates doesn't look like any sort of indication that his party recognises the need to close the loophole.