March 22nd, 2013 | 45 Comments
[Welcome, National Newswatch readers!]
There has been some fantastic reporting on the case of the financing and election expenses of the Peter Penashue Conservative campaign in Labrador, but an awful lot of misinformation elsewhere in the media as well about the details of the case.
So here's a briefing note, Pundits' Guide-style, on the law, on how to read his financial returns, and a little on what may come next.
I would say that the popular (mis-) understanding of the story at this point is that "Peter Penashue overspent on his campaign by accepting $40,000 in illegal donations, and had to pay it back, and we're just waiting for some kind of Elections Canada report to come down, to know what happens next".
There are a lot of factual errors in that statement. For one thing, illegal donations on the one hand, and election overspending on the other, are two different issues. If Candidate X incurs tens of thousands of dollars flying around the riding, so long as its cost was under the campaign ceiling or was for his or her own travel as a candidate, no problem – as long as it was accounted for at commercial value.
Whether the money to pay for it came from eligible contributions to his candidate campaign, from funds transferred in to the candidate's campaign from the local party riding association, or funds transferred in from party headquarters, it doesn't matter. If they couldn't raise the money locally to cover the cost, they could always just ask party headquarters to transfer in some funds. This happens a lot with those big northern remote ridings, which are expensive to travel across, and usually have a low average income so are hard to raise money in.
Here's what the Elections Act says on contributions:
404. (1) No person or entity other than an individual who is a citizen or permanent resident as defined in subsection 2(1) of the Immigration and Refugee Protection Act shall make a contribution to a registered party, a registered association, a candidate, a leadership contestant or a nomination contestant. [emphasis mine]
Return of contributions
(2) If a registered party, a registered association, a candidate, a leadership contestant or a nomination contestant receives a contribution from an ineligible contributor, the chief agent of the registered party, the financial agent of the registered association, the official agent of the candidate or the financial agent of the leadership contestant or nomination contestant, as the case may be, shall, within 30 days after becoming aware of the ineligibility, return the contribution unused to the contributor or, if that is not possible, pay the amount of it or, in the case of a non-monetary contribution, an amount of money equal to its commercial value, to the Chief Electoral Officer who shall forward that amount to the Receiver General. [again, emphasis mine]
Contributions by corporations – or by what in this case seem to have been some individuals signing corporate cheques to make their contributions and other cases of a single corporate cheque purporting to cover several individual contributions – are "ineligible" under the Act.
(As are union contributions – though we note with a sigh that some Conservatives in the House of Commons are referring to these corporate donations sweetly as "ineligible contributions", but the sponsorships at the NDP convention which were afterwards deemed to be union donations less sweetly as "illegal contributions"; sauce for the goose is sauce for the gander and all that).
Now if someone has received an "ineligible contribution" as an official agent for a candidate, or chief agent for a party, they have to pay it back within 30 days of becoming aware of its ineligibility. And they can choose to (or in some cases have to) pay the money to the Receiver General of Canada instead – including the commercial value of any non-monetary contribution.
If you want to follow along on Mr. Penashue's return at the Elections Canada website for the next bit, it's about a 20-step process to get to the table of contents of the various parts of his return (or you could just click here), but once you get there, make sure you (a) already selected by candidate's details, (b) select 'Data as reviewed by Elections Canada …' if not selected already, and then (c) pick the relevent section.
[Click on image to open a full-sized version]
In the Penashue case, we can look at Part 2a of his revised financial return ("as reviewed by Elections Canada"), and see that the official agent declared a total of $28,360.14 in eligible contributions from 42 eligible donors. [You can find that yourself - I'm not showing the names of citizens who contributed to our democracy in good faith and whose donations have been deemed eligible.]
But in Part 2c of that return, we find the list of 28 ineligible contributions (both monetary and non-monetary) totalling $46,560.54, and note that the first 27 monetary contributions worth $27,850 were paid back to the Receiver-General through the CEO on November 28, 2011, while the non-monetary contribution of $18,710.54 from Provincial Airlines Limited/Innu Mikun Ltd., on line 28, was paid out on March 4, 2013.
[Click on image to open a full-sized version]
So, ineligible contributions were accepted during the campaign, and were later repaid via the Chief Electoral Officer to the Receiver-General for Canada, per s.404(2) of the Act. Not great, but so far so good.
The legal questions on the contributions side, though, are whether the official agent "knowingly" accepted ineligible contributions, whether he colluded to hide the true source of any of those donations, etc., etc. These are evidentiary questions for the Commissioner of Elections, who is still investigating, and once concluded will forward a recommendation to the Director of Public Prosecutions (DPP) for a decision on whether charges should be laid, and against whom.
Also, anyone making a contribution on behalf of someone else would have committed an offence, or anyone who colluded to hide the source of a donation. Again, an evidentiary issue about which we could speculate endlessly, but is up to the Commissioner of Elections to investigate properly and thoroughly, collect up all the evidence, and then perhaps recommend to the DPP that charges be laid.
Exceeding the Expense Limit
Candidate's expenses for electoral campaign
406. An electoral campaign expense of a candidate is an expense reasonably incurred as an incidence of the election, including
- (a) an election expense;
- (b) a personal expense; and
- (c) any fees of the candidate's auditor, and any costs incurred for a recount of votes cast in the candidate's electoral district, that have not been reimbursed by the Receiver General.
407. (1) An election expense includes any cost incurred, or non-monetary contribution received, by a registered party or a candidate, to the extent that the property or service for which the cost was incurred, or the non-monetary contribution received, is used to directly promote or oppose a registered party, its leader or a candidate during an election period.
Definition of "cost incurred"
(4) In subsection (1), "cost incurred" means an expense that is incurred by a registered party or a candidate, whether it is paid or unpaid. [emphasis mine]
S.C. 2003, c. 19, s. 26.
Personal expenses of a candidate
409. (1) Personal expenses of a candidate are his or her electoral campaign expenses, other than election expenses, that are reasonably incurred in relation to his or her campaign and include
- (a) travel and living expenses; [emphasis mine]
- (b) childcare expenses;
- (c) expenses relating to the provision of care for a person with a physical or mental incapacity for whom the candidate normally provides such care; and
- (d) in the case of a candidate who has a disability, additional personal expenses that are related to the disability.
Prohibition – expenses more than maximum
443. (1) No candidate, official agent of a candidate or person authorized under paragraph 446(c) to enter into contracts shall incur election expenses in an amount that is more than the election expenses limit calculated under section 440.
Prohibition – collusion
(2) No candidate, official agent of the candidate, person authorized under paragraph 446(c) to enter into contracts or third party, within the meaning given that expression by section 349, shall collude with each other for the purpose of circumventing the election expenses limit calculated under section 440.
As you can see, expenses can be paid or unpaid. Candidate expenses can be either election expenses or personal expenses, but only the former are subject to the expense ceiling. Candidate travel is a personal expense that doesn't fall under the ceiling, but non-candidate travel is an election expense.
Note that the expenses in question in Mr. Penashue's case have to do with candidate versus non-candidate travel. We can look at Part 3a, which is the expense portion of his amended return, and see the problematic expense on line 83.
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$19,869.56 in Candidate's personal expenses (which includes candidate travel) + $5,840.98 in Miscellaneous expenses (including non-candidate travel) = $25,710.54 in travel services that were purchased from Provincial Airlines/Innu Mikun, for which $6,000 + $1,000 was the agreed final price, including a $18,710.54 discount from their commercial value. As of when the return was filed, $1,000 of the $7,000 was still owing to the airline as an Unpaid Claim from the campaign.
Now, note further that the airfare discount of $18,710.54 on line 83 of Part 3a is also recorded as an ineligible contribution on Part 2c, and shows there as having been paid back to the Chief Electoral Officer for the Receiver-General on March 4 of this year. All good, so far as it goes.
But also note that the amount of the non-candidate travel – the $5,840.98 with the red circle around it on line 83 of Part 3a – when added to Penashue's other election expenses, puts his total Election Expenses subject to the Limit up to $89,997.85.
Looking at Part 4 of his return (the Campaign Financial Summary) we see from line 3 that, for candidates in Labrador riding in the 2011 election, the Permitted limit of election expenses (aka the "ceiling" or the "expense limit") was $84,468.09.
So Penashue is now $89,997.85 – $84,468.09 = $5,529.76 over the limit. Or, another way of saying the same thing is that his election expenses now represent 106.55% of the limit, in order words 6.55% over the limit, and thereby violating s.443 of the Act.
Role and Responsibility of the Official Agent vs the Candidate
A Candidate isn't the one who accepts donations. The candidate's Official Agent is. And in one of those typical anomalies in the Elections Act, which the Chief Electoral Officer has recommended that Parliament amend, if the official agent screws up on filing the candidate's return – then he or she is the one to go to jail, not the candidate.
Here's what the Act says about official agents:
436. The official agent of a candidate is responsible for administering the candidate's financial transactions for his or her electoral campaign and for reporting on those transactions in accordance with the provisions of this Act.
[Also, no person (or entity) other than an official agent shall: s.438(2) accept contributions to the candidate's campaign, (3) issue tax receipts to contributors to that campaign, or (4) pay expenses, except for petty cash and candidate's personal expenses.]
[And only an official agent or the candidate shall: s.438(5) incur campaign expenses, or (6) pay the candidate's personal expenses [which includes candidate travel, but not family or staff travel, a point we'll return to in a second].
Here is a list of some of the technical offences you can commit under the s.497(1) of the Act as an Official Agent, on what's called a "strict liability" basis (i.e., if you did it, you did it, whether you meant to or not) which can result in a "summary conviction" instead of an indictment:
[Note: there are a lot of them, so you can just skip over them to read about the punishments, if you like.]
- 497 (1) (r) being an official agent, contravenes section 437 (failure to satisfy bank account requirements);
- (s) being an official agent, a candidate or a person authorized under paragraph 446(c), contravenes subsection 439(2) (incurring more than maximum allowed for notice of nomination meetings) or subsection 443(1) (exceeding election expenses limit) or, being an official agent, candidate, person authorized under paragraph 446(c) or a third party, contravenes subsection 443(2) (colluding to circumvent election expense limit);
- (t) being an official agent, contravenes subsection 445(1) (failure to pay recoverable claim in timely manner);
- (u) being an official agent, contravenes subsection 451(1), (2), (3) or (4) (failure to provide electoral campaign return or related documents);
- (u.1) being an official agent, fails to comply with a requirement of the Chief Electoral Officer under subsection 451(2.2);
- (v) being a candidate, contravenes subsection 451(5) (failure to send declaration re electoral campaign return to agent);
- (w) being an official agent, contravenes section 452 (failure to pay value of contribution that cannot be returned);
- (x) being an official agent, contravenes section 455 (failure to provide updated electoral campaign return or related documents);
- (y) being an official agent, contravenes paragraph 463(1)(b) (providing incomplete electoral campaign return);
- (z) being an official agent, contravenes subsection 472(2) or section 473 (failure to dispose of surplus electoral funds);
- (z.1) being a registered agent or financial agent, contravenes section 476 (improper or unauthorized transfer of funds);
- (z.2) being an official agent, contravenes subsection 478(2) (failure to return unused income tax receipts);
- (i.3) being a person who is authorized to accept contributions on behalf of a registered party, a registered association, a candidate, a leadership contestant or a nomination contestant, contravenes section 404.4 (failure to issue receipt);
There are other "strict liability" offences that apply to everyone in Canada, not just official agents.
- 497 (1) (i) being a person or entity, contravenes subsection 404(1) (making contribution while ineligible);
- (i.4) being a person or entity, contravenes subsection 405.2(1) (circumventing contribution limit);
- (i.5) being a person or entity, contravenes subsection 405.2(2) (concealing source of contribution);
- (i.6) being an individual, contravenes section 405.3 (making indirect contributions);
- (i.7) being a person authorized under this Act to accept contributions, contravenes section 405.4 (failure to return or pay amount of contribution);
But there's also another class of offences, which "require intent", and could be either summary convictions or indictable offences (note the use of the words "wilfully" or "knowingly").
Some apply to official agents, while others apply to anybody:
- 497 (3) (f.12) being a person who is authorized to accept contributions on behalf of a registered party, a registered association, a candidate, a leadership contestant or a nomination contestant, wilfully contravenes section 404.4 (failure to issue receipt);
- (f.13) being an individual, wilfully contravenes subsection 405(1) (exceeding contribution limit);
- (f.14) being a person or entity, knowingly contravenes subsection 405.2(1) (circumventing contribution limit);
- (f.15) being a person or entity, knowingly contravenes subsection 405.2(2) (concealing source of contribution);
- (f.16) being a person entitled to accept contributions under this Act, contravenes subsection 405.2(3) (knowingly accepting excessive contribution);
- (f.161) being a person or entity, knowingly contravenes subsection 405.2(4) (entering prohibited agreement);
- (f.162) being a person or entity, contravenes subsection 405.21(1) (soliciting or accepting contribution);
- (f.163) being a person or entity, contravenes subsection 405.21(2) (collusion);
- (f.17) being an individual, wilfully contravenes section 405.3 (making indirect contributions);
- (f.18) being an individual, wilfully contravenes section 405.31 (exceeding cash contribution limit);
- (f.19) being a person authorized under this Act to accept contributions, wilfully contravenes section 405.4 (failure to return or pay amount of contribution);
- (p) being an official agent, a candidate or a person authorized under paragraph 446(c), wilfully contravenes subsection 443(1) (exceeding election expenses limit);
- (q) being an official agent, a candidate, a person authorized under paragraph 446(c) or a third party, contravenes subsection 443(2) (colluding to circumvent election expenses limit);
- (r) being an official agent, wilfully contravenes subsection 451(1), (2), (3) or (4) (failure to provide electoral campaign return or related documents);
- (r.1) being an official agent, wilfully fails to comply with a requirement of the Chief Electoral Officer under subsection 451(2.2);
- (s) being a candidate, wilfully contravenes subsection 451(5) (failure to send electoral campaign return declaration);
- (t) being an official agent, wilfully contravenes section 452 (failure to pay value of excess contribution);
- (u) being an official agent, wilfully contravenes section 455 (failure to provide updated electoral campaign return or related documents);
- (v) being an official agent, contravenes paragraph 463(1)(a) or knowingly contravenes paragraph 463(1)(b) (providing electoral campaign return containing false or misleading statement or one that is incomplete);
According to s.500(1), conviction of a "stricty liability" offence like those in s.497(1) would result in a summary conviction having a punishment of up to three months in jail or a fine of up to $1,000, or both.
But under s.500(5), conviction of an offence "requiring intent" with a dual procedure like those in s.497(3) could result in either: (a) a summary conviction with a punishment of up to a year in jail or a fine of up to $2,000, or both, or (b) an indictment with a punishment of up to five years in jail or a fine of up to $5,000 or both.
And if the offence is a serious one, then under s.501(1), the court is empowered to make any other orders to bring them in compliance with the Act, or make compensation, perform community service, and so forth.
Finally, under s.502(1)(c), if a candidate or official agent "wilfully contravenes section 443 (exceeding election expenses limit)", then that's called an "Illegal practice" and under s.502(3) the person is prevented from being elected to or sitting in the House of Commons for five years, in addition to any other punishment.
Exceeding the spending limit is the charge that finally stuck to the Conservative Party in the so-called in-and-out advertising case. They faced charges on the more serious offences, and while charges were dropped against the individuals, the party paid the maximum fine.
In this case, we do not know what evidence there is of "wilfully" or "knowingly" accepting ineligible donations, or incurring election expenses over the limit. But the Commissioner of Elections is investigating, and the former official agent insists he accepted them 'unintentionally". Given the facts now reported on Peter Penashue's election campaign return, one or more strict liability offences appear to have taken place by exceeding the ceiling, but whether they are something more we don't know yet.
Now many people make the point that these extra expenses are what allowed Penashue to fly around the riding and win by 79 votes. Newsflash: Penashue's own flights were not included under the ceiling. And I highly doubt a well-funded party headquarters wouldn't have chipped in with funds to cover a star candidate's travel expenses, when he was only nominated at the last minute (April 4, according to my notes from the time). And it's very hard to out-organize incumbent MPs in far-flung remote ridings like that.
The incumbent MP he beat would have been flying around the riding for nearly 6 years on House of Commons travel points, except during writ periods. Todd Russell spent considering less than the expense limit in the 2011 campaign, perhaps because looking at his previous vote-share, he might not have believed he needed to raise so much money this time to win this campaign.
Other folks wonder if all this detail makes a difference, or if one charge is worse than the other? Well, exceeding the limit is an offence for a candidate, and has some pretty strict punishments if done deliberately. That's the offence that in the worst case could strip Penashue of his seat in the House of Commons, and keep him from running for another five years.
Others scoff at whether the official agent was an "inexperienced volunteer", when he'd worked as an official agent before. I don't know if that was in a remote riding though, which as you can see sometimes has very different requirements from an urban or suburban one. In how many other ridings in Canada would the cost of a staffer hopping the cab to travel with the candidate, risk putting that candidate over the limit. This might have been the inexperience part – not saying no to the family and staff travelling with Penashue, I don't know.
Anyways, I hope this illustrated explanation has helped explain the factual details of the financial return, while we await word of the investigation and disposition.