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What do you do with a problem like Brown?

June 20th, 2009 Posted in UK Politics by

michael-brownNewsnight’s Michael Crick reports that the LibDems may face criminal action under the Proceeds of Crime Act for the £2.4m donation received from convicted fraudster Michael Brown in the run-up to the last General Election.

Brown is now a fugitive from justice and American lawyer Robert Mann – one of those defrauded – believes the Liberal Democrats should have done more to ensure that the money was legit at the outset. He claims a “modicum of checking” would have revealed that the monies paid to the party were his, not Brown’s.

However this pans out, I think there are three central issues that tend to get buried under the wider story of the LibDems’ biggest ever donor being a crook on the run.

Firstly, what constitutes reasonable checks and balances by the party? Generally speaking, if a very rich man contacts your political party offering to contribute a huge sum to the electoral war chest, your first response is NOT to tell the receptionist to kick him out onto the street.

You might raise an eyebrow (or two). You might worry that it’s an elaborate prank. You’d certainly want to know more about him and his motives. You’d want to make it very plain that he could expect nothing – such as a peerage, for example – in return. You’d then meet him a few times. Take up references. Look into his business ventures. But exactly how far can you expect a small political outfit to go down these lines? The LibDems simply don’t have the capacity to put a full time team of a dozen experts on the case round the clock. The party headquarters operates on an annual budget about equivalent to a single branch of Debenhams. Once the senior people in the party have persuaded themselves of the pertinent facts, surely you bank the cheque?

Imagine you’re only 90% certain – do you turn down the £2m with just weeks to go before an election? Or do you have to be 99% certain? Or 99.99%?

Secondly, if you have been deemed to have carried out sensible checks and balances, what punishment should you face if the money turns out to be dirty? Surely, a  “good faith” and “reasonable behaviour” test is enough? My understanding is that if I bludgeon an eldery lady to death and steal her purse and then use the contents of this purse to buy myself dinner at drinks at my local restaurant, the restaurateur is not obliged to hand over my ill-gotten gains over to the deceased’s estate. He had no reason to believe the money was stolen when I ordered my fillet steak and bottle of wine, so he keeps the cash.

Thirdly, what on Earth is the Electoral Commission’s role in all of this? As LibDem Head of Media, I found their behaviour quite unfathomable. They would agree that the party had acted in good faith and reasonably with regard to the Michael Brown donation, but would (a) never close the file on the case and (b) never stipulate the grounds upon which they would ever close the file. This is unacceptable behaviour – and all too typical of badly run, undemocratic and inefficient quangos. In effect, the Commission was continuing to hold the sword of Damocles over the party’s head by not spelling out how the party could ever completely clear its name. Such behaviour risks paralysing political parties – not through decisive action but due to a wishy-washy, half-hearted, limp-wristed commitment to doing nothing at all. The Commission has had all pertinent facts relating to this case for several years now. Its judgement has merely been to “keep the file open”. That’s intolerable.

The obvious question asked is  “should we pay the money back?”. This seems to be based on a very quaint idea that we could pay it back even if we should. I can tell you now that we spent all the money in the run-up to May 5th 2005. We didn’t keep it tucked away in a safe in the Cowley Street basement for a rainy day. The money isn’t there to pay back. A cheque for £2.4m from the LibDems would bounce.  A legal requirement to pay back that amount would bankrupt the Federal Party.

A common misunderstanding is that party members would be liable for the debt if a court found in favour of Robert Mann and other victims of Brown. I believe this to be false. The LibDems are – I understand –  an unincorportated assocation. The practical consequence of a court’s decision to fine the LibDems £2mwould be for the party apparatus to close down “The Liberal Democrats” and then immediately set up the all-new “Liberal Democratic Party”. This might have catastrophic consequences with regard to public image, but would not involve Nick Clegg – or his lawyers – writing to all 60,000 members telling them they had a legal duty to hand over £40 each. There would clearly be administrative difficulties with regard to issues like data protection, but these could be anticipated by the party. So, for example, we could invite all party members to sign up to the “Nick Clegg for Prime Minister” campaign – or something similar – and then use this separate, new database to form the basis of “The Liberal Democratic Party”. 

I don’t think we are anywhere near this sort of embarrassment occuring, but it does raise questions about how robust the Federal Party’s appartus really are. The party prides itself on its democracy and checks and balances. But these internal mechanisms have hardly been shown to amount to much over the expenses scandal, with the Federal Exec taking nearly a week to issue a statement (at the very height of the Telegraph storm) and President Ros Scott then  closing down her own blog (for fear she might provide a “running commentary”) and conceding the limits of her own power.

If the Liberal Democrats’ own internal democratic systems are essentially ceremonial, then they aren’t worth having at all.

18 Responses to “What do you do with a problem like Brown?”

  1. Alex Wilcock Says:

    Excellent summation. Might I add a link to my subtle and understated Dodgy Donors: Your Cut-Out-And-Keep Guide to Spotting the Difference, which points out that one donor approached the Liberal Democrats – not the other way round – and offered a large donation. We never offered any favours. He never asked for any. He never received any. The Electoral Commission says we made all the right checks, and he looked all right (though, as you say, they appear to be a quasi-judicial body that can repeatedly find you ‘not guilty unless we decide to change our minds’).

    Even Labour’s disregard for the Rule of Law and grievous misuse of state power has yet to result in them making it legal for political parties to have paramilitary forces authorised to march in and demand details from any private individual that takes their fancy. It took months of investigation of his finances, all of which had nothing to do with the Liberal Democrats, for police and fraud inspectors to find out he was actually a crook.

  2. Paul Griffiths Says:

    While I agree entirely with your comments regarding the Electoral Commission, if the Party was required to forfeit £2.4m I’m sure the membership would be prepared to stump up an average of £40 each rather than see the Liberal Democrats wound up.

  3. Niklas Smith Says:

    @Paul Griffiths: One would hope so. But getting members to donate money to the party seems to be like getting blood out of a stone. Personally I have a soft spot for fundraising for good causes so whenever I get a letter asking for money for the Lib Dems I send a cheque…as I do when Oxfam and the Red Cross ask me. And all of this despite being a poor student. I do feel that those with more money than me should also cough up!

    It is a rather sobering statistic that £40 per member would provide as much money as Mr Brown’s donation. Like Barack Obama and Ron Paul’s successes in fundraising for the Presidential elections, this shows clearly that getting many small donations is not inferior to the traditional British model of being bankrolled by big business and big unions. The challenge is to get Britons as used to donating to political causes as Americans are.

  4. Burying our head in the sand over Brown « Moments of Clarity Says:

    […] would also not harm us to promise to do better in the future; good points are made on Liberal Vision’s blog about the logistics of proper checks and balances but also they hint at possible solutions when […]

  5. eye-lash tints Says:

    I would have thought the polite thing to do when faced with a man offering the libdems millions of pounds would be to call a doctor. They clearly need help!
    You shouldn’t use ill gotten money. Where are your principles

  6. Hywel Says:

    [The electoral commission would] (a) never close the file on the case and (b) never stipulate the grounds upon which they would ever close the file.

    That is slightly harsh though I understand the frustration.

    Basically such files never get closed. In any case imagine hypothetically if they closed the file and a letter came to light clearly setting out how Brown and one of the party’s senior officers conspired to make him a permissible donor when in fact he wasn’t. Even though the file had been closed they would reopen the matter.

  7. James Graham Says:

    I am bemused by how Robert Mann thinks he can reclaim this money from the Lib Dems and the 2002 Act doesn’t appear to apply here.

    However, in many other respects this article is deeply flawed. To start with, the reason why the Electoral Commission have not – indeed can not – close the file on this is that the PPERA 2000 has no statute of limitations and is very simple here: either the donation is permissible, in which case it doesn’t need to be paid back (to the Commission – not Brown or Mann) or it is impermissible and it does. It is completely black and white, there are no exemptions and no place discretion. Either the Commission carries out its duties under it or, as a statutory body, it is breaking the law.

    Now, to me, that amounts to bad law, but it is not a law that is likely to be changed any time soon – you can imagine the media response if MPs attempted to do so (having said that, they have broadly ignored the changes sneaked into the Political Parties and Elections Bill that double constituency spending limits and increasing the minimum reporting threshold from £5,000 to £7,500 so maybe I’m wrong and we could sneak it past them). That may be inconvenient to party press officers and the Electoral Commission may well have been derelict in their duty in other ways, but it is the situation we are left with.

    What this means is that political parties can’t get away with being cautious here – they have to be right 100% of the time. And it means that if a bloke appears from nowhere and starts offering them millions of pounds, they need to be downright paranoid. It isn’t enough to make a few checks and, if nothing bad comes up, go ahead.

    In the case of the Brown donation, I’m amazed that alarm bells didn’t ring when he a) asserted that, because he wasn’t registered to vote (something that would have taken him a couple of minutes to do), he had to make the donation via his company and that b) the company had only just been set up and not filed any returns to Companies House. There was no evidence to suggest they weren’t trading, but equally there was no evidence to suggest that they were.

    The fact that this offer was being made a few weeks before the election got under way was an impetus NOT to accept the donation. For one thing, the party didn’t have the means to spend it properly, which is why it was squandered on billboard and print advertising. And as has been mentioned elsewhere, it is an open secret that Paddy Ashdown rejected a substantial donation from a certain controversial businessman. He did that, not because the donation would have been illegal – even if the PPERA 2000 had applied back then it almost certainly would have been – but because he considered the political consequences.

    Donald Rumsfeld got a lot of stick for his line about “unknown unknowns” – in truth it was just about the only sensible thing he has ever said. I doubt many organisations would accept £2.4m donations from complete strangers even if they didn’t have a draconian law like the PPERA 2000. Why Treasurer Reg Clark resigned during the same period has never been satisfactorily explained. The decision was an utterly foolish one and an irresponsible risk and I have no interest in perpetuating the myth that the party was merely the victim of a fraudster.

  8. MikeScotland Says:

    I think Mark Littlewood has got this wrong. The Lib Dems should not have taken the money without very detailed checks. Yes to be virtually 100% confident the money was legitimate. I think we will find the checks were not sufficiently through and did not address where Brown got his money from and his motivation for making the donation.

    If a drug baron gifts criminal gains to a relative who does not appreciate they are the proceeds of crime and is lied to by the donar this does not mean that the proceeds of crime cannot be seized by the Authorities and it should be no different for the Lib Dems. They should ensure the creditors of Michael Brown get the money back fast and not force them into a situation that the creditors are forced to incur legal costs in their attempt to recover the money from the Lib Dems.

    Most of us accept that where a MP in error over claims his expenses he/she should repay same even if this means the MP has to sell assets or borrow the money or go into bankruptcy. A similar principle applies here and the Lib Dems have a moral and probably legal obligation to pay over the £2.4 Million.

    Nick Clegg on the Sunday Politics Show a few weeks ago could not justify why the donation had not been paid back. That should have been the trigger to him to take steps to get the money (e.g. from selling Party assets, voluntary contributions from party Members)and his failure to take action points to a serious lack of leadership which could be very damaging to the Lib Dem’s future.


  9. James Graham Says:

    I also think you’re wrong about the party doing what is colloquially known as “a Living Marxism.” The PR cost in doing so would be considerably greater than £2.4m, and £2.4m would almost certainly be scraped together by a number of individuals.

  10. Paul Griffiths Says:

    There are several interwoven strands that need to be separated in order to get a clear view of the issue:

    A. Party officials behaved recklessly in accepting Brown’s donation.
    B. Party officials behaved illegally in accepting Brown’s donation.
    C. The donation was permissible.
    D. The party has a legal obligation to compensate Brown’s victims.
    E. The party has a moral obligation to compensate Brown’s victims.
    F. It would be prudent and/or charitable for the Party to compensate Brown’s victims.

    For what it’s worth, here’s what I think:

    A. True, probably.
    B. False. This also seems to be the position of the Electoral Commission.
    C. False, probably.
    D. False. That obligation rests with Brown himself.
    E. False. See D.
    F. True, but only as much as the party can reasonably afford.

    I reject the notion that A implies E. If Brown’s victims didn’t realise Brown was a crook, I don’t see how party official could have been expected to either.

    People seem to differ widely in what they think the party can reasonably afford, from nothing all the way up to £2.4m.If C is indeed False, and the party has to forfeit £2.4m, the latter figure seems infeasible. As a ballpark figure, I’d suggest 10% of the party’s annual income.

    With regard to the Electoral Commission’s role in all this, I’m nearer to Mark’s view than James’s, although I agree they are having to implement a bad law. I’m also not sure that the outcome of a forfeiture order need be quite as black and white as James suggests. The UKIP case has gone all the way to the High Court and has still (I believe) to be finally determined.

  11. Mark Pack Says:

    Paul: I think you’re wrong about (A). The party did carry out extensive checks. Indeed, the Electoral Commission concluded that the party did properly carry out its duty to check on the source of donations.

    Robert Mann’s case seems to be rather oddly claiming that whilst the party should have easily spotted that Michael Brown was a crook, this was at the same time that he was giving lots of his own money to Michael Brown and didn’t have any idea he was a crook. If it’s meant to have been obvious (which I don’t think it was, but that’s Robert Mann’s claim), then why did Robert Mann hand over lots of his own money?

  12. Paul Griffiths Says:

    Mark: To be fair, that’s why I separated A and B. As I understand it, the Electoral Commission has satisfied itself as regards to B, whereas James et al remain unhappy about A. They might substitute another word for “recklessly”, however.

  13. Paul Griffiths Says:

    Just looked at the High Court’s ruling in the the UKIP case, and paragraphs (9) and (10) of the summary stand out:

    “(9) The Magistrates’ Court must strike a fair balance between the rights of the individual and the public interest. There must be a reasonable relationship of proportionality between the means employed and the aim pursued.

    (10) In relation to any one donation, the power under s 58(2) is all or nothing: either there is an order forfeiting the amount of the donation or there is not. Accordingly, applying the principle at (9) above, if the Magistrates’ Court considers that it would be disproportionate to order forfeiture of an amount equivalent to the value of the donation in question, then an order under s 58(2) cannot be made in relation to that donation.”

  14. tim leunig Says:

    1) Were we to pay back £2.4m to Mr Brown, or his creditors – who, as some people have pointed out, failed to notice that he was a crook – this would not alter the legitimacy of his donation. As I understand PPERA we would still be liable to pay the Commission £2.4m if they ever decided it was not permissible, notwithstanding the fact that we had reimbursed the £2.4m to the donor. To pay back £4.8m would be very, very hard.

    2) We did the checks, everyone accepts that. As a result the donation is legit unless the Electoral Commission decide otherwise. They have not done so, and so unless they do, that is that.

    3) If they ever decide otherwise, I would rather see the party go bust than pay £40 myself. I’ll pay the £40 to the new party after it reforms.

  15. Mark Littlewood Says:

    Some interesting thoughts here, many thanks to all have contributed. Here are my responses (and apologies for the length of this post!)

    @Paul – I doubt enormously that every party member would pay £40 each to clear a dubious debt. We don’t raise anywhere near this sort of cash for requests that are “optimistic” (e.g. the run-up to the 2005 election). A letter saying “please give us £40 each because we’ve been done for it in a court and you’re liable, chummy” would not come close to getting in the cash required. The demand would also be a legal lie as we could re-form under a different banner. We might get in some cash from rich people and some money from credulous members who might believe such a letter, but nowhere near the £2.4m mark.

    @Hywel. A closure of an investigative file is not necessarily the end of the case. It just means the investigative authorities have put it to bed. By way of analogy, murder cases are often closed without resolution by the police. They can, of course, be re-opened if crucial new evidence emerges at a later date. I can’t think of an exact parralel – but the Portuguese police shutting the case on the Maddy McCann disappearance isn’t far off. Obviously, if footage emerges of her actual abduction or someone comes forward with a credible confession then the case is re-opened. The problem with the Electoral Commission is that the file is always open and ANY new evidence is treated with a response that paralyses the LibDem position. For instance, when the Times unconvered the fact that Brown had bounced some cheques in the USA some decades earlier, the Electoral Commission said “This may be something we need to look into as part of our ongoing enquiry”. The Times then phoned me up and said “The Electoral Commission is taking this very seriously, what about your party?”. The Commission seems unable to distinguish between evidence and information. I almost fear that a journalist revealing that Michael Brown had decided to re-grow his moustache would be met with a response of “Well, we continue to look in to all matters related to this case and if we decide the law has been broken we will prosecute the LibDem party. We are very grateful to you for bringing this information to our attention and would encourage you to continue to raise any other matters of relevance”. Ok, I’m pushing the envelope a bit there, but not much. Obviously, if a letter comes to light proving that I and my press team were smuggling drugs and arms for Brown through Heathrow to “facilitate” the donation, then the case file is re-opened. Fortunately, we were smart enough NEVER to write this stuff down (joke).

    @James. I think an error was not to put Brown on the electoral roll at the outset. He was eligible to be on the roll and this would have avoided the issue of whether 5th Avenue were a company trading in the UK. However, there was every good reason to believe that 5th Avenue were actually trading in the UK. Your statement that “There was no evidence to suggest they weren’t trading, but equally there was no evidence to suggest that they were” is just wrong.
    The party’s investigations seemed to prove this – or at least seem to make it overwhelmingly likely that 5th Avenue were trading. You might always worry that you’re the victim of Robert Redford and Paul Newman from The Sting, but opened offices that trade and seem sensibly active and have credible staff looks like a company trading in the UK. On your view that the offer of a donation was only made weeks before the election and were squandered, I think you’re about 60% right. The money came too late to be used for maximum impact. Our own checks held up the donation and it would have been easier to deploy the money more successfully over a better time line. I genuinely don’t know the story surrounding Reg Clark’s resignation, but hardly any (if any) of the Brown donation was banked on his watch.

    @Mike and James. There’s an interesting issue here about liability. It seems party political donations are governed by “strict liability”. Even if you’ve done everything possible to persuade yourselves that the donation is legit… Even if the greatest investigator on the planet would agree with you…Even if there is not a single victim or complainant that could possibly be identified…you’re still screwed if the cash is dodgy. This, if true, is intolerable. For example, a party memebrship cheque of £10 a year might be paid for through criminal funds. Do you bank the cheque? Or phone up the new party member and demand assurances that they aren’t an international terrorist, paedophile or drugs dealer before trousering the money? If James is right – and he usually is on this sort of stuff – that this the political donations legislation is essentially a strict liability law, this is disastrous. Am unsure on solutions at this point….

    @James. You may be right that big donors would cover the bill if it came to it – after years of litigation, of course.

    My own view is that the Federal Party appartus needs to be looked at in order to learn from this sorry story. We have seemingly endless committees and officers – most with “democratic” mandates – who seem unable, incapable or unwilling to act (over anything remotely important). One strange thing about the whole Brown donation issue is that I’m not at all sure the Federal Exec has even bothered to seriously discuss it or investigate it. If the Federal Exec is a cute way of getting top class activsist together for a chit-chat over beer and sandwiches at Cowley Street, then fair enough. It might be money well spent. But let’s not pretend it’s a model of democracy.

  16. Niklas Smith Says:

    @Mark: I doubt enormously that every party member would pay £40 each to clear a dubious debt. We don’t raise anywhere near this sort of cash for requests that are “optimistic” (e.g. the run-up to the 2005 election).

    If we are to stop this from happening again we do need get small donors to contribute more. I’ve already mentioned this point so I don’t want to labour it, but I was wondering if you (or anyone else) had any ideas on how to improve our broad fundraising base.

  17. Mark Littlewood Says:

    Niklas, in broad terms, I think we need to move away from a strict, old-fashioned, formal membership-based system and towards a wider, more inclusive “supporters” database. Only about 1 in 100 LibDem voters are party members. I suspect a meaningful proportion of the other 99% might be willing to contribute, but are turned off by the idea of having to become party members. In terms of our attempts to raise small sums of c. £5 – £100, we focus too much of our efforts at the 60,000 members.

  18. Psi Says:

    For all those who are screaming “your legally obliged to pay it back” I remember hearing this before about someone accused and arrested of financial crimes in the US, you may remember it:

    Now the circumstances were different due to the fact that Tanaka was not convicted (not sure if it even went to a court ant any point) but there was a lot of noise from people claiming that Imperial College would be liable to £27m. The sensible people watching this (ie, not journalists looking for a story, not the individuals who lost money and not internet trolls) very quickly came to the conclusion that Imperial had acted reasonably, performed relevant checks and were safe.
    It appears that this story gets BBC coverage on the basis that they have caught Tory and Labout MPs defrauding the tax payers in a fraudulent way with phantom mortgages and front companies, so they feel they have to kick the Lib Dems and they have run the story of whether the daughter of the St Ives MP spent to many nights staying in her dads flat.