“In-and-out” transactions: Creative Accounting or Election Fraud? The Conservative Party is Reprimanded at the Federal Court of Appeal

It couldn’t have happened at a more inconvenient time: in the midst of swirling election rumours with some polling suggesting the governing Conservative Party is sitting in long elusive majority government territory, the party has lost the latest round in its battle against allegations of fraudulent election financing.  In a dispute that has been ongoing since the election that brought the Torys to power in 2006, the recent Federal Court of Appeal has found the political party guilty of fraud in Canada (Chief Electoral Officer) v. Callaghan, 2011 FCA 74.

“In-and-out”: Not just a burger joint.

In late 2005, in the midst of a spirited holiday season election campaign, the Conservative Party had maxed out the party spending limit of $18 million per month during a federal election writ period.  So, the party came up with a plan to facilitate more election spending via Conservative candidates who had not yet reached their personal candidate limits.  These candidates were invited to participate in a “regional media buy” (RMB) program, in which Party headquarters would purchase media advertisements that would run in each candidate’s local riding.  The riding associations of 66 individual candidates were wired money from the Conservative Party, and on the same day, transferred the funds back to the federal party headquarters on the grounds that they were purchasing advertising for the riding.  The candidates were told the monies could be claimed as campaign expenses, which counted towards their personal candidate spending limit and are, rather infamously, reimbursed to an extent after the election.

The advertisements that were run under this program were identical and promoted the Conservative Party and the leader Stephen Harper without mentioning any local issues facing the individual candidate.  However, each advertisement carried a tagline stating the ad had been approved by the official agent of that specific local candidate, which in essence served as the only evidence that the ads were run for the candidate alone (and not the party).  Many of the ads were targeted in ridings bordering closely contested seats and, given the fact that print, radio and TV advertisements are not known to stop at the edge of electoral constituencies, served as a way to promote the party via the unused budgets of individual candidates.

Section 465 of the Canada Elections Act states:

465. (1) On receipt of the documents referred to in subsection 451(1), or an update of them under subsection 455(1), 458(1) or 459(1), from a candidate named in a certificate referred to in subsection 464(1), the Chief Electoral Officer shall provide the Receiver General with a certificate that

(a) states that the Chief Electoral Officer is satisfied that the candidate and his or her official agent have complied with the requirements of subsection 447(2) and sections 451 to 462;

(b) states that the auditor’s report does not include a statement referred to in subsection 453(3);

(c) states that the candidate has incurred more than 30% of the election expenses limit provided for in section 440; and

(d) sets out the amount of the final instalment of the candidate’s election expenses and personal expenses reimbursement.

At the Federal Court of Appeal

The main point of contention at the Court of Appeal was the method in which these alleged campaign illegalities were discovered by Elections Canada. The issue with local campaign spending versus federal campaign spending only came about when Elections Canada disputed the submissions of local riding associations claiming the per vote subsidy that is delivered to any candidate who achieves over 10% of the vote in their riding.  It was only after the infamous RCMP raid of the Conservative Party headquarters and the careful scrutiny of electoral spending records that this scandal and the allegations of campaign fraud came to light. The Conservative Party had continually argued in court that Elections Canada did not have the authorization to undertake the searches and scrutiny that lead to their challenging of the local versus federal campaign spending.

The Conservative Party advanced three main arguments to support their contention that s. 465(1) required the Chief Electoral Officer of Canada (“CEOC”) to only “review” the documents submitted and not to look behind them to verify either that the expenses were for costs actually incurred by the local candidates and riding associations themselves.

First, the Conservatives argued that the text of ss. 465(1) uses mandatory language.  By stating that “on receipt of the documents,” the CEOC “shall provide the Receiver General with a certificate” requires the documents to be accepted without review.  The case of Stevens v. Conservative Party of Canada, 2005 FCA 383 was cited as authority for the proposition that, when the Act intends the CEOC to confirm the accuracy of information provided, it expressly says so (e.g., s. 51, ss. 366(3), ss. 368(c)).

In its reasoning, the Court conceded that the legislative drafters may very well have intended a more limited role for the CEOC under s. 465 than other statutory sections with more permissive language.  However, the Court found that a textual interpretation was insufficient, and opted to focus on the fact that reading the statute literally would put the CEOC in a “clerical role” – which, in the Court’s opinion, is not what the legislature intended.

I am not convinced.  This reasoning seems inconsistent.  In the written reasons, the Court states that “These differences in drafting (between ss. 465(1) and other provisions of the Act) may suggest that Parliament intended to confer a more limited role on the CEOC under subsection 465(1).” Despite this recognition, the court went on to say at para. 57 of their ruling that Parliament did not intend to constrict the power of the CEOC.

Although it is all but impossible to draw the line at where the wording of any statute crosses the line into being “clearly worded,” utilizing differing language between multiple sections dealing with similar issues tends to be a fairly strong hint from the legislature. At the very least, it suggests that the organization has been conferred a different standard of review for distinct sections in the statute. Given their overt recognition of the limiting language of this section, the court’s willingness to side with a vigilant and interrogative CEOC seem to be grasping at a way around the text of the statute and, in my mind, not to show the requisite due deference to the legislature.

Second, the Conservatives argued that the Act expressly provides for the investigation of suspected non-compliance and its enforcement in s. 510.  Under this section, if the CEOC believes on reasonable grounds that any offence against the Act may have been committed by an “election officer”, the CEOC “shall direct the Commissioner (of Elections Canada) to make any inquiry that seems called for in the circumstances, including referring matters to the Director of Public Prosecutions (DPP).”

The Court attempted to address this point by differentiating between the CEOC and the Commissioner.  After stating that there was no evidence the Commissioner had the sole authority to inquire into the propriety of election expenses, the Court read s. 16 extremely broadly, which entrusts the CEOC with the powers “necessary for the administration of the Act.” I still am not convinced.  If a statute has a clearly set-out enforcement procedure, I believe the correct course of action is to use that framework and not to gut the mechanism through an overly expansive interpretation of a remedial provision.

Finally, the Conservative Party submitted that the role of the CEOC “is limited, in general, to ensuring that, on the face of the documents submitted by persons…the conditions required by the Act are met.” (Stevens)

The Court addressed the Stevens case and distinguished it in order to find against the Conservative Party.  The Stevens case arose from a dispute about the registration requirements for the newly-amalgamated Conservative Party under s. 401 – it did not address  electoral financing.  According to the FCA, this was an extremely different situation, as in Stevens there were important concerns about political neutrality.

With respect, I don’t see how an issue of election financing isn’t also extremely important and concerned with issues of the most absolute political neutrality.  In the Court’s words, the CEOC’s role is to be the “guardian of democracy.” The Court was willing to grant them very broad investigative powers to guard this said democracy under the s. 16 duty to administer the Act. Making it clear that, regardless of the conduct in question, no one political party is subject to a more arbitrary and subjective review process than any another would surely be a decision concerned with and supporting political neutrality.

Conclusion

Despite the Conservative’s negative reputation for challenging federal watchdogs, I think this is one case where the challenge is warranted.  Although the scheme in question looks to have been a boundary-pushing tactic, and despite the fact careful regulation of campaign finance is an vital tenant of our democracy, it is imperative that the CEOC exercises only those powers conferred to it by statute. In this case, the appropriate course of action (as established in the Canada Elections Act) was to refer the matter to the Commissioner, and not to have the CEOC engage in its own discretionary review. The Parliament of Canada has set up a detailed system to investigate issues of this very nature, and political parties should only face scrutiny via the appropriate procedures.  The Conservatives have stated they intend to appeal to the Supreme Court.  Regardless of your opinion, we can all agree that this is a fairly contentious and important matter that is in fact broader than a coming election or even campaign finance. There is a clear benefit from a decisive SCC decision, one way or another, and my hope is that we will see one on this case.