Bill C-21 (Historical)

Political Loans Accountability Act

An Act to amend the Canada Elections Act (accountability with respect to political loans)

This enactment amends the Canada Elections Act to enact rules concerning loans, guarantees and suretyships with respect to registered parties, registered associations, candidates, leadership contestants and nomination contestants.

[Marc Mayrand]

Well, for unpaid loans there is probably something I could share with the committee, if there is interest.

If we're looking at the last three GEs, generally for candidates—I'm talking about candidates here—outstanding amounts at four months after the polling date stood at between $3 million and $4 million. That's about 7% of all the funding available to candidates in elections. After 18 months, those amounts have been reduced by about 25%.

I hate to do a quick average, but after 18 months, it stood, I think, at about $1.3 million, so still after 18 months there was $1.3 million outstanding. After 36 months—three years, the period provided by Bill C-21—we are still talking about half a million dollars in total debts outstanding among all candidates, and here we're talking about 1,400 candidates.

There is effort. What this shows is that there are continuous efforts on the part of candidates to reimburse their debts, but some are struggling in terms of the time needed to reimburse them.

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

With that in mind—because I imagine this is, particularly on the 2006 leadership contest by the Liberals, fairly frustrating for you and your office, and has been for a number of years—you made a series of recommendations in your 2010 report. Based on the discussion we've been having here today—and now having had a chance to take a look at Bill C-21 as well, of course—would you feel that you're in a better position to come back to this committee with an updated series of recommendations, including recommendations on the particular point of repayment of leadership contest loans?

[Marc Mayrand]

Until those debts are repaid.

Again, when I suggest that, I go from.... We need to balance all the principles here and the objectives. If we are truly concerned about bringing finality to those debts, I think we need to think of other measures than the ones that are in Bill C-21.

[Marc Mayrand]

Again, I would support that. One of the key objectives of the bill is to prevent self-lending, but unfortunately it forgot to deal with self-supply, which also exists in a campaign. It's not rare to see that.

I'm not sure that the provision of the statute is open in Bill C-21. I think you would need to get advice on that aspect, but, again, it would require an amendment to the legislation. It can be done, certainly, and it should be done.

[Craig Scott, NDP, Toronto—Danforth, ON]

Exactly.

The question now is on this whole issue of unpaid loans becoming deemed contributions. There was some reliance from the minister in his testimony last session on the fact that a provision in Bill C-21, which says that a loan becomes an unpaid loan when it's been written off by the lender as an uncollectable debt and then it kicks over to the EDA being responsible, would more or less be pro forma.

That's exactly what banks would do, and therefore a bank would never really end up in the position of potentially being found to have committed an offence under the act. They wouldn't actually have a deemed contribution because they would always use this mechanism.

I notice in your remarks you said:

…according to the information reported by candidates after the 18-month statutory period, none of the $2.6 million in unpaid loans was written off by a creditor.

I'm wondering if there's some serious tension between what the minister was telling us about the likelihood of banks simply using this writing-off provision and Elections Canada's experience with the fact that this doesn't seem to happen very often. Is there any tension, or are we talking about two different actors?

[Marc Mayrand]

That's my reading of the legislation after Bill C-21.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Merci.

My second question has to do with the perceived democracy of the process that's being advocated here in Bill C-21.

We're talking about loans coming from banks or financial institutions. Do you think the process is inherently fair? For example, because banks are concerned about somebody's credit rating and credit history before they make a loan to them, do you think there is going to be a perceived disadvantage to somebody who wants to run in some way but does not have a well-established credit rating—for example, in some cases, women who have not built up a credit rating during the course of their lives, or perhaps very young candidates who might want to run. Are they at a disadvantage in this process because of those factors?

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

Thank you, Chair, and thank you, Mr. Mayrand, for being here.

I think the chair is right, we're going to have a lot of questions. You've given us a lot of information to consider.

I note that your predecessor, Mr. Kingsley, had recommended to this committee back in 2007 that a number of changes be made to the loans regime, which we have done, and which are contained in Bill C-21. I hope you agree that those changes, generally speaking, address the concerns that Mr. Kingsley had. But I'd like to focus on one possible recommendation that you made. As opposed to individuals being allowed to contribute only up to their maximum contribution limit on a yearly basis, you felt that we might want to consider an exemption so that candidates could loan themselves any kind of money on a one-time basis.

I'd like to ask if you could clarify that, going into a little bit more detail. While one could certainly argue that this would violate the spirit of the individual contribution limits, a more serious consequence could be that if you had a particularly well-heeled candidate who was able to lend himself $5 million or more, he might not ever have to go and seek loans or contributions again, because this one-off loan would be sufficient to run his entire leadership contest.

So my questions to you would be: do you still feel this would be an appropriate qualification to put into this bill, and if so, what should the limits be on a candidate loaning himself money?

[Marc Mayrand, Chief Electoral Officer, Elections Canada]

Thank you, Mr. Chair.

I am pleased to appear before your committee today to contribute to your review of Bill C-21. Appearing with me are, on my far right, Sylvain Dubois, recently appointed to the position of Deputy Chief Electoral Officer, Political Financing. To my immediate right is Stéphane Perrault, Deputy Chief Electoral Officer, Legal Services, Compliance and Investigations. To my left is François Bernier, the outgoing Deputy Chief Electoral Officer, Political Financing.

Bill C-21 builds on the 2004 and 2007 political financing reforms by seeking to curtail the undue influence that can arise from loans to political entities. To do so, it proposes a series of three measures. First, it provides that only individuals, financial institutions, and political entities authorized to transfer funds under the act, may make loans to political entities.

Furthermore, in the case of individuals, it places a $1,200 overall limit on contributions, loans, guarantees and suretyships. Furthermore, it requires the provision of more detailed information on such loans. Lastly, it makes electoral district associations or, if none exist, the political party, liable for candidate loans that are written off by the lender.

It requires the association or the parties to assume the liability for repaying these loans as if they had guaranteed them. Although the principle of the bill is laudable, I must, at the outset, note that the measures proposed raise a number of concerns.

First of all, the bill proposes an overly complex regime that will be very difficult to apply for political entities and their supporters. Second, the proposed regime does not succeed in adequately eliminating loopholes to the political financing rules. Lastly, the bill does not bring closure to the management of political entities' finances.

I would like, as a first step, to expand on these three concerns, which are actually closely interrelated. I will then speak to the elements that, in my opinion, should form the basis of a more effective reform.

First, I would like to express my concerns regarding the complexity of the proposed regime and the increased regulatory burden it would impose on all stakeholders, whether these be political entities, those wanting to provide loans and make contributions, or even Elections Canada, which would need to administer the regime.

This complexity arises mainly from one specific feature of the proposed regime, namely the method of calculating the limit on individual loans, guarantees and contributions. Under the bill, all loans, guarantees and contributions made by an individual cannot exceed, at any time during a calendar year, that individual's contribution limit. Excluded from this calculation are the amounts of a loan that were repaid during the year in which the loan was issued, as well as the amounts for which the individual has ceased to be liable in the year the guarantee was given.

This will create considerable uncertainty for political entities, as they will need to determine, at any given moment, whether an individual's limit has been reached. The amount of allowable loans and contributions will fluctuate over the course of the calendar year, depending on the amounts that have been given, repaid or loaned. This situation will be even more complex when limits are for contributions and loans made to a “family of entities” during a calendar year (for example, all of a party's candidates, nomination contestants and registered associations).

This level of complexity is equally problematic for both political entities and individuals wishing to provide them with financial support. There is also a risk that this would lead to a proliferation of cases of non-compliance and create an incentive to find ways to circumvent the rules. And that is my second concern.

By limiting loans of more than $1,200 to financial institutions, the regime seeks to curtail the influence of individuals who finance political entities through loans, and to eliminate the use of loans as a means to skirt contribution limits. That being said, since the bill in no way affects credit sales, an individual could sidestep the new rules on loans by becoming a supplier of goods and services. For instance, while no longer able to lend $10,000 to the campaign, an individual or the candidate himself or herself would still be able to acquire goods and then sell them on credit to the campaign. This transaction would not be governed by the new restrictions on loans.

I also note, unlike the current provisions dealing with contributions, that nothing in the bill specifically prevents loans from being funnelled through other individuals. In addition, in order to be effective, the regime should bring closure to the management of political entities' finances by precluding the possibility of loans remaining unpaid for extended periods. However, and this is my third concern, the bill does not allow for this closure to be achieved.

As I already pointed out, the bill proposes a new provision whereby the registered association or, if there is none, the candidate's political party would assume liability for the unpaid portion of the candidate's loan that has been written off by the creditor. I welcome this type of measure. Unfortunately, it is too often missing from the current law, which is based almost entirely on criminal sanctions. The intent is to ensure compliance with the new three-year statutory deadline for candidates to repay their loans, but we must point out that the riding associations or the parties may only become liable for the unpaid loans of candidates and not for those of leadership contestants or nomination contestants.

In addition, that liability will take effect only in cases where a loan is written off, but not in all cases of loan default within the statutory deadline. It is difficult to predict the likelihood of loans being written off so as to trigger the liability of the electoral district association, or EDA. For the 39th and 40th general elections, according to the information reported by candidates after the 18-month statutory period, none of the $2.6 million in unpaid loans was written off by a creditor. This was also the case for the remaining $1 million in other unpaid claims.

Furthermore, the proposed regime for loans would latch onto the existing, and significantly flawed, regime for unpaid claims. I pointed out these flaws in my June 2010 recommendations report. This remains a complex and cumbersome regime that affords neither transparency nor closure.

The authorizations currently provided for to pay beyond the statutory deadline are largely unnecessary, except to allow the Chief Electoral Officer to impose as a condition the requirement to report financing sources and thus address certain shortcomings in the existing statutory regime. Currently, a candidate or leadership contestant who pays campaign debts after the filing of his return, but before the end of the statutory period, is not required to file an amended or updated return disclosing the source of funds.

Also, the current provision whereby a claim that remains outstanding after 18 months is deemed to be a contribution is a major source of confusion. Adopted at a time when the law did not limit contribution sources or amounts, this deeming entails no civil, administrative, or penal consequences. Deemed contributions do not, in and of themselves, entail a violation of the rules on contributions. Enforcement of the contribution rules and the imposition of criminal sanctions requires an assessment based on the facts of each case. They cannot simply stem from the mechanical application of a statutory fiction.

By continuing to subject loans to the flawed regime governing unpaid claims, Bill C-21 serves only to perpetuate these difficulties.

Even in the unlikely event that a riding association were made liable for a loan written off by the creditor, the unpaid claims regime would offer no reasonable guarantee that these loans would be repaid with diligence by the association.

These concerns lead me to suggest broad strokes of what I view as more effective legislative reform. First of all, such a reform must address not just loans, but also rules governing unpaid claims. Some of the key elements for reform can be found in my June 2010 recommendations report, while others are already part of Bill C-21; however, they should not be enacted piecemeal, independently of one another.

On the one hand, we must simplify the regime of unpaid claims by eliminating the current presumptions and authorization mechanisms. The law should also give the Chief Electoral Officer the power to obtain documents—as I recommended in 2010—and to examine entities that may have relevant information concerning a transaction. On the other hand, in order to ensure closure, political parties should be liable for repaying any outstanding claim, including any loan that remains outstanding after 36 months. This measure would be modelled after Bill C-21, while at the same time deviating from it in several respects.

First, parties should be liable for the outstanding debts of all their affiliated entities, with the possible exception of leadership contestants. Second, the parties should be liable, whatever the reasons or circumstance, for the payment default. Moreover, the parties should have a relatively short period—for example, six months—in which to pay the outstanding debt; otherwise the sum would fall due to the Receiver General and could be deducted from the public financing given to the party.

To be effective, political loan reform should also propose rules that are simple enough to be understood and followed by both the political entities and the electors supporting them. In this respect, I think it is absolutely essential to shelve the idea of a combined loans contribution limit for which implementation would fluctuate in step with repayments and contributions made. One solution would be to follow Ontario's lead and do away with individual loans, since the benefit the political entities would derive would be, for all intents and purposes, dwarfed by the severe regulatory burden imposed on them.

If individual loans must be allowed, they should be subject to a limit that is separate from the contribution limit and, above all, applicable for one calendar year regardless of the amounts repaid during the year. This change could no doubt be made in the current bill, but I think a more in-depth revision is necessary, and I doubt that this could be done within the limited framework of this bill.

Thank you, Mr. Chair. My colleagues and I would be pleased to answer any questions.

[The Chair, Conservative, Joe Preston]

I call the meeting to order. We are in public today with our Chief Electoral Officer, Monsieur Mayrand.

Welcome. It's great to have you here.

We're here pursuant to the order of reference of Tuesday, October 2, for Bill C-21, An Act to amend the Canada Elections Act.

Our witnesses today are all from Elections Canada, and we have a two-hour session with lots of questions, I hope.

Monsieur Mayrand, I'd like you to lead off and introduce the guests with you today. We'll have lots of questions for you after you're finished.

[Craig Scott, NDP, Toronto—Danforth, ON]

No, I understand. That was the answer before, but how clear is that and where are we getting that? The only retroactivity clause is 34 of Bill C-21 and it is not at all clear that is the result. I am wondering if more clarity is needed or if I haven't found it in the provisions.

[Craig Scott, NDP, Toronto—Danforth, ON]

Thank you, Mr. Chair.

Thank you, Minister, for coming.

I have two questions to ask in my four minutes. The first is to return to the clarification that Mr. Lukiwski received on retroactivity, which is with respect to the period of leadership loans. The new system is that you can have somebody donate on a yearly basis and not just on a per-event basis.

Did I understand correctly that the interpretation is that the new Bill C-21 provisions would allow past leadership candidates to actually pay off old loans under this new arrangement? If so, is it clearly in the new provisions?

[Tim Uppal, Conservative, Minister of State (Democratic Reform)]

I'm happy to be here and I thank you, Mr. Chairman and colleagues, for inviting me to speak today to Bill C-21, the Political Loans Accountability Act.

I am joined by Matthew Lynch, an official from the Privy Council who will help with technical questions if needed.

As you know, this bill proposes to amend the Canada Elections Act to establish stronger rules and better transparency requirements for political loans. The establishment of high and consistent standards of transparency and accountability in our electoral system is an underlying objective of our government's larger democratic reform agenda.

This bill, as with our other efforts, seeks to increase the confidence Canadians have in the integrity of our political process. For Canadians to have that confidence, our government believes that voters must be the primary actors in the electoral process. That is why the Federal Accountability Act completely banned political contributions by corporations, unions, and associations.

Furthermore, we believe that voters must be able to participate in the electoral process on an equal playing field. Neither voters nor candidates should have privileged access to the political system solely because of their financial resources or wealthy contacts. That is why the Federal Accountability Act reduced the yearly contribution limits for individuals. That limit now stands at $1,200 per year for each category.

These principles of transparency and accountability, the primary role of citizens, and equality are the motivations behind this bill.

Bill C-21 is necessary because the regulation of political loans has not been updated to reflect the other recent changes to the rules for political contributions. Currently there are no limits on loans that corporations, unions, or wealthy individuals can grant to political entities. Right now the deck is already stacked against potential candidates who might not have connections to wealthy donors or significant wealth themselves or within their circle of family and friends. That unfairness is made worse by other loopholes that exist.

In the worst cases, loans can potentially be abused as a form of disguised contributions over and above the limits on donations that we have set. At the very least, the regulations and reporting of loans is inconsistent. The lack of limits on amounts loaned is entirely out of sync with the rest of our donation rules, and the rules on who can and cannot donate money to politicians don't apply to loans at all.

What's worse, the current rules don't provide for genuine deadlines for repayment or for genuine consequences to politicians who break the rules.

This situation needs to be fixed.

Ordinary Canadians are expected to pay back their loans under strict rules and timelines. The same should be expected of politicians.

The political loans accountability act is designed to fix these problems by making the regulation of loans consistent with the rest of our political financing and contribution system.

I'll provide a brief overview of the bill's provisions, which would apply to all political entities—parties, associations, candidates, and nomination and leadership contestants.

With respect to transparency, the bill would establish a uniform and transparent reporting regime for the terms and conditions of all loans to political entities and require the Chief Electoral Officer to publish reports on loans.

These changes would achieve greater transparency by ensuring that all political entities are subject to consistent reporting standards and that the lending practices of financial institutions to different parties and candidates are visible for all to see.

With respect to accountability, the rules for the treatment of unpaid loans would be tightened to ensure candidates could not walk away from them.

Bill C-21 would accomplish this by making electoral district associations responsible for unpaid loans taken out by their candidates. If there is no association, then the party would be responsible for unpaid loans.

Ultimately, electoral district associations and their members endorse these candidates, as do the parties and party leaders themselves. Loans that remain unpaid by those candidates need to be dealt with. We believe this mechanism would provide for the most logical, transparent, and accountable solution to that problem.

With respect to the principle that voters should be the primary influence in an election, Bill C-21 aligns the loans regime with that of the rest of our political financing regime by prohibiting corporations, unions, and associations from making political loans.

Bill C-21 would only allow financial institutions and other political entities to make loans beyond the current annual contribution limit of $1,200.

I'll also add that loans made by financial institutions, and there are literally hundreds of eligible institutions covered by this bill, must be made at fair market rates of interest.

Turning to the principle of equality, under Bill C-21 total loans, loan guarantees, and contributions by individuals cannot exceed the annual contribution limit for individuals. With Bill C-21, wealthy individuals would not be able to bankroll their campaigns by making large loans to themselves, or by taking large loans from friends or family. This places all candidates, including women and minorities, on an equal playing field.

I would also like to note that this bill incorporates recommendations made by chief electoral officers and previous input by this committee.

The bill is substantively the same as Bill C-29, which was passed by the House of Commons in the 39th Parliament but died on the order paper in the Senate. Several amendments were made by this committee and are included in this bill. Those changes include: a three-year period after which unpaid loans become deemed contributions, which this committee increased from the originally proposed 18 months; requiring the Chief Electoral Officer to hear representations from an association, party, or lender before making a determination about a deemed contribution; and providing that the amount of any loan given or guaranteed and that is subsequently paid back within the same calendar year is returned to the lender's annual contribution limit for that year.

Bill C-21 also makes a change to the contribution limits for leadership contestants. Currently, contribution limits for leadership contestants are set on a per-contest basis. Under the bill, the contribution limits for leadership contestants would be set on an annual basis, similar to the contribution limits for other political entities. I would also note that the bill would not apply to loans that were entered into prior to the coming into force of the bill. For clarity, the change from per-contest to annual donation limits to leadership contestants would apply to leadership contestants who continue to be contestants because of their outstanding unpaid loans or claims, subject to any conditions imposed on them by the rules, courts, or the Chief Electoral Officer.

The coming-into-force provision states that the bill will come into force six months after royal assent. This is consistent with the corning-into-force provisions of other electoral laws and is designed to give Elections Canada sufficient time to implement the changes.

Our government believes that Bill C-21 is essential to preserving and enhancing the trust of Canadians in the integrity of their political institutions. We believe that politicians have a responsibility to manage their funds prudently and to make sure that they are borrowing and spending within the means of their campaigns. Regular Canadians must manage their own household budgets, and it is incumbent on politicians to do the same.

I hope you will support this bill. I would be pleased to answer your questions.

[The Chair, Conservative, Joe Preston]

We are here on the order of reference of Tuesday, October 2, Bill C-21, An Act to amend the Canada Elections Act.

We have Minister Uppal with us today. Thank you for coming today, Minister. I understand you have an hour for us today.

Our meeting is only scheduled until noon. The chair has to leave very quickly after that, so if something were to come up, the vice-chair could always fill in.

Mr. Lukiwski, you want to mention something.

[The Chair, Conservative, Joe Preston]

We will call our meeting to order. We are in public this morning.

I would like to discuss some committee business at the end of our meeting today. We will set aside some time to talk about where we're going further on this review of the standing order on access to information requests and parliamentary privilege. We also want to talk about our witness lists for the study of Bill C-21 and how we're planning our time for that.

Perhaps we could leave a little bit of time for that, and for a couple of budgetary requests, too, at the end of the meeting.

Monsieur Bosc, Monsieur Denis, it's good to have you both here today. Hopefully you can help us with this. The Speaker has referred this issue to us. We're looking to you for a little knowledge this morning.

Monsieur Bosc, will you be going first?