Government of Canada Introduces Legislation to Strengthen Accountability for Political Loans

April 28, 2009
Ottawa, Ontario

Ottawa - The Hon. Steven Fletcher, Minister of State (Democratic Reform), today announced the introduction of legislation amending the Canada Elections Act to strengthen accountability with respect to political loans. The legislation is an important part of the Government’s agenda to strengthen accountability and democracy in Canada.

“This legislation is one more step the Government has taken to improve transparency and accountability in political financing,” said Minister Fletcher. “Once this Bill is passed, we will have a tighter system of political financing that will limit the influence of wealthy individuals on the political process.”

The bill ensures that the treatment of loans is consistent with the higher standards of transparency put in place for political contributions by the Federal Accountability Act, which was passed in December 2006.

The proposed changes are fourfold:

• The bill would establish a uniform and transparent reporting regime for all loans to political parties, associations and candidates, including mandatory disclosure of terms such as interest rates and the identity of all lenders and loan guarantors.

• Unions and corporations would now be banned from making loans to political parties, associations and candidates, consistent with their inability to make contributions as set out in the Federal Accountability Act.

• Total loans, loan guarantees, and contributions by individuals could not exceed the annual contribution limit for individuals established in the Federal Accountability Act ($1,100 in 2009).

• Only financial institutions (at fair market rates of interest) and other political entities could make loans beyond that amount. Rules for the treatment of unpaid loans would be tightened to ensure candidates cannot walk away from unpaid loans: riding associations will be held responsible for unpaid loans taken out by their candidates.

The bill is consistent with a recommendation from the Chief Electoral Officer of Canada. It reflects a legal approach to political loans already in place in several provinces such as Ontario, Quebec, Manitoba, Alberta and Newfoundland and Labrador.

For information, contact:
Cherie Godin
Office of the Minister of State for Democratic Reform
(613) 943-6975

Backgrounder

Amendments to the Canada Elections Act (Accountability with Respect to Political Loans)

Canada’s Government is committed to maintaining the highest standards of transparency and accountability in political financing. However, the current rules for loans do not create uniform standards of transparency, and loans could be used to circumvent contribution limits and restrictions on the source of contributions. The new loans provisions, introduced today, create more transparent accountability requirements and stringent restrictions on the use of loans by political entities and will apply to all political entities governed by the Canada Elections Act.

The current rules on loans are a series of inconsistent and incomplete measures adopted over time and are no longer in keeping with the broader legal framework for political financing or the higher expectations of Canadians. Enforcement of the rules is difficult since the information required to ensure compliance (e.g., the interest rate at which a loan is made) is not always disclosed.

A major concern is that loans could be used to circumvent both the legal contribution limits and the restrictions on the source of contributions. The rules governing political contributions were strengthened through the Federal Accountability Act, which reduced the maximum annual contribution by individuals to political entities to $1,100 for 2009, and prohibited unions and corporations from making political contributions. Since loans are not subject to either of these restrictions, there is no limit on the amount of loans any person or entity can make. Loans can therefore be used to circumvent the contribution limit and in effect can be disguised contributions.

The proposed changes update and strengthen the treatment of loans:

• The bill would establish a uniform and transparent reporting regime for all loans to political entities, including mandatory disclosure of terms, and the identity of all lenders and loan guarantors. The current rules for disclosure are not uniform and impose different requirements on different political entities.

• Total loans, loan guarantees, and contributions by individuals could not exceed the annual contribution limit for individuals established in the Federal Accountability Act. The current annual contribution limit is $1,100 for individuals, but there is currently no limit on the amount of money an individual can lend to political entities.

• Only financial institutions and other political entities could make loans beyond the annual contribution limit for individuals, and only at a fair rate of interest. Unions and corporations would now be unable to make loans, consistent with their inability to make contributions as set out in the Federal Accountability Act.

• Rules for the treatment of unpaid loans would be tightened to ensure candidates cannot walk away from unpaid loans: riding associations or the party will be held responsible for unpaid loans taken out by their candidates. This measure would ensure that parties and riding associations are held responsible for debts incurred by the candidates they endorse.

The overall goal of these measures is to reduce the potential for undue influence of wealthy interests in the political process, and thereby ensure greater accountability to citizens and enhanced confidence amongst Canadians in the integrity of their political institutions.

In January 2007 the Chief Electoral Officer of Canada completed the first comprehensive review of political loans since 2000. In his report to Parliament he concluded that “loans granted by lenders—who are not in the business of lending, who lend money at non-commercial rates, with terms that are not available to others, or in cases where there is little prospect of reimbursement—may be perceived as a means to influence the political entity to which the funds are provided.”

The Chief Electoral Officer recommended that Parliament review the rules on loans to impose additional controls, make loans more transparent, and establish consistency in the treatment of loans for all classes of political entities. The amendments proposed by the Government adopt those recommendations.

The election laws in Quebec, Ontario, Manitoba, Alberta and Newfoundland and Labrador currently place some restrictions on the source or amount of loans to political entities.

The changes made to political financing through the Federal Accountability Act in December 2006 are important components of the Government’s record of achievement. As part of strengthening accountability across government, the Federal Accountability Act introduced changes to political financing including new limits on contributions to political entities from individuals, a ban on contributions from unions and corporations, and tightened rules on gifts and trust funds.