Fraud probes into New Zealand’s main parties raise questions over Chinese money

New Zealand’s two main political parties have been embroiled in fraud investigations over their handling of donations with possible links to China, prompting increased concern about the sources of party funding and possible manipulation of the democratic process.

The Serious Fraud Office said on Monday it had started an investigation into donations made to Prime Minister Jacinda Ardern’s Labour Party in 2017.

The SFO has not released details of the case, but the party has disclosed it received donations through an auction held by a Chinese community organisation whose founder has been accused of ties to the Chinese Communist Party.

Similar fundraising events have already prompted investigations by police, and Labour officials and media reports have suggested the event may be at the centre of the latest investigation.

The group’s founder, Zhang Yikun, is also facing fraud charges that resulted from an earlier investigation into the main opposition party, the National Party, along with two other businessmen and a member of parliament.

The SFO’s new probe coincides with an election year and comes at a time when concerns about election interference by foreign countries are on the rise around the world.

Political observers have warned that New Zealand, a member of the Five Eyes intelligence group, could be at greater risk of manipulation without more robust safeguards.

“The Serious Fraud Office’s actions are unprecedented. And they indicate that there is a systemic problem that goes beyond one or two ‘bad actors’,” said Andrew Geddis, a professor of election law from Otago University in New Zealand.

“Rather, it suggests that a range of political parties and candidates for local government roles may have been prepared to accept donations in ways that raise questions about their sources and what is expected in return,” he said.

The SFO has not given any details of the investigation into Labour, but the party’s president Claire Szabo said two of the businessmen charged in the National case, brothers Zheng Shijia and Zheng Hengjia, had previously donated to the Labour Party.

Labour said the pair’s donations in 2017 and 2018 fell below the NZ$15,000 (US$9,800) legal threshold for declaring donations, and therefore did not appear in the party’s 2017 electoral filing.

Ahead of the election that year, the party raised NZ$60,000 from an auction at the Chao Shan General Association of New Zealand, which was founded by Zhang and where Zheng Hengjia is a senior office holder.

The auction donation was included in the filing but the name of the association was not disclosed. The Labour Party has said that all donations were filed in accordance with the rules.

The association is a philanthropic and community organisation for Chinese immigrants with roots in the Chaoshan area of Guangdong province.

Geddis said the SFO was also investigating the funding of Labour’s mayoral campaigns in Auckland and Christchurch after opposition candidates triggered a police investigation with a complaint that items of little to no value were auctioned off at inflated prices.

“What the SFO is looking at with regards to those donations is the way that auctions were used to disguise the identity of donors to candidates,” he said.

“So items would be auctioned, allegedly at an inflated value, and the identity of who had bid on those things was not made clear.”

Geddis said that given the complaints the local campaigns had acted “not strictly in compliance” with the law, it may well be that similar questions have been asked about fundraising at a national level – although he said this was still speculation.

Meanwhile, Zhang and the Zheng brothers are also facing trial for fraud next year along with a serving MP, Jami-Lee Ross.

The four were charged following an earlier SFO investigation and are accused of concealing the origins of two NZ$100,000 donations to the National Party. They deny the charges.

Ross, who has resigned from the Nationals, previously told a parliamentary inquiry into foreign interference that the security service had warned the party’s former leader Simon Bridges not to make one politician who had support from the Chinese community a minister if the party was in government because of espionage concerns.

The New Zealand Security Intelligence Service declined to comment on specific intelligence and Bridges has denied sharing intelligence with Ross.

Ross and his lawyer did not respond to emails and phone calls requesting comment, and lawyers for the Zheng brothers did not reply to similar emails.

John Katz, the lawyer representing Zhang Yikun said criminal proceedings were active and could not be discussed.

Allegations of foreign interference in New Zealand have highlighted concerns about its role in the Five Eyes intelligence-sharing alliance, whose other members are the US, Britain, Canada and Australia.

The small size of New Zealand and its growing closeness to China, could pose a risk to the alliance, according to China scholar Anne-Marie Brady from the University of Canterbury in Christchurch.

“New Zealand is valuable to China, as well to other states such as Russia, as a soft underbelly to access the Five Eyes Intelligence,” she wrote in a 2017 paper, which examined China’s influence campaigns and how they were carried out in New Zealand.

Brady alleged that Zhang, one of the defendants in the National Party donation case, was a Communist Party designated United Front Work representative for New Zealand, in a series of tweets made early this year.

Zhang has not responded to the allegations and both he and his lawyer declined to comment when contacted by the South China Morning Post.

Jason Young, an associate professor of New Zealand-China relations at Victoria University in Wellington, said it was important to distinguish interference from New Zealand’s diverse Chinese community exercising their right to engage in politics.

“The New Zealand Chinese community is really important for business and family links to China, it's a really valuable part of New Zealand's relationship with China,” said Young, who is the director of the New Zealand Contemporary China Research Centre.

“The other problem is that because the Chinese economy is often very closely linked to the government, it creates an opportunity for people to criticise those links. There’s a lot of grey areas there.”

China has always maintained that it does not interfere in the domestic politics of other countries and has denied claims of meddling in Australia and the United States.

But Alex Tan, a political science professor from the University of Canterbury, said there were loopholes in New Zealand’s electoral laws – including a high threshold for undisclosed donations, loose reporting requirements and allowing permanent residents to vote – that left the democratic process open to manipulation.

This could be “very easily” done “because you can have a front, [and] front people who will take in money and they’re the ones doing the donation”, he said.

“Part of the increase in Chinese donations – whether they are connected to a foreign state or not – is the fact that the Chinese vote is a significant portion of the electorate especially in Auckland, where there are more members of parliament,” he said.

The alleged irregularities such as misreporting and non-disclosure of donation in the mayoral elections in Auckland and Christchurch have already prompted SFO investigations.

To prevent questionable practices like these, experts have called for electoral reforms such as more transparency over political donations, setting a maximum limit for all donations and only allowing citizens to vote.