Introduction
Section 43(2) CAMA provides that:
"A company shall not have or exercise power either directly or indirectly to make a donation or gift of any of its property or funds to a political party or political association, or for any political purpose, and if any company, in breach of this subsection makes any donation or gift of its property to a political party or political association, or for any political purpose, the officers in default and any member who voted for the breach shall be jointly and severally liable to refund to the company the sum or value of the donation or gift and in addition, every such officer or member commits an offence and is liable to a fine equal to the amount or value of the donation or gift."1
Coming across this provision again (during research for an unrelated publication), this author made a mental note to re-examine the underpinnings of the prohibition; and this article is the culmination of the author's several soul searching on the issue. It is apposite to confess at the outset the author's bias against the prohibition, and his resultant struggle to understand the rationale for it. This has inexorably led to more and more questions, which this article seeks to consider potential answers for.
Why do we need to ban corporate political donations? Should the government be crying more than the bereaved - if a company in due exercise of its governance process, decides it wants to make a donation from its own resources, and not third party assets? To the extent that donations would not be injurious to the company's capital, nor make it unable to pay its debts as they fall due,2 why should the legislature be substituting its judgment for those of the company; in other words, to be second guessing the company? What exactly is the injury or potential injury to the public or the electoral process, warranting the ban on corporate donations? Is there not greater injury otherwise – that is, in banning corporate political donations?
Are Nigerian companies, albeit abstractions elevated to being equivalent to adults of full natural capacity, intrinsically less worthy stakeholders of the electoral process and political governance of their operating environment? In answer to this latter question, we respectfully do not think so.
Corporate Political Donations: A Panoply of Issues
We will discuss the diverse issues, mostly related to why in the author's view the ban is absurd, under the hereafter appearing subheadings.
Ineffectiveness: Lack of Enforcement Appetite
Incidentally, the punishment against the prohibition is not lame – there is exposure to a 'fine' or 'penalty' by every participant, equivalent to the amount of the gift (following a criminal process); in addition to joint and several liability to refund the gift amount to the company.3 However, the nil or minimal enforcement in practice, means that there is really no enforcement appetite cum disincentive against corporate political donations.4 To underscore the non-enforcement point, the immediate former INEC Chairman (Prof. Attahiru Jega) in 2019 reportedly called for ban on corporate political donations – even though such ban had been statutory at least since 1990, under CAMA's predecessor legislation!5
Please view full version here: https://lelawlegal.com/index.php/page/blogs/354
August 2023
Footnotes
1. Emphases supplied. The phrase "for any political purpose", is apparently intended to be all embracing, otherwise companies would have been able to make political donations to candidates, and not be in breach to the extent that they did not donate to "a political party or political association". This provision is not new, and has attracted some discussion before now. For example, the abstract of a 1990 article stated (in respect of in pari materia predecessor section 38(2) CAMA 1990): "Moreover, besides the technical matters that could frustrate criminal prosecutions of a company, directors and shareholders discussed in this article, it remains to be seen whether the ban on corporate political gifts in Nigeria will be vigorously enforced by federal prosecutors". Emphasis supplied. See KD Barnes, 'The Ban on Corporate Political Donations in Nigerian Law and the Prospects of Enforcement', Review of African Political Affairs, 1990, Vol. 4, Issue 1-2, pp.42-52: https://www.africabib.org/rec.php?RID=11328439X. See also, Mokutima Ekpo and Eni Alobo, 'Nigerian Companies and the Prohibition on Political Donations: A Paradigmatic Shift as a Panacea for Compliance', IJAEMS, Vol-4, Issue-12, Dec-2018, pp. 781-792: https://www.neliti.com/publications/268277/nigerian-companies-and-the-prohibition-on-political-donations-a-paradigmatic-shi. Incidentally, the UK whose companies' legislation influenced Nigeria's, has long allowed corporate political donations. See for example, UK Parliament Hansard excerpts (Volume 775, Wednesday, 11.12.1968), at https://hansard.parliament.uk/Commons/1968-12-11/debates/d7661d9a-d44a-4670-bcc9-aefb695b1612/Companies(PoliticalContributions): "Mrs. Ewing asked the President of the Board of Trade what is the total amount of political contributions made by companies since the Companies Act, 1967, required disclosure of this information. Mr. Dell: The requirement to disclose information about political contributions in the directors' report applies to financial years of companies ending after 26th January, 1968. Not all companies have yet sent to the Registrar of Companies a directors' report for a financial year ending after that date. An analysis of the reports sent to the Registrar by companies with net assets exceeding £500,000 or profits exceeding £50,000 shows political contributions totalling £135,000. An analysis of the reports sent by other companies would involve an undue expense of time and effort." Emphases supplied, (all weblinks accessed 12.08.2023).
2. Inability to pay debts as they fall due is a cardinal concern of companies' regulation and is one of the grounds for creditors' or court ordered winding up. Section 571(d) CAMA stipulates that: "A company may be wound up by the court if the company is unable to pay its debts" whilst section 572 prescribes the scenarios when "A company is deemed to be unable to pay its debts if - (a) a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding N200,000, then due, has served on the company, by leaving it at its registered office or head office, a demand under his hand requiring the company to pay the sum due, and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; (b) execution or other process issued on a judgment, act or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or (c) the Court, after taking into account any contingent or prospective liability of the company, is satisfied that the company is unable to pay its debts." Emphases supplied. Cf. with payment of dividends out of capital vide section 433 CAMA provision that: "All directors who knowingly pay, or are party to the payment of dividend out of capital or in contravention of this Part, are personally liable jointly and severally to refund to the company any amount so paid", albeit with right of recovery "from shareholders who receive it with knowledge that the company had no power to pay it". Emphasis supplied.
3. Fine or penalty (at the conclusion of requisite legal process) would be payable to the government, whilst the refund is to the company. Since the fine is payable by everyone involved, whilst there is only joint and several liability for them in respect of the refund, the State is likely to make more money (multiples of the donation), from enforcement actions against such infractions, than the company that was the victim of such infraction (that will only get at most a refund). This may however be defended on the basis that the enforcement actions will consume resources of the State, whereas the company might not have even taken any action to protest its alter egos making the banned corporate political donation. On the other hand, the imposition of fine as a criminal sanction distinct from the refund obligation, arguably evinces the intention to discourage corporate political donations; the sanctions are arguably stiff enough as harsher sanctions (like terms of imprisonment), would be equivalent to squashing a fly with a sledgehammer. In this sense, the fine confirms that section 43(2) CAMA not only prohibits corporate political donations, but actually makes same illegal, since fine would payable upon conviction (conclusion of criminal trial).
4. If corporate political donations represent a real and present danger to the public, then is the absence of enforcement appetite not whittled down the severity of such danger, effectively allowing free rein to prospective defaulters? Any sanction without enforcement is not worth the ink its provision is written with or the space the provision occupies, in the statute books. Arguably, assuming the legislature frowns severely against political donations, the refund penalty on every participant could have been in multiples (for example, two or three times the amount donated). The heavier penalty will more effectively discourage breach of the prohibition. Cf. the graduated regime of sanctions under Nigerian criminal law, based on severity. See for example, the Criminal Code Act, Cap. C38 LFN 2004 which prescribes murder for capital offences (section 319(1)), but lesser sanctions like terms of imprisonment, fines and forfeiture for less severe crimes. Cf. prior and current provisions on grossing up – a commentator had argued that because no sanction was originally prescribed against grossing up, the provision was not mandatory, but merely advisory. However the recent amendments have provided for stricter treatment by making any tax burden borne on behalf of third parties (including by way of grossing-up), non-deductible. See for example, Afolabi Elebiju, 'Addendum – Withholding Tax: The A-Z of Grossing-Up', LeLaw Thought Leadership, April 2021: https://lelawlegal.com/add111pdfs/Afolabi_-_Addendum_updated.pdf (accessed 20.08.2023).
5. See 'Ban Corporate Organizations from Making Donations to Politicians, Parties, Jega, Salami Urge Buhari', Sahara Reporters, 12.06.2019: https://saharareporters.com/2019/06/12/ban-corporate-organizations-making-donations-politicians-parties-jega-salami-urge-buhari (accessed 20.08.2023). According to the news report, "In his recommendations, Jega said more attention should be paid to the strengthening of campaign finances and legislation against vote buying. 'The objective is to impose limits on campaign and general political finance spending and impose stiff penalties for none compliance,' he said. He added that corporate contributions to political parties and candidates should be banned." Emphasis supplied.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
