The increasingly embarrassing saga of the Free Enterprise Foundation (FEF) and its role in hiding illegal donations to the New South Wales Liberal Party offers an almost textbook case of how our political donation disclosure laws are written to facilitate non-disclosure and obscurity.

This is one issue where — despite the rank corruption of the NSW Labor Party and its own role in the pervasive chicanery that preceded the 2011 election in that state — there is a clear difference between the major parties: the Liberal Party simply doesn’t believe in transparency for political donations. The Howard government dramatically reduced disclosure at the Commonwealth level with laws that, from 2006, lifted the donation reporting threshold to an indexed level 10 times higher than the previous threshold of $1000. The disclosure threshold is now $13,000.

In 2009, the Coalition combined with then-Family First MP Steve Fielding in the Senate to block John Faulkner’s overhaul of disclosure laws that, inter alia, would have fulfilled Labor’s election promise to reduce the threshold back to $1000. Campbell Newman’s former Liberal government in Queensland, mimicking the Howard government, also gutted ex-premier Anna Bligh’s near-best practice donation disclosure laws in that state in 2014.

Similar to their argument against tax transparency and the mythical threat of kidnapping of the wealthy, the Liberals argue that transparency for donors is dangerous because it means Liberal donors can be threatened with retaliation by unions, although it has never evinced a single case of this happening.

Labor branches still report all donations and other payments above $1000. The Liberal Party strictly adheres to the letter of the law and only reports what is legally disclosable.

Last week’s report from the NSW Electoral Commission about the state Liberal Party’s failure to disclose donors who used the FEF as a means to avoid transparency further details the Liberal Party’s intense aversion to transparency. The commission noted “the Foundation commenced to be used well before 2010 as a means of offering anonymity to favourably disposed donors wishing to support the Liberal Party”. But this wasn’t what got the NSW Liberals into trouble; it was that the foundation was used to disguise donors prohibited under then-applicable NSW electoral laws, i.e. property developers. Avoiding transparency is OK as long as it’s within the law.

Much attention has also focused on the role of Senator Arthur Sinodinos, who reacted angrily to the commission’s report and — having apparently now recalled the extent of his role, or lack thereof, in NSW Liberal Party financial affairs at the time — demanded to be dissociated from it. As The Sydney Morning Herald reported over Easter, Sinodinos was copied into a 2010 email exchange relating to donations to the FEF by property developers Harry Triguboff and Brickworks, which would be split between the Liberal federal election campaign in NSW, and those national election campaigns in other states. Despite being banned under NSW law, property developer donations were perfectly legal federally (FEF is officially located in the ACT) and perfectly legal for federal campaign use in NSW.

This is an important legal distinction; otherwise the donations would be illegal under NSW law. But it illustrates the problem of donation transparency under a federal system. And in practical terms it’s a distinction without a difference. Money flows in large amounts between the federal Liberal Party, the NSW Liberal party and the FEF. According to their Australian Electoral Commission (AEC) returns, between 2005-06 and the last reported year, 2014-15, the national Liberal Party has given the NSW branch a total of $8.8 million, while the NSW Liberals have given the national party $2.3 million. This isn’t just about NSW; the Liberal Party in Victoria has given the national branch $3.5 million in that period. The FEF has also given the national Liberals $3.3 million and the NSW Liberals just over $1 million.

The flow of money naturally peaks with elections. In 2007-08, when the Howard government faced Kevin Rudd and lost, the national party gave the NSW Liberals over $2.2 million while the NSW Liberals gave the national office just under $1.9 million. In 2010-11, however (when there was both a federal election and a state election in which Barry O’Farrell came to power), it was all one way: over $2.9 million from the national branch to NSW; in 2013-14, the year the Abbott government was elected, the national branch paid $3 million to NSW.

None of this is illegal or inappropriate in any way: the national branch of a party is entirely justified in directing funding in the course of a federal election campaign to the relevant state branch in order to meet campaign costs, regardless of the source of its donations. No developer donation need ever find its way into funding for a state campaign. But it means that the NSW party, in effect, suffered no penalty for the ban on property developer donations, because as long as no property developer donations went to a state campaign, the national branch could pour donated money from any source into state coffers.

As for the extent to which the FEF was used to channel prohibited donations, the NSW Electoral Commission relied on evidence presented to the NSW Independent Commission Against Corruption and the FEF’s own disclosures to the Commission. But an examination of the disclosures of the NSW and national Liberal branches to the AEC is revealing. In the 10 years from 2005-06, the FEF gave no money to the NSW Liberals in five of those years. It gave $20,000 in 2007-08 and $100,000 in 2009-10, $94,000 in 2012-13 and $75,000 in 2013-14. But in 2010-11, the year at the heart of the NSW Electoral Commission’s decision, the FEF gave the NSW Liberals a total of $787,000, many multiples of its highest sum in any other year. Which just happened to coincide with the election campaign in which property developer donations were banned in NSW.

Plainly the NSW Electoral Commission doesn’t think that’s a coincidence either.