Political Party Funding -Corporate Responsibility

Transparency International – Zimbabwe workshop on

Political Finance in the SADC Region - the South African Experience

19 August 2009

Gary Pienaar

African Union Convention on Preventing and Combating Corruption (2003)

• Ratified by SA 2005

• Requires signatory states to –

‘incorporate the principle of transparency in the funding of political parties’

SA Constitution

• Section 236 of the Constitution of the Republic of South Africa, 1996 -

‘To enhance multi-party democracy, national legislation must provide for the funding of political parties participating in national and provincial legislatures on an equitable and proportional basis.’

Public Funding of Represented Political Parties Act,

No. 3 of 1997

• Section 5(1)(b): funds may be used ‘for any purposes compatible with its functioning as a political party in a modern democracy’.

• Examples: Broad, generic categories of the development of and influencing the political will of the people; and promoting active citizen participation in political life.

• Sub-section (3) defines expenditure that is prohibited with these allocated funds and includes:

• remuneration or other benefits for any party representative or government official in any sphere of government;

• financing any action or event that contravenes the code of ethics of elected representatives;

• financing the acquisition of any business or shares in any business, or any property, unless the property is to be used by the party for its normal political activities

Private Members’ Bill (2002) to amend the Public Funding of Represented

Political Parties Act

• The opposition Democratic Alliance (DA) tabled a Private Members Bill in 2002

• Aimed to:

(1) prohibit funds from:

- foreign governments; and

- anonymous donors

and to

(2) ensure disclosure of donations exceeding

R50 000 per annum

Idasa v ANC & Others Cape High Court (2003)

Justice Griesel: “This decision [refusing to order disclosure of donations ito the Promotion of Access to Information Act, 2000] does not mean that political parties should not, as a matter of principle, be compelled to disclose details of private donations made to their coffers … “Idasa has made out a compelling case – with reference both to principle and comparative law – that private donations to political parties ought to be regulated by way of specific legislation in the interest of greater openness and transparency.”

ANC response

• ANC undertaking to Court (2004) to introduce legislation regarding private funding

• ANC Party Conference Resolution 2007:“The ANC should champion the introduction of a comprehensive system of public funding of representative political parties in the different spheres of government and civil society organisations, as part of strengthening the tenets of our new democracy. This should include putting in place an effective regulatory architecture for private funding of political parties and civil society groups to enhance accountability and transparency to the citizenry. The incoming NEC must urgently develop guidelines and policy on public and private funding, including how to regulate investment vehicles.”

• 15 April 2009: ANC treasurer-general Mathews Phosa: There will be no law forcing political parties to disclose their funding until they were entitled to “sufficient” levels of public funding.

Public funding & Election costs

How much is “sufficient”?• 2004 election – R300-R500m spent

– including R46m on advertising (radio, billboards, posters, etc

• 2009/10 – R92m from IEC Public Fund • 2009 election - ?• ‘ANC spends R200m on election campaign’ (M&G 17

April 2009)

Broad motives for regulating political finance

• Promote democratic principles of transparency and accountability – Art 10 of AU Convention

• Prevent corruption and unethical conduct• Enhance fair political competition between parties• Empower voters through disclosure of donations,

thereby promoting greater political participation• Strengthen parties as effective participants in the

democratic arena

Private funding of democracy

In the absence of regulation of political party funding, “the relationship between money and politics may well be the biggest threat to democracy in South Africa”

– Steven Friedman, 15 April 2009

Three strategic options*

1. The autonomy option – Privacy rights of political parties are paramount. No need for structured regulation. Presumption that self-regulation and the self-correcting mechanisms of party competition will create a climate of fairness. Sweden: five parties represented in Parliament reached a voluntary agreement to exchange information on their income and expenditure and to make these available to others on request.

2. The transparency option – Highlights the disclosure of information on party finance, enabling voters to act on the information made available and exercise their right to support a political party accordingly. No limitation on funding, or bans on sources of funding. Germany: parties must report annually on income and expenditure and provide a balance sheet. Relies on media to inform voters about party donors.

3. The advocacy option – Detailed regulations on party finance (including disclosure requirements) that are strictly monitored and enforced by an independent oversight agency acting as public watchdog. USA: Federal Election Commission supervises, verifies and monitors party funding in terms of legislation.

*Karl-Heinz Nassmacher, International Institute for Democracy and Electoral Assistance (IIDEA)

Options for corporate practice

• No political donations at all• Continue making secret donations• Make donations on the basis of openness

and transparency by disclosing the contributions made, as well as the criteria / policy in terms of which such donations are made

JSE’s Socially Responsible Investment (SRI) Index

• Prior to the 2004 national elections, 16 companies voluntarily disclosed the amount of the political donations and the recipients of the funds

• SRI Index the first of its kind in an emerging market• Established to provide a guide or benchmark for companies

wishing to report adequately on issues of the ‘triple bottom line’ namely: economic, environmental and social sustainability, with the principles of corporate governance common to all three elements

• Voluntary assessment, open to all companies listed on the FTSE / JSE All Share Index

• Questionnaire to participating companies includes a request to disclose whether the company's reporting to the public includes donations to political parties

SRI Corporate Governance Criteria

• Governance Criteria: Policy: Code of Ethics: – May include ‘Guidelines on political donations’ as one of a

menu of options– Details of donations should be reported

• ‘Regular, clear and comprehensive disclosure of major facts relevant to the company, including of objectives and performance against these, as well as of matters of public interest, such as donations to political parties’

• However, the precise nature and extent of information that must be disclosed is not defined

Global Reporting Initiative

• An independent body• Has developed and maintains a reporting framework

on issues of economic, environmental and social performance

• Also recommends that corporations report any amount of money paid to political parties and institutions whose primary function is to support political parties or candidates

Limitations of SRI and GRI

Both the SRI Index and the GRI guidelines at this point in time, are voluntary and only require companies to:

• disclose whether donations are made• but without prescribing:

- the extent of the detail to be disclosed; or- the basis on which the decision to donate is made

National Business Initiative

• NBI Quick Brief, 2004 ‘Funding political parties: whose business?’• Principles for funding political parties:

Transparency – the policy to fund political parties or not, and its implementation, must be open to scrutiny by shareholders, other stakeholders and the general publicDisclosure – the policy should be communicated in a transparent manner and be published in the company’s annual report, at the very leastGood governance – the oversight of policy implementation should rest with the main board of the company or a competent sub-committeeClear principles – for distribution of funds between political parties should be agreed and implemented. The policy should contain a statement that the purpose of any donation should not be to serve the direct commercial interests of the company

Recommended Framework• Fund only those parties duly registered with IEC • Parties must subscribe to certain principles – eg a commitment to

non-racism, non-sexism, promoting and protecting human dignity and human rights

• Board should consult company’s key stakeholders – owners and workforce – and establish a policy, with clear criteria, which is publicly communicated

• Establish a financial ceiling for all political donations, eg as a percentage of CSR programme expenditure. Protects companies from excessive and unwelcome pressure from parties to increase donations if limits reached, especially in election years

• Establish a ceiling for donations to any one party• Contributions for defined projects only, and avoid donations for

unspecified purposes. Ensure political donations are used to make a meaningful contribution to the political process - research, opinion-polling, training of electoral candidates, workshops and meetings of party members

• Parties required to report to donors upon project completion. Use reports as yardstick when considering future requests for funding

• All donations paid into a designated bank account in the name of the political party. No hard cash payments and no intermediaries

Detailed Guidelines (1)

• May choose to donate to one or more political parties• Contributions may include financial donations, loans and in-

kind contributions• Loan conditions should be clearly specified, particularly the

repayment terms• In-kind contributions should be calculated on their commercial

or market value, and declared accordingly• All donations above a certain annual threshold should be

declared, and cumulative contributions aggregated to establish whether threshold reached. Includes all contributions to parties, such as money spent at auctions, party events, sponsorship of conferences, purchasing of tables at fund-raising dinners, etc.

• Idasa Symposium 2005 recommended a threshold of R50 000 per annum

Detailed Guidelines (2)

• Funding by parent / holding, subsidiary and associated companies should be cross-referenced in disclosure by parent / holding company if these cumulatively exceed R50 000

• Similarly, donations to different tiers of political parties (national, provincial, regional, local and branch) should be aggregated to determine whether disclosure threshold of R50 000 has been reached

• Refuse to fund certain ‘inappropriate’ activities, such as street pole posters and billboard advertising. Helps reduce the ‘arms race’ at election time

• No retrospective donations, i.e. donations to cover costs already incurred by a party. Helps foster greater financial discipline by parties

‘A Democracy Fund’

• Directly to one party – criteria, limits?• Directly to some/all parties – criteria, proportions?• Indirectly through new ‘policy institutes’• Indirectly through a public fund, administered by the IEC• Indirectly through a private fund, administered by an

independent committee/auditors• Disbursements in accordance with clear, transparent law/policy,

proportions/formula and criteria• Parties’ reports independently audited• Advantages of fund – reduces opportunity and incentive for

‘conditionality’ = undue and unequal influence on public policy• **Transparency needs simplicity

Disclosure and communication (1)

• For a disclosure policy to be effective the information disclosed should be accurate, publicly available, understandable to potential users and timely

• Disclosure lies at the very centre of these voluntary guidelines, requiring responsibility by both donor and beneficiary

• Disclosure aims to empower the voter with the information to make an informed choice about which political party to support and vote for. Placing of power in the hands of the voter also serves as a potential sanction against unscrupulous behaviour by political parties

• Proper disclosure of donations would benefit from an assumption that the donation is sincere and without strings, unless clear evidence to the contrary can be adduced

Disclosure and Communication (2)

• Disclosure via company annual reports is inadequate to serve primary objectives of disclosure - to arm stakeholders and the electorate with the necessary and timely information, and thereby enable them to act accordingly

• Companies should therefore maintain a register of all political donations and update it quarterly

• Register should be available for inspection at the company’s registered office and should be posted on its website

• Political parties should also establish and maintain a register of all contributions and donations received

• Register should also be updated quarterly, available for inspection by the public at the party’s national and provincial offices, and posted on its website

• Such income should also be clearly accounted for in their income statements

Excerpt from the Standard Bank Annual Report for 2005

POLITICAL CONTRIBUTIONS

• In 2004, the group announced a departure from its policy of not making political donations. In recognition of South Africa’s tenth anniversary of democracy, R5 million was donated towards funding the national election. Fifty per cent was distributed to political parties according to representation in Parliament prior to South Africa’s 2004 general election. The remaining fifty per cent was distributed according to the same formula based on representation post the election.

• The group believes that active and strong civil society formations are critical in strengthening a multi-party democracy system. In light of this, the group has again reviewed its political party funding policy. An amount of R10 million has been approved to provide funding to political parties over the next five years according to representation in Parliament.

AngloGold Ashanti Political Donations Policy (1)

RATIONALE• AngloGold Ashanti believes that the principle of multiparty

democracy as contained in the founding provisions of the South African constitution deserves support. As section 1 of the Constitution asserts, multi-party democracy ensures “openness, accountability and responsiveness in government”.

• Our financial support for political parties will aim to promote political competition, public scrutiny of policy- and law-making, and the exercise of executive power. Its purpose is not to advance the company’s immediate, narrow commercial interests, though the company will continue vigorously to argue the case for good governance in the broader sense. It will also aim to encourage a policy-making environment in which there is a healthy and robust competition of ideas.

• In South Africa the company will therefore budget a sum each year – up to 10% of social responsibility spending – for distribution as donations to political parties. In the other countries where AngloGold Ashanti has operations it will seek to be a good corporate citizen in the context of the laws and practices of these countries.

AngloGold Ashanti Political Donations Policy (2)CRITERIA FOR DONATION

• Since the purpose of this policy is the promotion of multi-party democracy, in the division of available funds between parties, the company will attach greater weight to the principles of equity and diversity than to the principle of proportionality based on parties’ previous performance in elections.

• While the intention is that funding should be provided for more than one party, this does not mean the company will fund all parties. In deciding which parties to fund, the company will consider the following:1) That the Party embraces a philosophy and a track record consistent with both the principles of the South African constitution and of the social and business policy and philosophy of the company. These include the advancement of human dignity, human rights and freedoms, non-racialism and non-sexism. This shall not, however, preclude parties seeking to protect minority cultures and languages without unduly damaging the rights of majorities;2) A capacity to contribute meaningfully to democratic political debate, and to the generation of policy ideas for public consideration and choice; and3) A capacity to contribute constructively to building a culture of executive accountability and parliamentary oversight.

AngloGold Ashanti Political Donations Policy (3)

METHOD OF DISTRIBUTION• Oversight by a sub-committee comprising independent non-

executive members of the board of directors. • Sub-committee may choose to co-opt one or more outside,

independent experts to advise in the making of these decisions.

DISCLOSURE• Contents of this policy will be open to public scrutiny. • Further, the company believes that good corporate and national

governance is dependent on party political donations above a certain size being publicly declared.