INTERNATIONAL PERSPECTIVES ON POLITICAL FINANCE

Dr Marcin WaleckiPasay City, Philippines

January 22, 2007

"Party finance is among the most important and yet, for obvious reasons,

least transparent chapters of party history"

Max Weber

”What needs to be said, and which in any case everyone knows, is that the greater part of political funding

is irregular or illegal”

Bettino Craxi, Former Italian Prime Minister

Why do we need to control political finance?

• Challenges of systemic vote buying, electoral fraud and corruption, which are exacerbated by extreme poverty

• Criminal and interests can use illegal funding channels to disrupt the electoral process or attempt “state capture” through it

• Foreign funding, the undesirable role of large donors and motives behind donations

• Financial barriers for average citizens against standing for political office

• Abuse of state resources - unauthorised channelling of public funding into controlled companies, organisations or individuals for political purposes

© IFES 2003

Regulating political finance

• Legal frameworks in many democracies for a long time did not recognise the problem of corrupt funding and it is misleading to assume that there is one ideal model to control political finance

• System that prohibits corrupt electoral practices should be designed differently from that promoting political equality

• The regulations can involve disclosure, limitations on the expenditure, restrictions on some sources of funding, either by banning them or by setting contribution limits, and introducing state funding

• Transparency and openness through political finance disclosure should be the starting point for any serious regulations

• Progress cannot be promoted by just introducing new regulations. Effective enforcement seems to be crucial

Global View

Historical Perspective• In the period between 1846 and 1886 the British Liberals and

the Conservatives used an annual grant £10,000 (Secret Service fund) to finance national party organizations,

• Illegally financing of the 1928 Elections in Poland with unauthorized state resources. The money came from a fund at the disposal of the Presidium of the Council of Ministers which, just before the elections, was raised by 4000% (from 200,000 PLN to 8 million PLN),

• The 1936 US Elections were dominated by gross political abuses of federal funds and eventually the passage of the Hatch Acts of 1939 and 1940,

• Similar practices (abuse of state resources, secret funding from state companies), although more sophisticated, are still present in many democracies.

Example: Abuse of State Agencies and Enterprises

STATE AGENCIES / STATE-OWNED ENTRPRISES

PUBLIC CONTRACTS IN EXCESS OF REGULAR PRICE / PRIVATISATION

POLITICALY CONTROLLED COMPANIESOR COMPANIES CONTROLLED BY

CERTAIN INDIVIDUALS (OLIGARCHS)POLITICAL

GROUP/PARTY/FRACTION OR LEADER

POLITICAL APPOINTMENTS/SUPPORT/PRESSURE

DONATIONS IN-KIND/MONEY/BRIBES TO INDIVIDUAL POLITICIANS

OLIGARCHS (AIDS)

PART II

The Efficiency of Regulations on Political Finance

“While disclosure is an important element of a fair democratic process, its significance is

reduced in the absence of effective audit and enforcement mechanisms.”

Independent Political Finance Regulator

Party’s Internal Control

Civil Society/Media Oversight/Voters

How to Control Political Finance?

Essential Elements of Effective Control (wish list)

1. Non-partisan enforcement agency/ courageous agency, willing to be unpopular, supported by good appointments and adequate budget

2. Good laws, including, MEANINGFUL enforcement powers3. Aggressive enforcement policy including REAL time

disclosure and audits and enforcement action DURING the election

4. Full post-election disclosure of ALL financial information,5. Conduct AUDITS, including random audits, including audits

during the election6. Receives external complaints, investigative powers, go to

court, assess penalties

Essential Elements of Effective Control

7. Comprehensive Program: public funding gets compliance with disclosure rules Public Control First – Public Funding Second

1. Operational Integrity: the controls should be enforced vigorously, without bias or favoritism

1. Website, searchable database, training and software for parties,

1. Means of changing behavior– Education– Monitoring– Fair penalties as deterrent

Is strong control an optimal formula?

• Simple answer is – NO

• Political domination by a single party contributes to a lack of transparency and accountability

• Selective enforcement and targeted anti-corruption campaigns

• Abuse of state resources and extortion though blackmail, raiding taxes and customs inspections against entrepreneurs

• Political repression may seriously constrain resources available to an opposition

Dangers of Biased Enforcement

• Enforcement Agencies are reluctant to enforce political finance laws for two reasons:– Members (political loyalists) are beholden to the

government– Agency may be reluctant to challenge the government

or the legislature due to the fear that the budget will be cut in retaliation

• Opposition parties may find themselves the subject of serious pressures from enforcement agencies for minor or non-existent breaches of laws

• Enforcement of disclosure rules also may have the consequence of making it difficult for any opposition party to attract the support of potential contributors

Striking the Right Balance

• Job of Parties and Candidates is to win (only secondarily to comply with the law)

• Job of Agency is to enforce the law (doesn’t care who wins)

• Free expression and association vs. preventing corruption

• Public’s right to know vs. politicians’ and contributors’ privacy rights

• Transparency vs. personal safety

Conclusions

• Citizens who supposed to be beneficiaries of transparency in party funding see the relatively high costs of politics and witness new financial scandals,

• Progress cannot be promoted by just introducing new restrictions. Effective enforcement seems to be crucial,

• Any political finance reform should focus on public control before introducing serious public funding,

• It has taken established democracies decades to build the capacity to detect political finance irregularities, train enforcement agencies and introduce preventive measures.

Political Finance Resources

• IFES Web-based repository of best practices for enforcement and monitoring of political finance

http://www.moneyandpolitics.net

• The ACE Project – www.aceproject.org

THANK YOU VERY MUCH !

And please make a small donation

to your favourite political party or candidate …