Regulation of political financing can encompass a number of different elements depending on the complexity of the system. However there are four basic components that any political finance regulatory system needs to consider: (1) The supply side or the funding allocated by the State and income given by individuals and legal entities to political parties, (2) The demand side or the controls put in place to monitor expenditures of political parties, (3) transparency about where parties get their funding and how they spend it, and (4) the need for an effective oversight mechanism.
Integrity in Political Finance in Greece
OECD Public Governance Reviews
Chapter 1. Components of political finance regulatory systems
Abstract
The term political finance covers a broad area, but in this report, the term political finance encompasses both political party funding and campaign finance. Party funding includes the “costs of maintaining permanent offices; carrying out policy research; and engaging in political dialogue, voter registration and other regular functions of parties.”1 Campaign finance refers to “all monetary and in-kind contributions and expenditures collected and incurred by candidates, their political parties or their supporters for election purposes.”2
There are four key components to any political finance regulatory system – sources of funding, expenditures, transparency and how the rules are enforced.3 A number of publications provide detailed information about each of these components (see Annex B for a list). For our purposes, the following provides a summary of each one.
1.1. Controls on the supply of funding
There are two distinct sources of financing: funding allocated by the State (direct and indirect public funding) and income given by individuals and legal entities (private funding).
In many countries, public funds are provided to political parties and/or candidates. The support may consist of monetary subsidies (e.g. direct public funding) or of indirect support, such as access to services/state property without charge or at a reduced rate.4 The level of public funding varies from country to country, but eligibility criteria are critical factors wherever public funding features. If the eligibility criteria are set very restrictive, they can make the establishment of new parties difficult. Conversely, inappropriately low eligibility criteria can serve as a lifeline to otherwise moribund parties. They also can encourage the creation of spurious parties whose founders are more attracted by the idea of securing public funds than by the idea of putting forth serious platforms. Criteria commonly used to determine state support include the number of votes obtained in the previous election, the level of representation in the elected body or the number of candidates put forward/number of constituencies contested.5
The question of whether to provide public funding before or after the election also needs to be addressed. The OSCE/ODHIR and the Venice Commission Guidelines on Political Party Regulation state:
… careful consideration should be given to pre-election funding systems as opposed to post-election reimbursement which can often perpetuate the inability of small, new or poor parties to compete effectively. (OSCE/ODHIR and Venice Commission Guidelines on Political Party Regulation at paragraph: 184)6
Private funding has been hailed as a means for parties and candidates to connect with the citizenry and to seek support in the form of monetary and in-kind donations.7 As such, private funding can be viewed as a vehicle for citizen participation. The general forms of private funding are membership fees, contributions, loans and income-generating activities. In some countries, there may be restrictions on the sources of private funding. For example, in France, corporations are prohibited from donating, and in many countries, both foreign and anonymous donations are banned. In addition to outright bans, there may be limits imposed on the amount of allowable private donations. In some countries, the amount of funding any one donor may contribute may be limited. In others, the aggregate amount of donations a candidate or party can raise from private sources may be capped.
1.2. Controls on expenditure
If funding sources comprise the “supply side” of political finance, then controls on expenditure inform the “demand side”. These controls usually take the form of limits on campaign spending by parties, candidates and third parties (e.g. non-party campaigners) in the run-up to elections. Countries that impose spending limits have used different approaches to calculate the expenditure limit. Some set a specific absolute figure that does not vary, some calculate the limit based on the average monthly salary or minimum wage, and still others calculate the spending limit in conjunction with the number of voters or inhabitants in the electoral area.
Whatever approach is taken, the limit set must be reasonable. If it is set too high, it will have “no bite” and essentially be meaningless. If the limit is set too low, it may not allow for adequate electoral campaigning and could also tempt some contestants to circumvent the limit.
The law must clearly define the concept of electoral expense. This means that the types of activity covered must be clear and the length of the campaign (regulated) period specified in order to ensure the spending limit is effective. It is also important for there to be clarity about whose expenditures are subject to the limit ‑ ideally limits should apply to all who are making election-related expenditure (e.g. political parties, candidates and non-party campaigners) although the limits need not all be set at the same level.
In addition to expenditure limits, some countries also include bans on certain types of spending. The most common are bans on the misuse of state resources, prohibitions on media advertising and vote-buying activities.
In most countries, there is a prohibition on the misuse of state resources for party political and partisan electoral purposes. In some states, the ban may be part of the electoral code or election finance legislation; elsewhere it may be part of anti-corruption, administrative and/or civil service legislation. The underpinning concept is that there should be “a clear separation between the state and political parties”.8 When the requisite separation does not exist, and the power of incumbency is abused, we lose the fundamental lynchpin to democratic governance, namely, equal treatment and equal opportunity to compete in the electoral process.
1.3. Transparency rules
Transparency is a central consideration of any political finance regime: information about where parties and candidates get their money and how they spend it shines light into potentially murky waters that can breed suspicion and obscure corruptive transactions. Reporting and disclosure requirements vary from country to country9 as do the approaches taken in implementing such requirements. The key elements, subject to country context, can be depicted as follows:
Figure 1.1. Elements of transparency in political finance
Transparency requires that reports are timely, detailed, comprehensive and comprehensible. There needs to be adequate information presented in a way that allows for meaningful oversight and compliance checking. At the same time, the needs of those having to comply with the reporting requirements must be considered. For example, the established deadlines should provide sufficient time to allow the reporting entity to assemble and confirm the information that must be submitted. Consideration must also be given to how much of the information reported to the oversight body will be made publicly available, when and in what format. Digital solutions may be used to help facilitate the entry, transmission and interrogation of the information that is to be reported.
The socio-legal-political context of each country influences all aspects of political finance regulation, but it is particularly evident in the area of reporting and publication of financial data. There may be constitutional constraints on what is to be reported to the oversight body or special regulations for electoral campaigns. For example, in France, Article 4 of the Constitution is interpreted to prohibit mandatory reporting of general party finance information to the oversight body. There may be other legislative enactments that come into play, such as data protection of personal information, which may prohibit publication of certain donor information. In other countries, electronic signatures may not yet be legally recognised (or may need specific authorisation), which then impacts on using the electronic database for the filing of required information. In the United Kingdom, the law foresees the publication of donations to political parties over a certain threshold. However, donations to political parties of Northern Ireland are exempt from disclosure because of safety concerns for donors arising from years of conflict in the country.
1.4. Oversight and enforcement
The final component of any political finance regime is the need for an effective oversight mechanism. This means that there has to be an entity/entities that are tasked with overseeing compliance with the law and that there are sanctions that apply in the case of non-compliance.
There are different models of oversight bodies in use around the world. Some countries assign the oversight function to the election management body, some vest this role in a governmental ministry. Other options include allocating the oversight remit to a court, a state audit agency or a specialised body. As discussed more fully below, the oversight body must be impartial, independent, and have adequate resources. Regardless of which entity shoulders the oversight responsibility, the oversight body needs to have the right powers, policies, people and procedures to do its job. And, importantly, it must have the political will to fulfil its remit.
Sanctions may range from administrative penalties, forfeiture, mandatory corrective action, loss of public funding, de-registration and/or criminal punishment. The purpose of sanctions should be to redress wrongdoing, punish the offender so that they do not benefit from their malfeasance and to deter future non-compliance. There is an international consensus that sanctions should be “effective, proportionate and dissuasive”. 10 Of course, it is not enough that legislation provides for such sanctions unless they are used and used in an objective and non-partisan manner. It thus is important to ensure there is “an effective means of redress against administrative decisions”, such as the imposition of sanctions.11
Notes
← 1. See Ohman, Magnus (ed.) (2013), “Training in Detection and Enforcement (TIDE) Political Finance Oversight Handbook”, IFES, p. 8.
← 2. Unpublished paper authored by Barbara Jouan Stonestreet.
← 3. In addition to these key four components, political finance regulation often also addresses rules governing financial conditions for standing for public office (e.g. financial deposits and asset declaration by candidates) and laws prohibiting vote buying.
← 4. Approximately 60% of countries provide for some element of public funding. See IFES (2011), “Global Trends in the Regulation of Political Finance”, IFES Brazil 2011 Conference Paper, p. 3.
← 5. OECD (2016), Financing Democracy: Funding of Political Parties and Election Campaigns and the Risk of Policy Capture, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264249455-en, pp. 37-45.
← 6. OSCE/ODHIR and Venice Commission Guidelines on Political Party Regulation at paragraph: 184
← 7. An in-kind donation is any form of goods or services provided for free or at below-market value.
← 8. See the Copenhagen Document at paragraph 5.
← 9. Regular reporting obligations on political party finances exist in 89% of European countries and in 86% of Asian countries. In 90% of European countries and 71% of Asian countries, the information reported is to be made public. See IDEA (International Institute for Democracy and Electoral Assistance) (2012), “Political Finance Regulations Around the World: An Overview of the International IDEA Database”, and the IDEA Political Finance Database, www.idea.int/data-tools/data/political-finance-database (accessed on 16 August 2017).
← 10. See the Council of Europe Committee of Ministers Recommendation (2003)4, Article 16.
← 11. See the Copenhagen Agreement (1990) at 5.10.