International Standards and Best International Standards and Best Practice in Political Finance Practice in Political Finance

Dr Marcin WaleckiDr Marcin WaleckiECP WorkshopECP Workshop

IslamabadIslamabadNovember 2010November 2010

”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

Key Key UnderstandingsUnderstandings

The financing of political life is a necessity – and a problemDEMOCRACY NEEDS TO CONTROL MONEY OR MONEY WILL CONTROL DEMOCRACY

•In the long run improper and illegal funds contribute to de-legitimize parties in particular and undermine democratic system in general

•A strong democracy requires healthy political life. Political parties need healthy funding to fulfil their core functions, both during and between election periods. Funding of political parties through private contributions is a form of political participation

•The regulation of political finance is essential to guarantee politicians independence from undue influence and to ensure the principle of equal opportunity

Why to regulate Money Why to regulate Money Politics?Politics?

STATE AGENCIES / STATE-OWNED ENTRPRISES

PUBLIC CONTRACTS IN EXCESS OF REGULAR PRICE /

PRIVATISATION

POLITICALY CONTROLLED COMPANIES

OR NARROW BUSINESSGROUPS

POLITICAL PARTIES

ELECTIONS

DONATIONS IN-KIND/MONEY/BRIBES TO INDIVIDUAL POLITICIANS

OLIGARCHS (AIDS)

Effective Regulatory FrameworkEffective Regulatory Framework& Sequence of Reforms& Sequence of Reforms

1. Full Disclosure (systematic and detailed reporting, public access to records and publicity)

2. Strong and independent enforcement supported by effective and proportional sanctions

3. Controlling donations (ban on anonymous donations and contribution limits, regulating loans, assets disclosure)

4. Transparent, meaningful, and fair Public Funding System

5. Controlling costs of elections (Spending Limits)

Regulations - Global ViewRegulations - Global View

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Political Finance Political Finance DisclosureDisclosure

•Disclosure is based on comprehensive and regular exposure of the financial details (parties, candidates, MPs)

•Who gives, how much, to whom, and for what, and when?

•Timing of disclosure and access to information (newspapers, web sites)

•Promoted by the UN Convention Against Corruption Art. 7 (3):

Each State Party shall also consider taking appropriate legislative and administrative measures to enhance transparency in the funding of candidates for elected public office and, where applicable the funding of political parties.

ChallengeChallenge

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

reduced in the absence of effective audit and reduced in the absence of effective audit and enforcement mechanismsenforcement mechanisms

Independent Political Finance Regulator

Party’s Internal Control

Civil Society/Media Voters

Effective Control of Political FinanceEffective Control of Political Finance

Independent Enforcement Independent Enforcement

National Electoral

Management Body

Regulatory Body Specially Created for this

Purpose

Government Department

Other

45 countries (63%)

9 countries(13%)

20 countries(28%)

19 countries(27%)

What body is responsible for administration and enforcement of the regulations?

Total = 71 countries

Effective ControlEffective Control

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

2. Aggressive enforcement policy (REAL time disclosure , audits and enforcement action),

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

election5. Receives external complaints, investigative powers, go to

court, assess penalties6. Independence and Operational Integrity: professionalism,

efficiency, good services to candidate and public. 7. Website, searchable database, training for parties and

candidates,

Means of changing behavior: (A) Education, (B) Monitoring (C) Fair penalties as deterrent

Is strong control an optimal formula?Is strong control an optimal formula?

• Simple answer is – NO

• Political domination by a single party

• Selective enforcement and targeted anti-corruption campaigns

• Political harassment, raiding taxes and customs inspections against entrepreneurs

• Political repression may seriously constrain resources available to an opposition

Public FundingPublic Funding

•At least 104 different countries classified by Freedom House as “free” or “partly free,” have some form of public funding. Public funding is predominant in the Europe and Latin America. In Africa public funding is not available to political parties in a majority (56 %) of states•Strengthen the autonomy of politicians, provide more fairness to opposition parties (limiting advantage of incumbency)•Provide political actors with resources for essential democratic activities, increasing the institutionalization and stability of parties; and •Be a powerful lever to secure compliance with other political finance regulationsBUT … it is not a magical solution to the problem of political corruption and illegal funding of politics

Forms of Forms of PublicPublic Funding Funding

• Direct State Funding, i.e. cash grants disbursed to parties and/or candidates

• Indirect State Funding, i.e. any law-enacted subvention delivered in kind to political actors, such as access to state-owned broadcasters, public buildings or publicly printed material; tax incentives for private political contributors, parties or candidates,

• Specific political subsidies, for example cash grants earmarked for

party-related or party-controlled organizations such as parliamentary caucuses, ancillary groups (women’s and youth, mainly), newspapers, and research institutes

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Public FundingPublic Funding – International – International StandardsStandards

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Organization Recommendation

World Bank Consider public funding. Public funding reduces the scope for private interests to “buy influence” and can also help reinforce limits on spending because the electorate is resistant to excessive public expenditure

The Carter Center/OAS

Mixed funding systems with a substantial public component are recommended. Public funds should be provided as a substitute for or a complement to private donations at all phases of the political and electoral process. Public funding for ongoing party activities and campaigns should be allocated by a mix of proportional rules and flat subsidies to all parties that meet reasonable thresholds.

Council of Europe

The state should provide support to political parties. State support should be limited to reasonable contributions. State support may be financial. Objective, fair and reasonable criteria should be applied regarding the distribution of state support. States should ensure that any support from the state and/or citizens does not interfere with the independence of political parties

Spending Limits – Best PracticeSpending Limits – Best Practice

• Free choice of voters can be undermined and the democratic process distorted by the disproportionate expenditure

• Conflict between two fundamental principles of modern democracy – political equality and political liberty

• • Spending Limits once introduced should be realistic to ensure that all parties are able to

run an effective campaign, recognizing the high expense of modern electoral campaigns

• Imposing low and strict spending limits might marginalize opposition

• Limits should be designed against inflation. Limits should be based on a form of indexation rather than absolute amounts

Spending LimitsSpending Limits – International – International StandardsStandards

UN General Comment No. 25

Reasonable limitations on campaign expenditure may be justified where this is necessary to ensure that the free choice of voters is not undermined or the democratic process distorted by the disproportionate expenditure on behalf of any candidate or party

INTER-AMERICAN DEMOCRATIC CHARTER Article 5

The strengthening of political parties and other political organizations is a priority for democracy. Special attention will be paid to the problems associated with the high cost of election campaigns and the establishment of a balanced and transparent system for their financing

SADC PARLIAMENTARY FORUM NORMS AND STANDARDS FOR ELECTIONS IN THE SADC REGION

The funding of election campaigns is an area where the misuse of public funds is common and the playing field is not even. Experience in most countries is that the ruling party is well resourced (financially and assets wise) while opposition parties are poorly funded. Ceilings on political expenditure are either not there or ignored by all. The rich engaged in lavish expenditure to win votes. The Electoral Commission should therefore be legally empowered to prohibit certain types of expenditures

COUNCIL OF EUROPERec (2003)4

States should consider adopting measures to prevent excessive funding needs of political parties, such as, establishing limits on expenditure on electoral campaigns

Key Key FindingsFindings

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• Money is never an unproblematic part of political system but is necessary for democratic politics

• Regulation is desirable and it must not curb healthy competition

• Right sequencing is the key Public Control First –Public Funding Second

• Too many rules, too little enforcement – focus on disclosure and effective control

• Effective oversight depends on cooperation and interactions of several stakeholders

THANK YOU VERY MUCH!THANK YOU VERY MUCH!