monitoring of political party financing_eng

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MONITORING Report on Monitoring of Political Party Financing

If you wish to publish this report selectively or entirely you should contact and obtain permissionfrom the Voters Education Center and if you quote it you must refer to the name of the institutionand title of the report.

Prepared by: S. Oyuntuya

Edited by: R. Burmaa

Please contact us at the following address for comments.

Voters Education CenterRooms 205 and 208, Democratic Union Building, Erkhuu StreetKhoroo/Sub-District 7, Sukhbaatar District

TABLE OF CONTENTS

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AcknowledgementsAcronymsExecutive Summary1. Project Profile1.1.

Goal and Objectives of the Project1.2. Duration and Scope of the Project1.3. Project Organization1.4. Challenges Faced in Implementing the Monitoring Project2. Monitoring Methodology2.1. Monitoring Issue/What Was Monitored?2.2. Sources of Information and Methods of Collecting Information3. Outline of the Political, Economic, and Social Situation4. Legal Framework4.1. Legal Regulation of Political Party Financing4.2. Liability for Violators of Political Party Laws and Regulations4.3.

Corresponding Legal Provisions Abided by in the Monitoring5. Results of the Monitoring5.1. Results of the Monitoring5.2.Enforcement of the Law6. Conclusion and Recommendations of the Monitoring6.1.Conclusion6.2.Recommendations7. Appendix8. Bibliography

ACKNOWLEDGEMENTS

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We emphasize the contributions made by the Open Society Forum to providing financial andmethodological support in implementing this monitoring project aimed to ensure transparency inpolitical party financing and minimize the role of money in politics by promoting openness thus,preventing corruption.

On behalf of the Voters Education Center we express our sincere thanks and appreciation to themembers of the team, who organized this monitoring survey, all political parties, their leadership,and members, and other organizations and individuals participated in the survey, and all peoplewho collaborated assisting in preparation and development of this report.

We hope that this monitoring report developed, based on objective information and facts about thecurrent situation of political party financing in Mongolia, and status of legal regulation andimplementation, will make an important contribution to augmenting transparency and openness.

ACRONYMS

SGH State Great HuralSSC State Supreme CourtGEC General Election CommitteeOSF Open Society ForumVEC Voters Education Center SPWM Social Progress and Women MovementNGO Non-Governmental OrganizationMPRP Mongolian Peoples Revolutionary PartyDP Democratic PartyRP Republican PartyMP Motherland PartyCWP Civil Will PartyGDP Gross Domestic ProductNAA National Audit Authority

EXECUTIVE SUMMARY

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Corresponding provisions of the Law on Political Parties related to financing were monitored bythe Voters Education Center with financial support of the Open Society Forum. The monitoringcovered political parties that have representation in the Parliament and function actively such asthe Mongolian Peoples Revolutionary Party, Democratic Party, Civil Will Party, MotherlandParty, and Republican Party.

One of the primary principles of government affairs is the rule of law enshrined in the Constitutionand as per Article 16.10 of the Constitution parties and all other mass organizations shallrespect and abide by laws. However, political parties obliged to abide by laws and function withinthe bounds of laws have violated the Law on Political Parties and Constitution of Mongoliaignoring enforcement and strict adherence to the laws.

We conclude that as political party financing is neither open and transparent nor subject toinspection, malpractice such as political parties falling into contributors clutches, makingcontributions to parties with a view to purchasing positions of power or under coercion but notvoluntarily or having conviction, and misuse of government sources for election campaigns,

emerges and becomes one of the major causes for increased corruption.

As reported by the Ministry of Finance Tg 2,024,600.000 (two billion twenty four million sixhundred thousand) have been allocated by the national budget for political parties since 2000.Basically, this financial support is financing provided by citizens from their pockets for politicalparties through taxation. However, at date political parties havent reported disbursement ofnational budget-funded monetary assets valued at billions of Mongolian togrogs at all. Despitemany provisions in the Law on Political Parties that promote transparency under which financialactivities must be audited and reported publicly, legal enforcement is absolutely inadequate. This isbecause an appropriate mechanism to inspect enforcement of the Law on Political Parties isinadequate and legal liability system is weak.

A partys inspection organization must inspect its financial activities according to the Law onPolitical Parties and this makes parties financing inspection just a formality and provides anextensive opportunity for parties to act arbitrarily and take advantage of vagueness in the law.Common breaches of the Law on Political Parties are as follows.

The Ministry of Finance directly provides national budget-funded financial support topolitical parties without the general budget administrators inspection. No disbursementreports have been submitted to the Ministry of Finance yet;

As disbursement of budget-funded finding for SGH members electoral districts wasntregulated yet, parties had to disburse Tg 356.2 million for electoral districts under the lawin 2006 and however, about 54 percent of the funding was disbursed as designated and restof it was disbursed for financing political party activities;

No political parties have reported contributions publicly ignoring the law provisions toreport such contributions publicly and it is handled in a circle of a few people in politicalparty leadership;

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Though a party must have its financial activities audited and report its results publicly onan annual basis, most parties have neither arranged audit nor reported results publicly.Conversely, the DP had its financial activities audited and posted its results in its websiteand the CWP had audit but didnt report its results publicly.

We believe that it is essential to make a major legal reform in political party financing based on theinformation collected, facts founds, and conclusion drawn in the framework of the monitoring, andbest international monitoring practices and make the following recommendations.1

1. To establish a permanent institute that will inspect the enforcement of the Law on PoliticalParties;

2. To improve the liability system in the Law on Political Parties;

3. To ensure better transparency and openness of information aimed to make public

inspection and participation in enforcing the Law on Political Parties realistic.

1. PROJECT PROFILE

1.1.Goal and Objectives of the Project

Major goal of the Project on Monitoring of Political Party Financing:

To ensure transparency in political party financing and minimize the role of money inpolitics by promoting transparency thus, making a contribution to preventing corruption;

To monitor the enforcement of the provisions related to financing, assess transparency of

political party financing, and make recommendations on further enforcement andimprovement.

Objectives of the Project

To collect facts and information as to determine the current situation of political partyfinancing;

To examine the Law on Political Parties and other corresponding laws and provisions andassess the law enforcement;

To evaluate the decree of inspection and participation in political party financing;

To make recommendations on issues for further consideration and actions based on

findings and results of the monitoring; To expose and distribute results, comments, and recommendations of the monitoring to

policymakers, public, and civil society organizations.

1.2.Duration and Scope of the Project

1 Please see the details in section Conclusion and Recommendations of the report

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We note that almost half of the monitoring facts and information was based on secondary sourcesin preparing this monitoring report.

2. MONITORING METHODOLOGY

The VEC, organization conducting the monitoring, implemented projects Monitoring of ElectionCampaign Financing in 2004 and Monitoring of Interest and Fine Income Generation of forBudget in 2005-2006 with OSF support. Methodology for monitoring political party financingwas developed based on the monitoring methodology, universal methodology for monitoringpolicy and law enforcement and with assistance of the financing institution and training held bythem and participation of all members of the team.

2.1. Monitoring Issue/What Was Monitored?

In the framework of the monitoring, the enforcement of the provisions of the Law on PoliticalParties related to financing passed on January 28, 2005, was monitored. The following provisions

of the law concern the issue of financing.

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Article 16. Party Assets and Incomes

Article 17. Party Income Disbursement

Article 18. Membership Fee and Contribution for the Party

Article 19. Financial Support from the State

Article 20. Partys Financial Inspection

The following issues were considered in light of these provisions of the law.

Status of party assets and incomes and types, restrictions, and performance;

Status of party income generation and disbursement and restrictions; Enforcement of the provisions on openness and transparency of information on

contributions;

Enforcement of the provisions on contribution limits, maximum amount, and restrictions;

Enforcement of the provisions on financial statement audit and certification and publicreporting;

Forms of public reporting of information on financial statements and contributions;

Government-funded financial support and its amount and designation;

Enforcement of the provisions on a partys financial inspection and restrictions.

Five parties that have parliamentary representation and function actively were selected to take intoaccount of the enforcement of the provisions of the Law on Political Parties related to financing.They include the MPRP, DP, CWP, MP, and RP.

2.2.Sources of Information and Methods of Collecting Information

2 Please see the details in Appendix 1 of the report

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Sources of information include laws, legal acts, official statements, data, similar survey reports,interviews, minutes of discussions, cases, facts, and evidence in writing that have something to dowith the monitoring. Methods of collecting, evaluation, and documentation were used in themonitoring.

1) Methods of Collecting Information

Interview This method was used for collecting primary information for the monitoring. Wecarried out interviews with about 30 key information providers such as political party members,supporters, political party leaders, local party representatives, contributors, citizens, officials fromcorresponding government institutions, and analysts. Some interviews were conducted individuallyand some were held as a group.

Focus Group Interview 3 focus group interviews were carried out covering 25 people. The firstinterview was conducted with financial officers of political parties, second one with civil society

researchers, and third one with political party members and contributors. This method wasinstrumental in determining the current situation and trends and enforcement of laws andregulations on political party financing.

Case Study Many cases were found in the course of the monitoring. Facts for cases werecollected during interviews and analysis of the mass media and court decisions and used for doingsituational and legal analysis, coming up with monitoring results, drawing a conclusion, andmaking recommendations. A total of 50 cases associated with the monitoring were assessed.

Use of Internet Sources The political parties covered by the monitoring had their websites andthe project team exposed itself to the website in each case in the course of the survey.

Questionnaire Method This method was used for carrying out a survey of 600 respondents andvoting-age citizens were equally involved in terms of gender and education. This method wasselected and used for surveying public opinion concerning political party financing and evaluatingthe current situation and trends.

Observation Method This method was used by the project team for determining the currentsituation of political party financing and synthesizing the position of political parties andcorresponding government institutions on this issue and enforcement of the law by political partiesin the course of the monitoring project.

Content Analysis Method This method was used for analyzing charters and regulations andother 16 documents of political parties covered by the monitoring and 8 documents and articles andnews pertaining to political party financing published in the press such as political party-relatedwork reports, registration, and minutes of corresponding government institutions.

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Use of Statistics This method was used for evaluating the volume of government-fundedfinancing for political parties and comparing it by years. This statistics was acquired as a result ofofficial requests made to government institutions.

2) Documentation Methods

Evidence for the monitoring was documented in acceptable forms and database was set up.Documents and facts that had no sources werent used for coming up with results, drawing aconclusion, and making recommendations and each issue referred to in this report was based ondocumented evidence.

Making copies Copies of written documents for the monitoring were made.

Taking minutes of interviews This method was extensively used and some minutes ofinterviews were recorded with tape recorders.

3.Outline of the Political, Economic, and Social Situation

Mongolia is bordered with the Russian Federation and China and located in the center of CentralAsian landscape. As of 2006 it had a population of 2.6 million. It has a territory of 1.5 million sq.km and severe continental climate. In terms of administration it is split into 21 aimags/provincesand capital. 60.9 percent of the population inhabits urban areas and 40 percent rural areas andcapital of Ulaanbaatar covers 0.3 percent of the land but about 1 million people live there.

The SGH elected by the 2004 elections is currently in place. Given 2006 performance, GDP percapita in Mongolia reached over US$1,000 and it was included in low-income countries. A humandevelopment index for Mongolia is 0.6913 in 2006 and it has a rank of 116 or falls into a categoryof medium human development compared with other countries in the world. 32.2 percent of thepopulation is poor. It obtained 3.164 out of 7 scores in total in Competitiveness Index Assessmentand had a rank of 96 among the countries listed in 2005-2006. All-embracing political, economic,and social reforms were launched in the 1990s. As a result of a new democratic Constitutionpassed in 1992 a legal government system with distribution of government power and guarantee ofhuman rights was adopted.

Political Situation

Since 1992 there have been 4 presidential and local elections. SGH elections were held in 1992,1996, 200, and 2004 respectively and the MPRP gained 71 out of 76 seats in the 1992 electionsand Democratic Coalition gained 50 seats and MPRP 25 seats in 1996. Whereas the MPRPgained 72 seats no single political party or coalition had an opportunity to come to power for thefirst time or the MPRP gained 38 seats, Motherland-Democracy Coalition5 35 seats, andindependents remaining 3 seats in 2004.

3 Human Development Report, UN, 20064 Global Competitiveness Report, USAID, 2005-20065 This coalition broke up following the elections.

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In terms of election system our country has a majority system. In 1992 the country was split into26 electoral districts and SGH members were elected from 2-4-mandate electoral districts but theelection was held with distribution of seats based on votes of one-mandate majority or absolutemajority in 76 electoral districts in 1996, 2000, and 2004. Criticism is that the Parliament is elected

with a low percentage of voters under this election system. However, a new SGH election law waspassed and re-application of extended multiple-mandate electoral districts or 1992 system wasallowed.

Government sources are extensively used for election campaigns. For instance, given results of the2004 SGH election campaign monitoring it was found that the organizations of the ruling partiesextensively used for government assets and transportation, in particular, gasoline and media foradvertisement of candidates during the election campaigns and many civil servants were mobilizedfor such campaigns.6 The total budget sources misused for the elections were estimated atapproximately Tg 1.393 billion.7

At present, 16 political function in Mongolia.

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24 out of over 40 parties registered with the SSCwere removed from the registration due to merger, amalgamation, and dissolution. At present,there are 5 parties that hold seats9 and representation in the Parliament. Legal status of politicalparties is regulated by the Law on Political Parties passed in 2004. Though political partiesfunction on a self-financing basis they also received budget-funded funding.

Corruption increasingly grows in Mongolia. Corruption Transparency International Corruptioncontinues to rise in Mongolia. Whereas our country had a rank of 35 with 3.5 indexes in 1998 interms of corruption sensitivity indexes it had a rank of 99 with 3.0 among 145 countries in 2006and fell into category almost inadequate. A corruption control score (scale +2.5- -2.5) declinedfrom 0.11 to 0.5 in 2002-2004 as stated in the World Bank Assessment.

In recent years political party and election campaign financing-related corruption has beendiscussed much. This was extensively referred to in documents of both foreign and domesticresearchers and institutions. For instance,

The report on corruption assessment in Mongolia conducted in June and July 2005 by USAID incooperation with the Asia Foundation stated They are then replaced , including those whoworked or contributed to the campaigns, regardless of whether or not they possess the capabilitiesor skills required by the jobs to which they are assigned. The illegal turnover results in anunprofessional bureaucracy whose loyalty responds not to the needs of the institution or thecitizens but to the political and economic interests that provided the job.10

6 Report on SGH Election Campaign Financing Assessment, R. Burmaa, p. 57 Report on SGH Election Campaign Financing Monitoring, 20048 According to the SSC9 Where a candidate nominated by a party or coalition for a regular SGH election or by-election is elected as a SGHmember political party that holds a seat/seats includes10 Casals and Associates, Inc conducted a corruption assessment with funding from the US Agency for International

Development (USAID) Mission to Mongolia in collaboration with USAID Washington and Asia Foundation (TAF)

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An assessment mad by the Follow-Up to International Conference of New or RestoredDemocracies 5 Project concluded: A tendency among politicians receiving contributionsand among business circles feeling obliged to make contributions to any candidate or partyhas become an institutionalized mentality. Today, the political party holding state power

has made a common practice of appointing its contributors and their representatives to highand medium positions of power in the executive branch.

A monitoring on Enforcement of the National Anti-Corruption Program conducted by theZorig Foundation concluded that corruption predominates in political and business circlesin Mongolia.

However, in recent years there have been many effective anti-corruption changes. Our countrysigned and acceded to the UN Anti-Corruption Convention on 29 April 2005. In addition, the SGHpassed the National Anti-Corruption Program and composition of the National Council11 andrevised the Anti-Corruption Law in August 2008 and set up an anti-corruption agency.

Economic Situation

In recent years economic growth has increased relatively fast and average growth in GDP has been7.3 percent in the past 5 years. GDP was Tg 3,725.0 billion in 2006, made up Tg 3,017.3 billion atthe parallel value of 2005, and increased by 8.6 percent compared with that of 2005. Agricultureproduced 1.6 percent of economic growth, industry 2 percent, and service sector 5 percent.GDP per capita reached Tg 1,440.0 thousand and increased by Tg. 348.7 thousand compared thatof 2005.

The key sector of Mongolias economy is animal husbandry and factories raw material of animalorigin processing industry and services predominate. Mining, electrical sector, energy sector, and

food and sewing industries predominate in the industrial sector. GDP growth varies from sector tosector and however, mining has grown in the past 3 years. In recent years the physical sizes andprices of gold and copper have risen and mining of new type minerals has been launched and thisled to a 31-percent growth in the weight of mining in GDP. The weight of processing industriesdeclined slightly in 2003-2005 but it was restored and constituted 6 percent of the total. Theagricultural sector has increased in the past 3 years and made up 19 percent of GDP in 2006.12

The inflation rate relatively stabilized and was 6 percent in late 2006 but the average annualinflation rate was 4.6 percent. This was lower by 4.3 points compared with that of 2005.

In terms of the budget it has been positive in the past 2 years. Corporate entity and organization

income tax and VAT constituted most income of Mongolias budget. The national budget revenueequaled 36.6 percent of GDP in 2006 and increased by 6.5 points and national budget expenditure by 5.8 percent compared with those of 2005. The sector of culture and science represented 23.4

in June and July 2005.11 2002 SGH Resolution No. 4112 According to the National Statistics Office

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percent of the national budget expenditure, social welfare and labor sector 27.9 percent, healthsector 12.3 percent, and social sector 12.3 percent or 63.6 percent of the social sector.

Social Situation

Despite a growth in the population the pace of an annual population growth slows down. 48.8percent of the population makes up men and 51.2 percent women. As of 2006 1,009.0 thousandpeople engaged in labor in Mongolia. 124.6 thousand of them were employed for government andbudgetary institutions and 2.6 percent of them constituted political staff, 9.5 percent staff ofpublic administration, 22.7 percent special staff of civil service, and 85.8 percent support staffof civil service. An average salary of staff reached Tg 127.7 thousand and grew by 26.2 percentcompared with the previous year.

552.8 thousand people were covered by insurance policies in 2006 and 69.4 percent of them werefrom business entities and organizations and 30.6 percent from budgetary institutions. Incomefrom social welfare increased by 73 percent in 2006 compared with the previous year, percentage

of a retirement pension in social welfare expenses declined and that of benefits grew. Socialwelfare benefits were received by 1,047.6 thousand people. Under a SGH resolution social welfarebenefits were raised by 22.8 percent as of July 2006. Major programs such as Child Money,Newborn, First-Marriage Couple, and Lunchtime Tea are being implemented.

4. LEGAL FRAMEWORK

4.1.Legal Regulation of Political Party Financing

The legal framework of political party financing is regulated by the Law on Political Parties, Lawon SGH Elections, and other corresponding laws and regulations. The Law on Political Partiesnewly passed on January 28, 2005 regulates issues such as establishment, structure, and financingof parties, and legal status of political parties in the SGH. Under this law, party assets include bothfixed assets and current assets and they consist of a membership fee, contribution, government-funded financial support, souvenir with the partys symbol, partys items, incomes from the partymedia and advertisement and purchase or lease of its assets, and interest from the partys cashassets that are kept in a bank.

Payment of fees payable to parties is regulated by party charters and party members and supportersmay make contributions. As per Article 18 of the Law on Political Parties a maximum amount of acontribution to be made for a party should not exceed ten million togrogs for a legal entity and onemillion togrogs for a citizen and one contributor is prohibited from making contributions to oneparty organization more than twice per year. What is legalized is that a party shall have itsfinancial activities audited annually and report audits and contributions publicly. Contributions forelection campaigns are regulated by election laws.

In addition to self-financing, parties obtain financing from the national budget as per Article 20 ofthe Law on Political Parties. Financing must be provided by the national budget for parties holdingseats in the State Great Hural where one seat of a State Great Hural member is valued at Tg 10

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As per Article 5 of the Law on Political Parties, universal principles of party activities shall bedemocracy, justice, liberty, equality, rule of law,16 and transparency.17 There is also a provisionunder that a party must publicly report contributions and results of audit carried out for its financialactivities.

5.RESULTS OF THE MONITORING

5.1. Results of the Monitoring

Given an outline of questionnaire results, interviews conducted among party members andsupporters, and political party leaders, and media analyses carried out in the framework of themonitoring of political party financing it was observed that political party financing is highlyclosed, enforcement of the law is absolutely inadequate, and political parties dont operate withinthe bounds of the law.

From questionnaire results:

39.3 percent of all questionnaire respondents that they havent heard about it and 42 percent theydont notice it much, and 18.7 percent they know about it a bit when they were asked a questionhow much do you know about political party financing.

When political party members and supporters were interviewed they stated that they dont knowabout financing of their parties at all and this issue is closed and most of them dont know aboutany occasion on which the partys financial statement was reported.

From an interview with a party member:

Information on the partys financing is closed. When I wanted to expose myself to audit results ofthe partys financial activities I was told we cant show them but we can show you a couple ofpages from among them. We make payments for seats, pay fees as members holding electivepositions, and make many other contributions annually but we have no information thereon.Basically, according to the partys charter they should have audit annually and report its resultspublicly but it has never been enforced.

Lets look at the enforcement of Articles 16, 17, 18, 19, and 20 of the Law on Political Parties byprovisions.

One. Article 16. Party Assets and Incomes

16.1. Party assets Party assets include both fixed assets and current assets and the comparison ofstatus of political party assets as of 200618is indicated in the following table.

16 Article 5.1.1 of the Law on Political Parties, January 28, 200517 Article 5.1.2 of the Law on Political Parties, January 28, 200518 Data from the SSC

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Name of

Party

MPRP DP CWP MP RP

Monetaryassets

10.019.300 - 5.021.811 8.000.000 5.000.000

Tangible

assets

636.628.400 Nissan Patrol

vehicle

9.068.425 160.000.000 95.000.000

Assets in total 646.647.700 - 14.090.236 168.000.000 100.000.000

16.2. Types of party assets Given the charters of political parties covered by the monitoring,party assets are included in types established by law and at present, circumstances political partyfinancing mostly consists of contributions, national budget-funded financial support, and fees fromparty members and supporters. For instance, as provided in Article 1.3.3 of the MPRP FinancialRegulations major part of party financing shall consist of state and party community support andmembership fee is a primary source of assets necessary for daily activities of primary partyorganizations.

Whereas only one party now has its own building and obtains income from its lease, other politicalparties operate in lease facilities. Political parties other than the DP didnt provide specificinformation on assets and incomes. In view of the total value delivered by the DP to the projectteam, its 2006 incomes were generated in the following fashion.

The total income is Tg 489.5 million and it consisted of the following (in Mongolian togrogs).

Money for State Great Hural members seat 222.5 million

Contribution 39.0 million

Membership fee 228.0 million

16.3. Restrictions on party activities Political parties are prohibited from conducting profit-making business operations in forms other than those set forth in the law. Violations associatedwith it werent observed in the course of the monitoring.

Two. Article 17. Party Income Disbursement

17.1. Party income disbursement Party incomes are disbursed for activities set forth in thepartys charter and platform. Political parties other than the DP didnt provide information incomedisbursement in the framework of the monitoring and given interviews conducted with partymembers and staff of party organizations, political party income disbursement mainly includes thefollowing types of costs.

Current expenses

Salaries

Lease (office)

Per diem allowances

Training and workshop expenses

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Local party financing

Holiday and celebration expenses

Awards and incentives

Media expenses

Fuel and transportation expenses

The structure of political party expenses is indicated based on total expenses incurred by the DP in2006. Total financing is Tg 489.5 million and includes:

1. Current expenses (office lease, heat, water, electricity, communications, internet, fuel, etc) Tg 150.0 million

2. Salaries Tg 72 million3. Per diem allowances Tg 14.6 million4. Training and workshop expenses Tg 124.2 million5. Local party financing Tg 44.3 million6. Holiday and celebration expenses Tg 13.8 million

7. Procurement expenses Tg 4.1 million8. Maintenance Tg 12.0 million9. Awards and incentives Tg 11.9 million10.By-election expenses Tg 72.0 million11.Media Tg 55.6 million12. Others Tg 50.0 million

17.2. Restrictions on party activities Disbursing party incomes for activities other than those setforth in the partys charter and platform and allocating them as dividends for its members areprohibited. Information and facts enough to assess this provision werent found in the frameworkof the monitoring.

Three. Article 18. Membership Fee and Contribution for the Party

18.1. Membership fee Members pay fees as provided in the Law on Political Parties and partiescharters. Given charters and regulations of 5 parties, amount of a fee is established according tocharters and its amount and its collection and disbursement regulation are specified. For instance, aCWP member pays a monthly fee of Tg 300, MPRP member that equal to 1 percent of his/hersalary and similar income, and MP member that of Tg 100. In addition, each party memberholding an elective position pays a high fee to the party. A member of the MPRP Small Hural paya minimum fee of Tg 200,000 per quarter and member of the CWP Political Council a fee of Tg668,000 per quarter, and member of the DP National Advisory Committee that of Tg 250,000 per

quarter.

18.2. Contribution Members and supporters may make contributions voluntarily or based ontheir views and conviction. In addition to the above-mentioned fees established according to partycharters what was observed in the course of the monitoring was that members arrangedcontributions and contribution collection for parties and financed activities conducted by parties.

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We believe that a standard practice of giving millions of Mongolian togrogs to the party ascontributions to acquire a mandate to be nominated by the party as a candidate for SGH andlocal elections is institutionalized. For instance, earnest deposit of Tg 20 million is currently putdown to be nominated by the DP and MPRP as a candidate and in view of the MPRP about 100people have contributed the above amount to the party and according to unofficial sources, almost

Tg 3 billion have been allocated and delivered to rural areas for salaries of heads of party cells primary party organizations, and political staff. Though as provided in the law contributions arereceived only through the account of the party, given the monitoring parties receive and disbursethem in cash.

18.3. Amount of a contribution An amount of a contribution to be made for a party shouldntexceed ten million togrogs for a legal entity and one million togrogs for a citizen and makingcontributions more than twice per year is prohibited. Information related to this wasnt found in thecourse of the monitoring. Parties did keep names of contributors, amounts of contributions, andother information related to such contributions confidential.

18.4. Information on contributions The party must report contributions publicly under the law.However, to date there havent been any occasions on political parties reported contributionspublicly. Conversely, the GEC reports contributions made for election campaigns but the publiccant look at it. The DP financial regulation provides Generation, allocation, and inspection ofregistration of sources of party financing shall be transparent to members holding electivepositions19 and it is justification for keeping it closed for ordinary party members, supporters, andpublic. Article 1.3.1 of the MPRP financial regulation provides that principles of financing shallbe open and transparent to the public and its members within the bounds of Mongolian laws andregulations. Nevertheless, the issue of financing is closed for party members and supporters andthe above principles arent in force.

From minutes of a session:

In the course of the 24th Congress of the MPRP there was a storm of criticism that the issue offinancing cant be open and transparent. A SGH member stated at the Congress Inspection of cashneeds improving A considerable amount of cash was collected for the elections. I requestedChairman D. I to draw up a total amount of cash collected for the 2004 SGH but he hasnt done soyet.

Given the MPRP financial regulation a consolidated contribution statement should be issued bycontributors names, amounts and disbursement of contributions, and activities contributions werecollected for and however, it is regulated like only the higher party organization will submit it to ameeting of the Leadership Board and deliver it to the Partys General Inspection Committee whenit reports it. There is also similar regulation in other political parties charters and regulations.Nonetheless, its enforcement is inadequate.

19 As provided in Article 3.2.5 of the DP Charter a member holding an elective position refers to a member who is

nominated and elected for an elective position.

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0

100

200300

400

500

600

700

800

2000 2002 2004 2006

Approved Total

Allocated Total

Cash was allocated for a MPs seat valuing it at one million Mongolian togrogs according to theold Law on Political Parties22but it was changed in 2001 valuing one seat at Tg 2.5 million.However, a report of the National Audit Authority23 it was illegal as the amount was maximizedwhere there were no legal acts applying to it, i.e. amendment wasnt made to the above law.Political parties received financing of Tg 1.8 billion in the period 2000-2006 through illegalallocation of budget funding for themselves, unjustifiable maximization of financial support

funded by the budget, and on the pretext of paying for seats of representatives of hurals of citizensrepresentatives despite the fact that no legal provisions allowing allocation of local budgetfinancing for parties exist. Local budget financing allocated for political parties by parties is asfollow.24

1% 1%

MPRP

DP

MP

CWP

To date political parties have never reported financing allocated by the national budget and itsdisbursement. When we inquired this of the Ministry of Finance they responded that once itsdesignation isnt provided it is not necessary to give a report on it. However, in conformity withthe Law on Political Parties 50 percent of finding for seats shall be disbursed for activities to beconducted in State Great Hural members electoral districts and serious violations of this provisionare disclosed in the course of the monitoring and certified by the Report of the National AuditAuthority on Results of Budget-Funded Monetary Support and Financing for Political Parties.

22 Law on Political Parties, 199023 Results of Budget-Funded Monetary Support and Financing for Political Parties. Report of the National AuditAuthority, 200724Ibid., p. 9

21

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Disbursement of political party budget-funded financing in 2006 is indicated in the followingtable25 (in thousand togrogs).

No Name of Party Financing to be

Allocated for

Electoral District

Financing Allocated Difference

1 MPRP 188.750.0 76.860.0 -111.890.02 DP 111.250.0 69.002.8 -42.247.23 CWP 10.000.0 -10.000.04 RP 5.000.0 -5.000.05 MP 26.200.0 29.800.0 3.600.06 Independent 15.000.0 15.000.0

Total 356.200.0 190.662.8 -165.537.2

As indicated in graph

0

50,000

100,000

150,000

200,000

MPRP RP

Financing to beAllocated forElectoral Districts

Financing Allocated

Five. Article 20. Partys Financial Inspection

20.1. Partys financial inspection The partys inspection organization inspects its financialactivities in compliance with the Law on Political Parties. Given charters of political parties theGeneral Inspection Committees inspect general financial and logistical operations by higher partyorganizations in the MPRP and DP, General Inspection Council in the CWP, and InspectionCouncil in the MP. Parties also set up and operate separate financial inspection units as part oftheir general inspection organizations. For instance, the Financial Inspection Sub-Committeeoperates in the DP and Financing Council in the CWP.

20.3. Party financial audit Legal regulation obliges political parties to get their financialactivities audited and certified on an annual basis and report it publicly. Given informationcollected through the monitoring the CWP got its financial activities audited in 2005 and 2006 but

it hasnt exposed audit results publicly yet and they informed the project team that they wait for theMPRP and DP to expose such results publicly. The DP got its financial statements in 2006 and firsthalf of 2007 audited and reported audit conclusions publicly through its website. Whereas theMPRP informed that they havent had its financial activities audited in recent years the RPdeclined providing specific information in this respect.

25Ibid., p. 12

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Inspection regulated by other laws The following mechanisms exist in addition to the aboveinspection provided in the Law on Political Parties.

1. The NAA audits results of national budget-funded financial support. The NAA audited

national budget-funded financial support on August 27-October 24, 2007. It questionedabout legality of national budget-funded financing for political parties and disbursement ofsuch financing. The audit conclusion stated there is no justification for providingfinancing for political parties from local budgets and political parties didnt disbursebudget-funded finding legally;

2. Inspection of election campaign financing is regulated by laws and regulations on centralelection institution and SGH elections. Elections werent covered by the monitoring as itwasnt an undertaking aimed at elections.

20.4. The party leadership, head of the partys financial division, general manager, and similar

officials shall be prohibited from holding a job and position of power related to finance of anypolitical foundation, society, business entity, or organization.

20.5. The party chairman shall be prohibited from taking part in the partys financial and budgetactivities with right to control and dispose of.

20.6. Relations pertaining to preparation of cost statements of elections and by-elections of thePresident of Mongolia, State Great Hural, and aimag/province, capital, soum/sub-province, districthurals/assemblies of citizens representatives shall be regulated by election laws and regulations.

5.2.Enforcement of the Law

Given the corresponding monitored provisions of the Law on Political Parties the enforcement ofthe law is absolutely inadequate. Despite specific provisions on transparency, openness, andinspection of political party financing they arent applicable and political parties themselves dontabide by them. In case legal provisions are violated a degree of punishment for violations is vague,punishment is weak, and its degree is too low. Therefore, the punishment mechanism for officialsand institutions that have violated the Law on Political Parties cant serve as an effective means offully following and enforcing the law.

From questionnaire results:

The publics evaluation of abidance of the law by political parties is as follows.

38 percent responded that they dont abide by it at all

25.3 percent they abide by it at times 3.3 percent they conduct activities within the bounds of the law 33.4 percent they dont have any information about this.

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Though political parties must conduct activities within the bounds of laws under the Constitutionthey tend to conduct activities arbitrarily going beyond the bounds of laws. Inspection of partyinspection organization for party activities is legalized by the Law on Political Parties and itrepresents challenges to the enforcement of the law. For instance, the Ministry of Financeresponded to a recommendation made by the NAA to the Ministry of Finance to approve and

enforce regulations on political party disbursement of budget-funded financing and reporting of itsperformance26 that there is no justification for approving and enforcing regulations on politicalparty disbursement of budget-funded financing and reporting of its performance as Article 20.1 ofthe Law on Political Parties states The partys inspection organization shall inspect its financialactivities.

There are no cases of any punishment for violations of laws related to budget-funded finding andother financial regulations by political parties.

6. CONCLUSION AND RECOMMENDATIONS OF THE MONITORING

6.1.Conclusion

The Law on Political Parties contained many important elements aimed to make the partyfinancing system transparent, open, and regulated was approved the SGH in 2005 and since then ithas been in force. However, when the enforcement of the corresponding provisions of the abovelaw was monitored the law enforcement is absolutely inadequate and some political parties, forinstance, the MPRP, CWP, RP, and MP holding seats and representation in the SGH and coveredby the monitoring dont abide by the Law on Political Parties as well as party charters andfinancial regulations and thus, violations of laws become a commonplace. Therefore, we draw aconclusion that it upsets the rule of law set forth in the Constitution and concept and principle thatactivities of all institutions and citizens should fully comply with the Constitution.

We believe that an appropriate mechanism to inspect the enforcement of the Law on PoliticalParties is inadequate and legal liability system is weak and thus, it cant serve as an effective leverto ensure the enforcement of laws.

The issue of political party financing is not subject to public inspection and participation and it isalso closed for party members and supporters and limited to only a circle of a few people in thepartys leadership. Keeping issues pertaining to political party financing strictly confidential leadsto suspicion that there may be bribery and corruption and illegal acts behind it.

The partys inspection organization shall inspect its financial activities in conformity with the Lawon Political Parties and this makes parties financing inspection just a formality and provides anextensive opportunity for parties to act arbitrarily and take advantage of vagueness in the law.Common breaches of the Law on Political Parties are as follows.

26 Results of Monetary Support and Financing Allocated by the Budget for Political Parties. Report of the National

Audit Authority, 2007. Deputy Minister of Finances letter No. 7-9/5124 dated November 1, 2007

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The Ministry of Finance directly provides national budget-funded financial support topolitical parties without the general budget administrators inspection. No disbursementreports have been submitted to the Ministry of Finance yet;

As disbursement of budget-funded finding for SGH members electoral districts wasnt

regulated yet parties had to disburse Tg 356.2 million for electoral districts under the law in2006 and however, about 54 percent of the funding was disbursed as designated and rest ofit was disbursed for financing political party activities;

No political parties have reported contributions publicly ignoring the provision of the lawto report such contributions publicly and it is handled in a circle of a few people in politicalparty leadership;

Though a party should get its financial activities audited and report its results publicly onan annual basis most parties neither arranged audit nor reported results publicly.Conversely, the DP had its financial activities audited and posted its results in its website

and the CWP had audit but didnt report its results publicly.

6.2.Recommendations

We believe that it is essential to make a major legal reform in political party financing based oninformation collected, facts founds, and conclusion drawn in the framework of the monitoring andbest international monitoring practices. The project team makes the following recommendations.

4. To establish a permanent institute that will inspect the enforcement of the Law on PoliticalParties

To set up a special committee that will inspect political party financing or include thisfunction in obligations of institutions such as the GEC and Anti-Corruption Authority(ACA) (however, it would be effective provided that regulation of keeping institutions likethe GEC specialized, independent, and separate from political party influence is put inplace);

To conduct regular institutionalized inspection for transactions in party accounts (the GECcould conduct regular inspection and in the event a violation is found it could submit it tothe ACA and as a follow-up the latter could inspect movement in accounts);

5. To improve the liability system in the Law on Political Parties

To tighten and make liability clear and convert it into an effective means of enforcing thelaw (for instance, to take subsequent punishments ranging from first, warning if financialrules and regulations are violated and then suspending national budget-funded financing, toterminating its mandate to run for elections and dissolving a political party unless theviolation is rectified);

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6. To ensure better transparency and openness of information aimed to make publicinspection and participation in enforcing the Law on Political Parties realistic

To ensure that income and cost statements of political parties are issued on quarterly, semi-annual, and annual bases and posted in the internet and copies delivered to the GEC,

NAA, SSC, and tax administrations and regularly published in gazette GovernmentInformation; To approve and enforce instructions on and sample forms for preparation of any financial

statement (to that end, to make it clear when, where, and whom any statement andinformation is prepared in a sample standard form and how and who will deliver it thepublic);

To make mandatory for parties to post their annual statements and information oncontributions in the internet in a publicly accessible form.

7. APPENDIX

Appendix 1

Law on Political Parties (extracts)

Party Financing

Article 16. Party Assets and Incomes

16.1. Party assets shall include both fixed assets and current assets.

16.2. Party assets shall include the following.

16.2.1. Membership fee;16.2.2. Contribution made by its member, supporter-citizen, or legal entity;16.2.3. Government-funded financial support;16.2.4. Souvenir with the partys symbol and the partys items;16.2.5. Income from the party media and advertisement;16.2.6. Income from purchase or lease of its assets;16.2.7. Interest from the partys cash assets that are kept in a bank.

16.3. Making profits in forms other than those set forth in Article 16 of this Law and conductingbusiness operations shall be prohibited.

Article 17. Party Income Disbursement

17.1. Party incomes shall be disbursed for activities set forth in the partys platform and charteronly.

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17.2. Disbursing party incomes for other activities and allocating them as dividends for itsmembers shall be prohibited.

Article 18. Membership Fee and Contribution for the Party

18.1. A member of the party may pay a fee at the rate regulated the party charter.18.2. Members and supporters may make contributions based on their views and conviction.Contributions shall be received only through the account of the party organization at that level.

18.3. A maximum amount of a contribution to be made for the party at a time shall not exceed tenmillion Mongolian togrogs for a legal entity and one million Mongolian togrogs for a citizen andone contributor shall be prohibited from making contributions to one party organization more thantwice per year. Seeking positions of power and private interests or exerting pressure for onescontribution made to the party shall be prohibited.

18.4. The party shall report contributions publicly.

18.5. Membership fees and contributions shall be deposited in one checking account.

18.6. The issue of contributions made to parties for election campaigns shall be regulated byelection laws and regulations.

18.7. Receiving contributions from the following entities shall be prohibited.

18.7.1. Under eighteen-year-old citizen of Mongolia;18.7.2. State and state-owned business entity and organization;18.7.3. Religious organization;18.7.4. International organization, foreign citizen, legal entity, or stateless person;18.7.5. Less than one-year-old legal entity;18.7.6. Entity without a specific name and address;18.7.7. Legal entity that is bankrupt or has overdue bank loan debts;18.7.8. Other entities prohibited by law.

18.8. Financing of actions and projects to be implemented in collaboration with internationalorganizations and foreign organizations and foundations that conduct political activities shall notconcern Article 18.7.4 of this Law.

Article 19. Government-Funded Financial Support

19.1. The government shall provide monetary support for a party once that holds seats in the StateGreat Hural within three months after election results are issued based on the principle that votesobtained by the party in State Great Hural elections are compared with all valid ones valuing onevote at one thousand Mongolian togrogs.

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19.2. Financing shall be provided by the national budget on a quarterly basis during the State GreatHural term in office for parties holding seats in the State Great Hural based on the number of seatsgained valuing one seat of a State Great Hural member at ten million Mongolian togrogs per year.50 percent of this financing shall be disbursed for activities to be conducted in State Great Huralmembers electoral districts.

19.3. The total value specified in Articles 19.1 and 19.2 of this Law may be re-establishedconsidering changes in currency exchange rates.

Article 20. Partys Financial Inspection

20.1. The partys inspection organization shall inspect its financial activities.

20.2. The partys central organization shall issue a consolidated statement after financialstatements of its subordinate organizations are issued.

20.3. The party shall get its financial activities audited and certified on an annual basis and report itpublicly.

20.4. The party leadership, head of the partys financial division, general manager, and similarofficials shall be prohibited from holding a job and position of power related to finance of anypolitical foundation, society, business entity, or organization.

20.5. The party chairman shall be prohibited from taking part in the partys financial and budgetactivities with right to control and dispose of.

20.6. Relations pertaining to preparation of cost statements of elections and by-elections of thePresident of Mongolia, State Great Hural, and aimag/province, capital, soum/sub-province, districthurals/assemblies of citizens representatives shall be regulated by election laws and regulations.

8. BIBLIOGRAPHY

Laws of Mongolia

1. Constitution, 19922. Law on Political Parties, 20053. Law on SGH Election, 20054. SGH Resolution No. 41, 20025. Commentary on the Law on Political Parties, SSC

Survey Reports and Policy Documents

1. Report on Assessment of SGH Election Campaign Financing2. Human Development Report, UN, 20063. Global Competitiveness Report, USAID, 2005-2006

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4. Report on Monitoring of SGH Election Campaign Financing, VEC, 20045. Assessment of Corruption in Mongolia, Asia Foundation, 2005

Books and Textbooks

1.Monitoring the EU Accession Process, OECD, 2003

Other Sources

1. Effects of National Budget-Funded Monetary Support and Financing for Political Parties,2007, Report of National Audit Authority, 2007

2. Websites

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