Expert for the International Foundation for Electoral Systems (IFES) in Ukraine, and
Harald Hartvig Jepsen
Senior International Adviser, IFES Ukraine.
As Russia continues to wage its full-scale war on Ukraine, Kyiv’s attention and efforts are focused on procuring necessary security assistance, winning the war, and holding Russia accountable for war crimes. A victory on the battlefield should remain a priority. Still, Kyiv must not allow for an erosion of its domestic reform efforts in spheres where noteworthy strides were made since the 2014 Revolution of Dignity. Political finance reform is one such example.
In 2015, the Ukrainian parliament enacted a new law requiring political parties to report on their income and expenditures in quarterly financial reports. The law empowered the National Agency on Corruption Prevention (NACP) with a mandate to review the reports and sanction violations of the new finance rules. The law bolstered regulation and transparency of money in politics and made it harder for oligarchs to influence Ukrainian politics unnoticed. In line with international recommendations, the law also set ceilings on private and corporate donations to political parties and candidates. Adopting this law was one of the key preconditions for the European Commission to grant Ukrainians a visa-free regime for traveling to European Union (EU) countries in 2017.
A rebooted NACP in 2020 took its political party finance oversight role seriously. That same year, even the ruling party (among other Ukrainian political parties) was penalized for incorrect reporting. Following this promising start, Ukraine’s political finance reform since faced significant challenges. Legal changes adopted by parliament first in response to the COVID-19 pandemic and then to Russia’s full-scale invasion reduced transparency of money in Ukrainian politics by pausing the requirement for parties to submit their financial reports to the NACP and subsequently pausing NACP’s mandate to review these reports.
Below we argue that the parliament should immediately restore political party finance reporting and oversight. This is an essential element on the road toward Ukraine’s European integration and in implementing its obligations under the UN Convention against Corruption and the recommendations of the Council of Europe’s political finance watchdog, GRECO. The status quo risks leading to more significant corruption and future political campaigns that are fueled by uncontrolled or undisclosed money; illicit and illegal financing from malign foreign actors seeking to influence future Ukrainian elections; and increased dependence of parties on oligarchs due to delays in receiving (and possible suspension of) public funding.
For the past three years, Ukraine’s government has regularly extended the quarantine period, thereby allowing parties not to report. The NACP received the last finance report from a party represented in parliament in the last quarter of 2020. Meanwhile, the five parliamentary parties continued to receive public funding for their activities. But neither the public nor the NACP knows what activities political parties spend the millions of hryvnias transferred to them from the state budget in 2020-21.
Then, Russia’s full-scale invasion led to another deferral of party finance reporting, this time for the duration of martial law. Ukrainian lawmakers concurrently paused the NACP’s powers to verify the reports. With two laws governing the pause on party finance reporting, it has now become unclear when the reporting will resume—the laws have conflicting regulations on this issue. Such uncertainty about when party finance reporting and transparency of money in politics will be reinstated sets unfortunate precedence for Ukraine’s European aspirations and integration in the EU, even amidst its full-scale war with Russia.
The deferral of the reporting obligation until after the end of martial law and the suspension of NACP’s oversight mandate have additional consequences. The NACP will be unable to hold parties accountable for any offense committed two years ago. When the NACP’s mandate is restored, the statute of limitations for potential violations will have expired. The risk is that parties will simply refrain from submitting past reports—including for their financial transactions during the 2020 local elections—and cannot be sanctioned for any violations. Then nobody will know if their funds were spent on credible and relevant activities—or, in the case of banned, pro-Russian parties, e.g., if they spent them on activities damaging to the Ukrainian state.
Admittedly, there have been attempts to remedy the situation and restore the reporting obligation, so far, without a clear resolution. One draft law was never voted for in parliament, and another draft law was (correctly) vetoed by the president due to significant flaws in the legal text. The work on a new draft law on political parties commenced in 2019. Ideally, this new law should reflect parties’ finance reporting obligations and define a clear oversight mandate. While advancing this new law initiative is a priority, these two topics cannot wait and should be addressed in a separate law amending the current law on political parties.
One issue that might arise in relation to the restoration of party regular reporting is possible security concerns of opening and accessing party financial data during the war. However, there are adequate solutions to address them. First, while parties should resume reporting to the NACP, the reports might not be posted publicly, to guard their data privacy during wartime. Second, parties and their local organizations might be exempted from the obligation to submit some financial information if they cannot do so due to objective circumstances caused by the war.
The question is how to convince lawmakers to act and restore the transparency of party finances soon when their focus is immediate defense and security priorities. It is important for them to acknowledge that the political finance landscape should not be left to erode during the full-scale war since the revival of reforms previously achieved will not be easy in the post-war period. Once martial law is lifted, the country will need to grapple with the challenges of holding elections in post-war conditions including in the de-occupied territories and frontline communities that suffered immense damage from Russia’s criminal war of aggression. So what can be done now, should be done now. And as the NACP has signaled, it stands ready to resume its mandate once the parliament acts.
Hence, to prevent the erosion of Ukraine’s gains in the political finance reform arena, it is essential that the Parliament of Ukraine takes the following critical steps:
- Refrain from temporary suspension or abolishment of public financing of political parties. Absence or significant decrease in political funding provisions to parties increases the risks of parties seeking other funding from private individuals or foreign actors involved in malign activities.
- Immediately re-introduce regular financial reporting of parties, with temporary exemptions for those party local organizations that are unable to report due to the consequences of the war or occupation. Overdue past financial reports for 2020 and 2021 could be combined and filed as annual reports.
- Immediately reinstate the NACP’s mandate to review party financial reports and parties’ ability to upload their reports to the electronic POLITDATA declaration system. NACP should be able to bring any detected violators to justice.
- Finalize the new political party draft law in line with international standards.
Ensuring proper oversight of the financial activities of elites and bringing violators to justice is critical for enhancing transparency and combatting political corruption. Restoration of political party finance reporting and oversight is long overdue, and Kyiv has no time to lose when safeguarding this crucial pillar of democracy. While Ukraine not only sets an example of what it means to fight skillfully and bravely against Moscow’s war of aggression, countries in the region and worldwide will look to Ukraine as an example of sustaining vital domestic reforms even amid war. As such, Ukraine must stay the course on advancing political integrity, not least to pave for itself a path to joining the EU soon.
Editor’s note: While this article discusses future elections and critical legal reforms, it does not imply that those elections will or should be held this year. There are good reasons why elections are not held under martial law according to Ukraine’s Constitution, and it will be critical for Ukraine to ensure free and fair elections when it does hold them, after victory. For this to happen, time will be needed for Ukraine to ensure that necessary legislative amendments are passed in an open manner, that political competitors have reasonable and equitable access to the media, that electoral infrastructure is ready, that financial reporting for political contestants is re-started, and that the voter list is up to date. This is not an exhaustive list but offers a glimpse into various critical considerations.