1.3 Components of Political Finance Regulatory Systems

Political finance regulation can be boiled down to five key elements: donations, public funding, expenditures, transparency and oversight/enforcement. Not every country includes all elements in their domestic legislation and not every country adopts the same rules for each element. Ideally, each country will adopt a regime that speaks to its relevant needs in regulating money in politics. It is thus critical to carefully examine the legislation in your own jurisdiction when considering your remit and how you will approach it. The key components for regulating political finance are:

Although your country's legislative body most likely will determine whether and how to incorporate these elements into law, it is important for you, as the oversight institution, to understand the issues each element may raise for your work. In particular, do not expect any other actor to carefully consider the enforceability of political finance regulations.

For those of you who would like to engage on a more theoretical level and explore these areas on an international basis, there are many resources at your disposition (see References.pdf).

1.3.1. Private funding (contribution) restrictions

Some countries impose restrictions, either quantitative or qualitative, on sources of political funding. There may be a limit on how much a permissible donor may contribute to a political party, a candidate or both (quantitative limitations). Such limitations help contain the influence of the wealthiest donors and thus protect the system against undue influence and help foster an even playing field.

The restrictions may include bans (qualitative limitations) on anonymous donations, donations from foreign donors, corporate donors, trade unions, government contractors, public bodies, charitable/religious organisations and/or even minor children. Some countries ban all cash donations, whereas others only ban cash donations above a certain threshold. In some jurisdictions, the law explicitly prohibits donations made in the name of another (e.g., straw donors).

The bans on various donation sources serve a variety of purposes in terms of safeguarding the democratic process, as summarised in the following table: *

* This chart is drawn from International IDEA's 2014 publication, Funding of Political Parties and Election Campaigns: A Handbook on political finance, page 21.

As the oversight authority, you will need to consider how you are going to ensure compliance with the restrictions governing sources of donations. This may include:

• Determining what other state register(s) exist that will enable you to confirm the permissibility of a particular donor (e.g., a civil registry to determine whether a donor is 'foreign' or list of government contractors or social assistance registers to assist in determining whether the donation was made from the donor's own funds). This is relevant when legislation includes qualitative donation limits.
• Developing a process for identifying and aggregating all donations made from the same donor to a political party or candidate to assess compliance with quantitative contribution limits.

Private funding also comprises membership fees paid by party members, candidates' personal funds, and loans. A political party may even raise money through income-generating activities (e.g., property rentals or through the sale of publications). Contribution limits could be circumvented if other sources of financing are not subject to the same limitation, i.e., loans or membership fees. You will need to include these other funding sources in your compliance programme.

The section on Compliance control mechanisms sets out more information about compliance measures you can take.

1.3.2 Public funding

The introduction of a public funding mechanism is often triggered by one of several goals. First, public funding has been introduced to offset the lack of private funding in countries without a tradition of private financial support for political parties or where growing disengagement of citizens has resulted in a decrease in private sources of funding. In other countries, public funding has been introduced to limit the influence of private money and thus to constrain its potential distortive impact on the political process. A more cynical view would attribute public finding as a means for political parties to fund themselves from the public coffers. At least theoretically, public funding aims to level the playing field - and thus enhance political pluralism - by facilitating access to the electoral arena for new or small political forces.

Public funding can be targeted to assist political parties and/or candidates to fund their electoral campaigns, or it can be targeted on non-election campaign activity such as office space and policy development. Public funding can also be used as a tool to help change political party behaviour and foster inclusivity through supporting the participation of underrepresented groups, i.e. women, persons with disabilities, national minorities and youth. Whatever the focus in your jurisdiction, there probably will be eligibility criteria that recipients must meet to receive funding and allocation criteria that determines the portion of funding the recipient will receive.

Depending on the jurisdiction's laws, your role as the oversight body may require you to consider how you will:

• Determine whether an applicant meets the eligibility criteria to receive funding
• Determine the amount of funding the applicant is entitled to receive
• Ensure the funding is disbursed in time
• Undertake controls to confirm that the funding was property used
• Take whatever measures are specified for withholding public funding and/or sanctioning the misuse of such funding

1.3.3 Expenditures

If donation restrictions and bans address the supply side of political finance, spending restrictions can be seen as addressing the demand side. The theory is that you can limit the need for ever increasing amounts of funding by imposing limits and bans on how much money political parties and candidates can spend. Again, there are many variations on how to set spending limits. Some countries use average salaries as a guide, others use a formula that incorporates a base limit and then adds a specific amount per elector in the voting area.

For spending limits to be effective, the cap needs to be set at the right level. If it is set too high, it will be meaningless; if set too low, there will be intense motivation to circumvent it. The "correct" level depends both on the goal that the limit is intended to reach and the current level of spending. It is equally important for there to be clarity about what counts against the limit and to whom it applies (e.g., candidates only, political parties only, to their combined spending and to third parties/ non-contestant campaigners).

In some jurisdictions there are outright bans on specific expenditures such as vote-buying (often handled by criminal prosecution) and ban on paid broadcast advertising.

As the oversight institution, you may be called upon to:

• Set the spending limit
• Provide clear definitions in secondary legislation as to what will count against the limit
• Monitor compliance with spending during the electoral campaign
• Control whether the amounts reportedly spent are accurate and within the limits

1.3.4 Transparency

Transparency of political finance is fundamental for accountability and preventing corruption in the political process. It forms the very backbone of any political finance regulatory system. First, it provides voters with information about who backs the various parties and candidates how they spend their money. Second, transparency provides the oversight body with the necessary information to allow it to supervise compliance with the other substantive political finance rules. And, thirdly, transparency is a means to deterring corruption.

As the oversight body, you are likely to shoulder responsibility for the implementation and enforcement of the reporting and disclosure rules. It thus is vital that you understand the importance of ensuring timely, accurate and meaningful disclosure of political finance data and deliver this area of your remit well. Civil society also has an essential role to play in ensuring transparency in political finance. See further in the sections Publication of data, actions and decisions and Receipt and review of statutory reports.

1.3.5 Oversight and enforcement

There is little point in passing political finance regulation if, once enacted, the rules are not enforced. Whilst oversight and enforcement responsibilities rest with different types of oversight bodies across the globe (ranging from election management bodies to auditing and anti-corruption agencies to ministries and to courts), they ideally share key characteristics:

• Supported by a robust legislative framework
• Independent (e.g., in the appointment process, funding stream and powers)
• Have established and guided by strategic and operational frameworks
• Capable of exercising political will

Political finance oversight institutions should also consider the Autonomy and Accountability Framework that IFES has developed for independent governmental institutions.

Part 2 of this toolkit addresses in some depth how you can develop your strategic and operational frameworks and Part 3 identifies and provides insights into how to deliver your oversight and enforcement functions.