1.4 Emerging Legal and Regulatory Issues
Regulating political finance raises numerous and significant challenges. It is worth remembering that legislation must be appropriate for the political and legal context of each individual country. Therefore, the combination of the different building blocks, i.e., rules on sources of financing, expenditure, transparency and oversight is unique to each country. While each country aims to adopt a regime that speaks to their relevant needs in regulating money in politics and reflects cultural, historical and practical considerations, all countries have witnessed and been faced with common emerging issues, namely third-party campaigning, social media advertising and the use of cryptocurrency during election campaigns. Also regarding some issues that have been considered in many legislative frameworks for decades, such as regarding foreign funding, changing circumstances may have created new or increasing loopholes, such as regarding cross-border advertising and new forms of international financial transactions. From a regulatory perspective, the goal is pretty much the same as regards these three issues; being able to track the amount of money spent by third parties on campaigns (and notably political advertisements) and to trace the funding back to its source.
1.4.1. Third party or non-contestant campaigning
(based on IFES Political Finance Discussion Series – Transparency Serbia)
Election campaigning is most often associated with the activities undertaken by political parties and candidates to get elected and election finance regulation generally focuses on these direct participants. Increasingly, however, other individuals and organisations have entered the election arena to campaign in favour of or against particular issues, candidates or political parties. They do not stand for election themselves, they do not put forward their own candidates, and sometimes they are not formally associated with candidates or political parties. This form of electioneering is called ‘third party’ or ‘non-contestant campaigning’.
Although non-contestant financing of election campaigns can be done in coordination with candidates/political parties, it is usually defined as campaign expenditures made independently of a candidate or party with the aim of promoting or opposing a candidate or party, either directly or indirectly. We are focusing here on non-contestant involvement undertaken independently.
Some countries have a long history of companies and other organisations campaigning to influence the outcome of elections. They may organise a campaign to support or oppose a particular party/candidate in order to protect their financial or philosophical interests.
The involvement of non-contestants as an expression of political pluralism and citizen involvement is not generally a negative phenomenon and is in line with international standards and regional agreements on democratic participation.The International Covenant on Civil and Political Rights (ICCPR), which dates from 1966, recognises that citizens have the right to participate "in the conduct of public affairs, directly or through freely chosen representatives" (Article 25). At the European level, the Organisation for Security and Co-operation in Europe Copenhagen Document 1990 addresses participatory rights of citizens and affirms the fundamental freedoms of expression, the press, assembly and association. The European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) expressly recognises these fundamental freedoms may only be subject to certain restrictions "as prescribed by law" and "necessary in a democratic society" (Article 10). As stressed by the OSCE-ODIHR/Venice Commission Guidelines on Political Party Regulation, “[t]hird parties should be free to fundraise and express views on political issues as a means of free expression, and their activity should not be unconditionally prohibited. However, it is important that some forms of regulation, with comparable obligations and restrictions as apply to parties and party candidates, be extended to non-contestants that are involved in the campaign, to ensure transparency and accountability” (Paragraph 255).
In recent years, the frequency and magnitude of such spending has increased. This increased spending raises a number of concerns in countries where it is not regulated:
- It may open the door to circumvention of rules currently in place for candidates and political parties. The funds used by unregulated non-contestants, for example, may be derived from impermissible sources (including foreign sources), the size of contributions to support the election activity may exceed donation limitations, and the amount spent may be not subject to any expenditure limit. And, when social media platforms are used, such advertising and social media platform policies may contravene domestic advertising regulations.
- It may diminish the voice of the actual candidates/parties in the electoral context and render the level playing field uneven. Indeed, non-contestant campaigning may impede the outreach activities undertaken by the electoral contestants or blur the electoral messages by outspending / competing with some electoral contestants
- It may diminish the level of transparency since the source of funds used, the amount spent and the identity of suppliers remain cloaked in secrecy. As a result, and depending on the regulations that are in place, it can be virtually impossible to hold relevant actors accountable.
It is difficult to argue that a total ban exclusively imposed on non-contestant advertising would be acceptable in most countries and jurisprudence, for example in Europe and North America. According to the International IDEA’s political finance database, 55 out of 139 countries for which data is available have adopted third-party regulations (ban or limit). Each aspect of non-contestant regulation raises a series of questions that warrant serious consideration. For the OSCE region, the various non-contestant regulations and requirements are well summarized in the OSCE’s Note on Third Party Regulation in the OSCE Region.
For you as an oversight institution, you may find that the introduction of legislation on non-contestant financing may increase transparency of the flow of money through the political process, and may as such increase the comprehensiveness of political finance oversight. This may increase public confidence in the regulation and oversight process. On the other hand, do note that adding oversight of non-contestant campaigning is likely to require a significant increase in resources for your institution, the development of new procedures and adding new staff skill sets.
1.4.2. Social media political advertising
(source IIIDEM project – 2021)
Political advertising can be broadly defined as any advertisement run by a political/ electoral contestant or by a non-contestant to influence opinion in support of, or in opposition to, a political/ electoral contestant during an election campaign (on in relation to a referendum). While electoral contestants (and third parties) have the right to disseminate political ideas in accordance with the right of expression, political advertising may be subject to reasonable limitations through regulations pertaining to advertising expenditure levels or reporting and through disclosure requirements to ensure political finance transparency and accountability. The main campaign finance issue in that regard is to ensure that such social media communications are identified as electoral expenditure and that they are financed through identifiable and lawful sources so as to guard against foreign or other illegal interference in the electoral process. For an introduction on regulations of social media advertising, see the IFES 2021 Lessons for Regulating Campaigning on Social Media.
In a significant number of countries, political advertising is categorically banned in broadcast or print media during all or some of the election campaign period. However, in most countries, social media political advertising is unregulated. Digital campaigning has become one of the most effective campaign tools used by electoral and non-electoral contestants in the past years and the surge in digital spending has been accompanied by attempts in different countries to increase transparency of online political advertising through the adoption of regulations imposing the identification of the payer.
Social media platforms
Social media companies have adopted blanket self-regulatory measures that vary by platform: Twitter has banned all political ads on its platform, and Google (which owns YouTube) and Facebook (which owns Instagram) expect advertisers to comply with domestic regulations. Some social media platforms maintain Ad Libraries/ archives and provide application programmatic interfaces (APIs) that can be used to access and collect data. Depending on the social media platform, different types of information can be accessed and scraped, such as target audience and only ranges of prices for the ads run. Moreover, in select countries, some social media platforms (Google and Facebook) also require advertisers that seek to run political ads to register and reserve the right to remove political ads run by unregistered advertisers. In Canada, online platforms that meet the definition set out in the Canada Elections Act (CEA), i.e."an Internet site or Internet application whose owner or operator, in the course of their commercial activities, sells, directly or indirectly, advertising space on the site or application to persons or groups" must keep and publish a digital registry of all regulated ads and the name of the person who authorized the ad. All ads must be included in the registry on the day they are first displayed. The CEA requires an ad registry when the following monthly visit thresholds are reached:
- For platforms mainly in English: three million unique visitors in Canada a month
- For platforms mainly in French: one million unique visitors in Canada a month
- For platforms mainly in a language other than English or French: 100,000 unique visitors in Canada a month
Social media platforms should be fully involved with any (legislative) initiative aimed to raise digital awareness in order to ensure that all advertisers are educated on domestic political advertising regulations as some social media platform policies may conflict with domestic regulations. Such initiatives/ measures could be, for instance, to:
- Ensure that social media platforms set up archives/ Ad Libraries containing all political advertisements for specific time periods accompanied by an accurate cost for each advertisement by electoral contestant;
- Put in place controls to check that the account administrator who runs and pays for advertisements is actually based in the country.
Social media monitoring
The main challenge posed by digital political advertisements is the partial or inadequate control of electoral activity on social media platforms. In countries where campaigning on social medial is unregulated, advertising on social media platforms raises concerns regarding the sources of financing behind the payment of such ads and the possibility to circumvent donation limits and/or bans. Moreover, in countries where social media platforms do not maintain advertising archives and/or where unregistered advertisers can run advertisements, it is challenging to monitor those advertisements and impossible to assess total social media advertising expenditures.
The increase in digital spending has been accompanied by attempts in different countries to increase transparency of online political advertising, such as requiring all campaign electoral actors to identify who sponsored or paid for advertisements through the use of “digital imprint” or “disclaimer” in order to ensure compliance with campaign finance regulations or to provide detailed and meaningful invoices from and/or contracts with their digital suppliers. In countries where Ad libraries exist, such archives enable a degree of scrutiny of political advertising and allows the oversight body, but also CSOs and journalists, to identify potential violations of campaign finance regulations. Indeed, social media monitoring can be partially outsourced by the oversight body (Lithuania), by CSOs (Croatia), or through innovative approaches (Netherlands) (see Social media advertising.pdf).
Given the increased use of social media for political advertising, it is likely that regulatory systems that do not address this issue will be seen as outdated and not fit for purpose by the population in many countries. Regulating the issue may therefore increase the relevant information available and increase trust in the system, and indeed in your work as an oversight institution. However, regulating social media also carries challenges for oversight institution – not least in getting timely access to relevant information from social media companies. Your oversight institution should make sure that you are closely involved in any discussions about legal change in this area, to ensure that any provisions introduced are possible to implement in practice.
The Carter Center has developed a 'Monitoring Online Political Advertising: A Toolkit' intended to guide election observation missions’ analysis of online political advertising, notably on social media platforms.This document aims to provide tools and techniques to help analyze domestic regulations, and it also provides tactics to better identify accounts that run political advertisements on social media platforms, as well as to monitor and collect information about such advertisements with a view to formulating recommendations for institutional and non-institutional stakeholders.
1.4.3. Cryptocurrency
The use of cryptocurrencies in political finance is an emerging issue that definitely calls for better regulatory consideration. While the information and communications technology aim to further enhance political finance transparency and accountability, it can also pose new challenges. Indeed, depending on the design, some cryptocurrencies could make it almost impossible to identify the sources and destinations of the transaction. In the context of political finance, cryptocurrencies could be used as a means to circumvent some political finance regulations, such as donation bans. The main policy concerns regarding their use are anonymity, volatility and a lack of oversight.
As IFES noted in a 2022 Foreign Policy article "...cryptocurrency political donations and non-fungible tokens (NFTs) open new avenues for corruption in elections. The volume of cryptocurrency transactions globally has exploded in recent years, though illicit crypto transactions are estimated at $14 billion, a drop in the sea of illicit physical currency. What constitutes “illicit” transactions in this sphere is largely undefined, however, and the alacrity and sophistication of malign actors is likely to vastly outpace the ability of democratic actors to respond to them. It would be dangerous to ignore the potential impact of unregulated cryptocurrency and its digital kin on democratic elections.”
At the core, cryptocurrency (or crypto) refers to virtual currencies that operate in a decentralized manner and employ blockchain technology to track transaction history and other related information. Cryptocurrencies are by definition not associated with any banking institutions or governments and can increasingly be used in the same way as traditional currencies. Central to cryptocurrencies is blockchain technology, which “provides proof of who owns what at any given juncture. This distributed ledger is replicated on thousands of computers—bitcoin’s [and other cryptocurrency’s] ‘nodes’—around the world and is publicly available”. Blockchain is considered to be an incredibly secure and highly technical form of cryptography where the transaction history itself provides its own unique signature to avoid duplication.
There are several important considerations for cryptocurrency’s application in the political finance realm, most notably regarding issues of anonymity, fluctuations in value, and environmental concerns related to crypto “mining.”
Concerns about anonymity of cryptocurrency users raises potential challenges for its widespread use in the political finance arena. In tandem with the decentralized nature of cryptocurrency, anonymity is considered central to crypto’s DNA. Individual owners of crypto typically have some type of identifying user number but that is not necessarily attached to a real-world identity. This, however, is potentially changing, as efforts to find the identities of individuals or groups behind crypto holdings have increased. The FBI, for example, used blockchain ledgers to seize part of the ransom paid to hackers as part of the Colonial Pipeline Incident in 2021, raising questions about whether cryptocurrencies could be truly anonymous.
Additionally, the value of cryptocurrencies can fluctuate wildly, which presents challenges for determining limits on spending related to political finance. In 2010, a unit of Bitcoin, the most popular cryptocurrency, was priced at around $0.09 USD. In 2021, Bitcoin reached an all-time high of $64,000 USD per unit, before crashing to below $30,000 USD per unit in that same year. This volatility poses challenges for determining the value of a unit of cryptocurrency, and thus for enforcing limits on political finance spending.
Lastly, cryptocurrencies present a unique set of environmental concerns. Cryptocurrencies can be “mined” using a sophisticated set of equipment to verify the accuracy of blockchain transactions in exchange for units of cryptocurrency. The energy use of larger-scale mining operations is astronomical. A 2019 BBC article notes that a year’s worth of energy consumption of mining operations for Bitcoin alone equaled that of Switzerland. The sheer amount of energy consumption has led to counter measures by some governments. In January 2022, for example, Kosovo’s government completely outlawed mining operations and began seizing equipment from mining operations.
Overall, cryptocurrencies continue to rise in widespread use and popularity and will likely continue to do so, and this will have implications for political finance in the future.
One observation is that policymakers and electoral management bodies are often too slow to react to such digital challenges, such as regulation of technologies (social media and big data analytics) and underequipped to deal with them appropriately.
As with the issues of regulating third party campaigning and social media advertising, introducing regulations on the use of cryptocurrencies in political campaigning can make the oversight process more relevant in the current climate in many countries, and may increase popular support of your work as oversight institution. A main challenge may simply be understanding the issues and technology involved, and you may well wish to consult topic experts at an early stage if the notion of regulating the use of cryptocurrencies in campaigning arises.