The relationship between money and politics has many implications for all democracies, including emerging democracies. The proposition of this handbook is that money in politics affects the equilibrium of democracy. Therefore, democracy practitioners need to understand how money influences politics in the countries where we work.

Many democracies are concerned that money is dominating politics, buying politicians, and corrupting policies. A major concern is the threat posed by unrestrained money from commercial or criminal interests. Though money is required to finance democracy, undisclosed and unregulated campaign funding has the potential to warp the political contest and the governing process that follows an election. Politicians need money to get into office and remain there. When campaign and party finance costs increase, fundraising must also increase. There is an upward spiral of money in politics. Payback of campaign debts in the form of political favors breeds a type of corruption that is commonly encountered around the world.

Transparency in money in politics is key to better governance. Better governance is key not only to democracy, but also to development overall:

Rotten, corrupt, wasteful, abusive, incompetent governance is the fundamental bane of development. Unless we improve governance, we cannot foster development.

Without transparency in political finance, early, tentative transgressions by politicians can grow into full-blown corruption and a breach of public trust, with major consequences for the body politic.

Understanding these dynamics in the countries in which USAID works is key. However, understanding depends on information and, more frequently than not, the information is not available. Ideally, campaign and party finance disclosure answers questions about who gives money, how much money they give, to whom the money goes, and for what purposes it is used. Not all countries practice the principle of open reporting of political finances. Of the 118 countries surveyed for this handbook, less than one third have finance disclosure laws that require political parties to reveal their sources of funding.

Without more disclosure and transparency in emerging democracies, the links between money and politics will remain obscure, and voters will have no way to gauge money’s influence on the officials they elect.

Nearly all in the political finance debate accept that disclosure is a good thing, provided the information is not used to intimidate or harass opponents. Even those who suggest an end to all spending limits, regulations, or fundraising ceilings agree that disclosure is first and foremost in controlling and maintaining, as well as in understanding, political finance. Financial disclosure reports are to politics what financial statements are to business. Without them, there is simply no way to “follow the money.”

This handbook will improve understanding of (1) the relationship between money and politics and (2) what can be done to make it more transparent through disclosure techniques. It is the first publication in the field to focus exclusively on the issue of disclosure and transparency in political finance. It is a practical guide, promoting analysis and action.

Although the bulk of the literature on political finance is focused on North America and Europe, this handbook examines political finance from the perspective of developing countries to the extent possible.6 If there is any lesson from our examination of comparative political finance, it is that no nation stands above others as a model of how best to deal with money and politics. All have had their share of scandals. This handbook underlines the importance of paying attention to the need for transparency and openness in money in politics; it says nothing about which country’s political finance system works best.

Download Money in Politics Handbook: A Guide to Increasing Transparency in Emerging Democracies

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Technical Publication Series

Office of Democracy and Governance
Bureau for Democracy, Conflict, and Humanitarian Assistance
U.S. Agency for International Development
Washington, DC 20523-3100

This is the first publication by USAID on the topic of political finance in emerging democracies. Its purpose is to increase understanding by USAID field staff, host-country political leaders, civil society organizations, and the media of the sometimes obscure and sensitive topic of political finance. It also creates awareness of the issues and benefits of open finances and suggests some practical technical assistance options that encourage the use of disclosure as a methodology for strengthening national democratic political processes.

“...promoting the transition to and consolidation of democratic regimes throughout the world.”

EXECUTIVE SUMMARY

This handbook is a primer on the topic of money in politics with special emphasis on the role of disclosure. “Money in politics” refers to the funds used for electioneering and influencing political processes. “Political finance” is an umbrella term for “party finance” or “campaign finance.” In parliamentary systems, which are largely party-driven, party finance is the term of choice. In presidential systems, which are candidate-driven, campaign finance is the term of choice.

The handbook provides an overview of campaign and party finance, examines the role that money plays in the politics of a nation, and describes how countries attempt to regulate the flow of funds into political contests. Its main premise is that disclosure of campaign and political party finance is the cornerstone upon which all other attempts to control money in politics rest. Transparency is a foundational principle for democracy, and key to the legitimacy of every nation’s elected officials as well as its electoral and political processes.

The purpose of the handbook is to orient and provide action-related ideas to democracy practitioners, civil society organizations and activists, political leaders, scholars, election authorities, and the international community concerned with the influence of money in politics. In addition to highlighting the risks of money in politics, it summarizes strategies to control the flow, showing that the need for more disclosure and enforcement lies at the heart of reform efforts. It provides a framework for understanding the money in politics landscape in a country and suggests a variety of program options.

This handbook contributes to existing literature in the emerging field of political finance and is the first publication entirely committed to the topic of political financial disclosure. It reflects the findings of a rigorous, systematic survey of disclosure laws in 118 developed and developing countries around the world and examines the global state of transparency.1 It also provides highlights of the U.S. effort to make political finance fair and transparent.

A. Why Money in Politics is Important

Without money in politics, competitive multi-party democracies could not function, nor could their governments operate. Like a form of free speech, political finance is linked to the health and strength of a democracy. Laws and regulations to control political finance risk stifling the basic right of citizens to provide funding to the candidate or party of their choice.

Nevertheless, there are at least four risks associated with money in politics that prompt the effort to control it:

• Uneven playing field --he risk that large sums of money in politics give undue advantage over others and constrains competition
• Unequal access to office --he risk that certain sectors of a population lacking money are prevented from running for office or getting meaningful representation
• Co-opted politicians --he risk that those who donate funds will control the politicians they finance
• Tainted politics --he risk that dirty or illicit money will corrupt the system and undermine the rule of law

These risks threaten both democratic and economic development and many emerging democracies have yet to address them.

B. The Key Role of Disclosure in Controlling Money in Politics

In general, there are six main approaches to controlling money in politics. They are contribution limits, contribution bans, spending limits, campaign time limits, public disclosure, and public financing. Often a combination of approaches are included in a given reform initiative, but there is no agreed upon formula for what constitutes the best mixture of approaches.

What is clear is that limits and prohibitions on money in politics, or political finance, can work only if there are adequate rules for disclosure. Public disclosure is the most basic method of controlling money in politics. It requires two things: (1) that candidates and parties report in detail on receipts and expenditures; and (2) that campaign and party funding reports are available for timely public scrutiny.

Founded in transparency and openness, public disclosure lets the public decide what to do with the information disclosed. Disclosure is generally accepted as more neutral than other restraint strategies. Without disclosure, most of the other strategies to control money in politics simply won't work or are not enforceable.

It is, therefore, an important finding of the USAID survey of 118 countries that most nations do not hold their politicians accountable through disclosure requirements. Highlights of survey findings include:

• Hidden donors --Very few countries require politicians to reveal sources of campaign funds. Only 32 percent require revealing the names of donors to political parties. This means that in most of the countries, parties and campaigns could be funded by anybody and escape public scrutiny.
• Secrecy --Of the countries surveyed, 23 percent have no disclosure laws whatsoever, thus depriving their publics of any basis for informed discussion. Another 17 percent practice a kind of "hidden" disclosure. They collect some political finance information, but do not release the information to the public.
• Insufficient disclosure --The vast majority of reporting takes the form of aggregate numbers. However, without itemization of contributions or expenditures, reports cannot be audited by electoral commissions or civil society. Countries that require reporting of names of donors to political parties may not require listing the amount of money each donor contributed. Countries that require expenditure reporting may not require identification of vendors and products or services purchased. This inhibits the audit trail and obviates full disclosure.

C. Understanding the Money in Politics Landscape

It is not easy to determine whether—and in what way—money in politics is a problem in a given country. For one thing, a widespread bias towards more suspicion of wrongdoing than empirical studies can refute tends to obscure the analysis process. For another, very few people understand how political finance works, and information is hard to come by. Further, there is no systematic methodology for studying the issue.

To get an analytical handle on these challenges, this handbook offers a framework for strategic assessment. It offers key questions as starting points for data gathering and discussion in a three-stage process:

1. Defining the nature and extent of the problem—This stage guides assessment of the problem within the context of the four principal risks. It helps determine which risks are the most serious, and how risk factors inter-relate. The nature and extent of the problem will dictate the kinds of interventions with the highest potential for success.

2. Identifying key actors and allies—This stage guides assessment of the players who are, or could be, the advocates or champions for money in politics reform. Possible key actors and allies are election commissions, civil society, media, and reform-minded politicians and parties. These groups work on their own and together. It is critical to know who the advocates are or might be, what they can or could do, and what kinds of strategic alliances among them can advance money in politics reform.

3. Identifying the legal framework and practice—This stage guides assessment not only of laws and regulations that are on the books, but also of the realities reflecting compliance and enforcement. It helps identify the nexus between policy and practice as well as the incentives and disincentives the legal infrastructure creates for candidates and parties.

Answers to these questions will better enable democracy practitioners to determine whether there is a need for campaign and party finance reform, with particular attention to disclosure, and if so, whether conditions are sufficiently favorable for promoting reform through disclosure.

D. Assistance Options for Democracy Practitioners

Each country situation is unique, and money in politics programming is still in the developmental stage. Nevertheless, some NGOs, political leaders, media representatives, researchers, and regional and international organizations have implemented a number of initiatives that hold promise for achieving results. External assistance can support these initiatives, singly or in combination. Options include

• Establish and strengthen coalitions and their members. Greater transparency in political finance requires joining the forces of those interested in reform, potentially including civil society organizations, political parties or selected politicians, the media, and election commissioners.

Assistance can focus on increasing advocacy skills for disclosure, introducing innovative techniques for partnering, defining a coalition leadership structure, identifying ways to draw additional strategic partners into the alliance, planning for managing opposition, and other functions that support coalition members individually and collectively.

• Review and enhance the legal framework. Research completed for this handbook found that few nations have adequate disclosure laws and regulations. Programs can provide expertise in reviewing the country’s disclosure laws and other relevant legal and regulatory provisions, resulting in detailed recommendations for improvements.

They can also assist various constituencies (such as reform-minded legislators, election commissioners, other relevant government agencies, and NGOs) considering options for new and/or revised laws and regulations, and facilitate a group effort to draft them.

• Encourage reform with political parties and leaders. Political parties and leaders can be engines of political finance reform and proponents of public disclosure. There are types of assistance that may be specifically targeted to parties. Identifying reform-minded parties and political leaders is the first step, followed by assistance to help shape a reform agenda that stresses disclosures benefits to both parties, the public, and candidates. Or if disclosure is already in place, helping political parties to build systems and capacities can achieve greater compliance.

• Strengthen enforcement. Public disclosure effectively enforced is the backbone of most approaches to controlling money in politics. Enforcement of public disclosure can be strengthened indirectly by working with coalitions to lobby for better enforcement of laws and regulations, to assist in monitoring disclosure reports, and to encourage the will of enforcers to follow through on their responsibilities. Or enforcement may be strengthened through improving the legal framework, addressing legal barriers to effective public disclosure and/or the institutional weakness of enforcement bodies.

• Link with anti-corruption initiatives. USAID-supported anti-corruption initiatives are increasing worldwide. Many can easily expand to incorporate disclosure. One of the easiest anticorruption measures that cross over into political finance disclosure is asset disclosure by elected and appointed officials. It is becoming increasingly popular within the context of countering corruption, is reasonably acceptable politically, and relatively easy to implement and verify.

• Support regional organizations. The focus on money in politics is a global phenomenon. Many regional organizations are increasingly concerned with money in politics, especially disclosure, as people addressing the issue learn from each other’s experiences and identify opportunities for collaboration. Such organizations as the Association of Central and Eastern European Election Officials (ACEEEO) and the Organization of American States (OAS) are actively pursuing an agenda of campaign finance disclosure through education, research, and technical assistance.

The political history of nations is well known, but their political financial history is just now being written through the study of money in politics, and much more needs to be learned. The state of the art of disclosure has shown that much more needs to be done to be able to account for how much money political parties and candidates in emerging democracies are actually collecting or spending to win elections. Even less is known about where the money comes from.

Disclosure allows the government and the public to keep score on the amounts, sources, and destinations of money in politics. Disclosure reports are to politics what profit and loss statements are to business. Without them, governments and citizens risk never knowing the price tag of their democracy or the identity of the major influences behind it, whether corporate, union, ordinary citizens, special interest groups, drug lords or other criminal elements.

Political finance is a vital issue for democracy, governance, and development. No matter how flawless are a country’s elections, how active its civil society, how competitive its political parties, and how responsible its local authorities, the role of money in politics undeniably influences the quality of democracy and governance. Only through greater transparency will one fully understand the extent and nature of this influence.

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