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Introduction --------------------------------1 GONG----------------------------------------2 Center for Development of Serbia --------3 INPO ----------------------------------------3 Transparency International BiH --------4 MOST ----------------------------------------5 Center for Democratic Transition --------6

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This project is financed by BTD

Money and Politics

Regional legislation, practice and experience

ŠĐEfbsWelcome to the first issue of the newsletter prepared by Center for Democratic Transition (CDT) in cooperation with the partner organizations GONG from Croatia, the Citizen’s Initiative MOST from Macedonia, Initiative for Progress from Kosovo, Center for Development of Serbia and Transparency International Bosnia and Herzegovina. Publication of the newsletter is part of the project ‘Money and Politics – Montenegro and region’, which is implemented with the financial support of the Balkan Trust for Democracy (BTD). The project aims to point out the common problems that the countries of the region face with when it is up to the financing of political parties, and how these problems are treated. Through learning from the mistakes of others and the best practices of countries that have made progress in the process of European integration, we seek to enhance the subject area. In this regard, organizations in the region that so far implemented a number of projects in the areas of promotion of democracy and the fight against corruption, which include issues related to the financing to political parties, were selected to participate in the project. Doing so, we actually ensured that the information which would be published in this newsletter can be considered as firsthand information and will reflect the actual situation in the region. The newsletter is designed to contain information regarding the legislature and practices of the countries of the region, as well as information about the projects of partner NGOs. In addition to this, the newsletter also contains examples of best practices. In this issue you can get information about the irregularities observed during the implementation of the new Law on Financing of Political Activities and Election Campaigns on the recent parliamentary elections in Croatia. Kosovo is facing the problem of lack of precisely formulated competences of the General Auditor in connection to the audit of political parties’ spending of budget funds. The upcoming elections in Serbia are testing the quality of the solutions contained in the new Law on Financing of Political Activities. On the other hand, Bosnia and Herzegovina is working on a Draft Law on Financing of Political Parties, and proposed solutions to a large extent deviate from the requirements of the international community and examples of best practices. Story from Macedonia is about how even the existing regulations in that country, nor the practice of parties and the authorities cannot bring to the increase in transparency of financing to political parties. Finally, the implementation of the new Law on Financing of Political Parties in Montenegro began badly, opening space for new abuses. We hope that the level of public awareness on this issue will increase significantly, thanks to the newsletter, and that we will receive criticisms and suggestions for its improvement.

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n February 2011, the Croatian Parliament has enacted the Law on Financing of Political Parties and Election Campaign and in May 2011 the amendments to the Law. The first test of the Law’s implementation was the 2011 parliamentary elections, and it was the first time for the State Election Commission (SEC) to conduct supervision over financing of election campaigns. Based on the new Law, political parties, candidates and independent lists of candidates were able to finance the expenses of their election campaigns using their own resources and donations paid on special bank accounts, with required publishing of two reports: 1. report on income and expenditures 7 days before the election day and 15 days after the announcement of official election results, and 2. financial report on financing election campaign with information on the income achieved, sources of financing and expenditures 30 days after holding of the elections. Based on the conducted supervision, the SEC concluded that it had received 96 final reports before the deadline, 8 after the deadline, while 34 participants in the elections (mainly parties which had not reached the elections threshold, independents lists and some candidates from ethnic minority groups) had not submitted their reports. In addition, the SEC informed the State Attorney’s Office on all those participants in the elections, as well as those participants who failed to fulfill the obligation of publishing the

Voujm!ofyu!ujnf/ Esbhbo!LpqsjwjdbFyfdvujwf!Ejsfdups!DEU Citing and using the information contained in this newsletter shall be allowed upon a mandatory stating the source there of and the copyright owner

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This project is financed by BTD

Money and Politics

Regional legislation, practice and experience reports proscribed by the Law, and those who violated provisions of the Law with regard to the amounts and types of donations, which is defined as an offence. The SEC’ full report can be found at the following URL: • http://www.izbori.hr/izbori/dip_ws.nsf/0/ 5740EBF523B42CE5C12579A3005AD353/$File/ Izvjesce_o_provedenom_nadzoru_finaciranja_izb _promidzbe_Sabor.pdf Although the legal framework has brought numerous improvements, it has not precisely defined tracing the flow of money and services from political parties through agencies to media, while the non-transparency of the advertising space price list, as well as the discounts reached, has led to the fact that the information is not verifiable, which still disables a good quality supervision of financing of election campaign, leaving room for various interpretations of the Law itself. At the start of the official election campaign for the 2011 parliamentary elections, GONG and Transparency International Croatia started following up the price of advertising space in TV programs and printed media, in order to assess the expenses of some campaigns and compare the assessments with the official reports of parties and candidates. The advertisements were followed in the period since the beginning of the official campaign, 17 November, until the end of the official campaign, 2 December 2011. The results of following up the financing of parties and the analyses of the submitted reports show that the presented amounts do not match the amounts that the parties and independent lists had actually paid for advertisements during the election campaign, so it is possible that the presented amounts do not contain all the discounts, and it especially indicates the difference in advertising expenses of the two major parties/coalitions (Kukuriku and the HDZ). More on the research and a more detailed presentation

“...the biggest irregularities in financial work of political parties are in the areas of internal control system, planning and accounting, as well as income and expenditures.”

of expenses of individual parties and candidates can be found at the following URL: • http://www.gong.hr/news.aspx?newsID=3784& pageID=1 Pursuant to the provisions of the Law on State Audit Office and in accordance to the provisions of the new Law on Financing of Political Activities and Election Campaign, on 6 December 2011 the State Audit Office submitted to the Croatian Parliament a report on conducted financial audit of political parties and independent representatives for 2010, which included financial statements and financial activities for 2010, to which the provisions of the old law, the Law on Financing of Political Parties, Independent Lists and Candidates, had applied. The report states that the biggest irregularities in financial work of political parties are in the areas of internal control system, planning and accounting, as well as income and expenditures. Therefore, the State Audit Office issued 6 unconditional and 5 conditional recommendations, while on the activities of 4 independent representatives it issued an unconditional recommendation. As a part of its recommendations, the State Audit Office ordered the political parties to establish an efficient internal control system and an obligatory annual agenda with annual financial plan, book-keeping, and property inventory list, in a way which could provide an honest, reliable and exact review of funds, income and expenditures. In addition, it is stated that the biggest percentage of income for the work of parliamentary political parties came from the state budget (54,9%), followed by the local units’ budget (33,3%), membership fees (only 5,4%) and 2,1% of income from donations. All political parties published their financial statements for 2010 on their websites. The full report of the State Audit Office can be found at the following URL: • http://www.revizija.hr/hr/izvjesce/izvjesce-oobavljenoj-reviziji-financijskih-izvjestaja-i-poslovanja-politickih-stranaka-i-nezavisnih-zastupnika-z a-2010/

GONG Address: Trg Bana Jelačića, 15/IV, 10000 Zagreb, Croatia Tel: (01) 4825-444 Fax: (01) 4825-445 E-mail: gong@gong.hr Website: www.gong.hr

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This project is financed by BTD

Money and Politics

Regional legislation, practice and experience Lptpwp;!sfgpsnjoh!mfhjtmbujpo!boe!beesfttjoh! uif!jnqmfnfoubujpo!hbqŠĐ

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he financing of the political parties in Kosovo is a case of deep and frequent reforms, thus after a decade of neglecting this problem and avoiding it from agenda. The legislative and institutional reform, with emphasize on the financing of the political parties, had been largely determined by the political factors (declaration of the independence and state-building). In addition, in the post war era (until 2008), the organization of the elections, financing of the political parties and other related aspects were managed by the OSCE mission, thus excluding local institutions. After this period, the new legislation has been enacted in this “A major concern in Kosovo area. This has been accompanied is the fact that General Auditor with a rise of the public awareis not auditing the use of budgetness on the importance of this ary fund for support of the politissue, investigative journalism ical parties and election and pressure from the civil socicampaign fund. ” ety for incorporation of European Union standards. The current legal framework ensures and promotes many good practices with regard to the financing of the political parties, however, after the short experience with its applicability the need for amendments emerged, a process which is undergoing. Nowadays, at the

top of the agenda are two issues, control and monitoring over the private funds and role of the General Auditor as an independent state body. In Kosovo, the influence of the private companies which support political parties is evident. According to civil society and media, this is mostly reflected in the public procurement at the central and local level, where these companies are beneficiaries of the most public contracts. The leader of the third largest political party in the Assembly of Kosovo proposed to substantially increase the funds from the state budget in order to avoid this effect and have greater control. This policy has been partially applied once, where the fund for support of political parties has been increased from 0.17% of the yearly state budged to 0.34%. A major concern in Kosovo is the fact that General Auditor is not auditing the use of budgetary fund for support of the political parties and election campaign fund. On the other hand, this fund is the only public fund not being audited by the General Auditor. The lack of precision in the applicable laws is serving as an excuse, while at this stage civil society is strongly pushing forward for defining this role and extending competences of the General Auditor.

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he existence of a comprehensive legal framework, requirements and methods of political parties financing is considered a huge anticorruption potential of a country. The new Law on Financing of Political Activities is an attempt to introduce in the legal framework appropriate standards and rules which should enable undisturbed collection of funds for financing the work of political parties as well as control over their spending. The Law on Financing Political Parties from 2003 had not produced positive results, i.e. its implementation in practice had led to numerous problems which, only a few years after it had come into force, had resulted in calls for drafting a new and different law. It primarily lacked an efficient control over both collection and spending of funds, and there was also the fact that not a single political party was sanctioned despite the assessments that the amounts of money and indirect donations were a lot bigger than what had been presented in the reports. The 2008 amendments to the Law, which resulted in the auditing competence being transferred from two institutions – the Republic Electoral Commission and the Finance Committee of the Serbian Parliament – onto the Anti-corruption Agency, did not help a lot in improving the image of corruption in this area. The Agency has inherited the prob-

lems and almost no practical experience in implementing the law, while the public has been expecting it to be in a position to sanction the culprits. Due to these problems, a need has emerged for serious and comprehensive law regulations. The Draft version of the Law “...not a single political on Financing of Political Parties party was sanctioned despite has passed several expert opinthe assessments that the ions of the Council of Europe’s amounts of money and indirect Venice Commission, the donations were a lot bigger ODIHR, the OSCE, as well as than what had been presented the assessment of the European in the reports.” Commission experts, which was followed by adoption of the new law on 14 June 2011. An important factor in adoption of the law was the fact that GRECO experts assessing the existing legal framework helped, to a great extent, to better define certain standards and rules in the new law. All recommendations by GRECO, which were binding, have been installed in the legal text, and that has contributed to the value and quality of the Law and therefore enabled Serbia to have a comprehensive legal framework. What is still pending is the implementation of the legal provisions in practice and we will witness its results during this election year.

Initiative for Progress – INPO Address: "12 Qershori", br. 52, 70000 Ferizaj, Kosovo Tel: +381 (0)290 329 400 Addres: "Nëna Terezë", 30B H-1, br.2, 10000 Priština, Kosovo Tel: +381 (0)38 220 552 E-mail: info@inpo-ks.org Website: www.inpo-ks.org

Center for Development of Serbia Address: Desanke Maksimovic 2, 11000 Beograd, Serbia Tel: (+381 11) 24 33 587 E-mail: razvojsrbije@razvojsrbije.org Website: www.razvojsrbije.org, www.razvojsrbije.org.rs


This project is financed by BTD

Money and Politics

Regional legislation, practice and experience Bmm!qspqptbmt!gps!bnfoenfout!up!uif! Mbx!po!Gjobodjoh!pg!Qpmjujdbm!Qbsujft!jo!C'I!ibwf!gbjmfe

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n February 2012, Bariša Čolak, the deputy chairman of the Intersectoral Working Group for Amendments to the Law on Financing of Political parties and the B&H Minister of Justice, has submitted to the Working Group the new Draft Law on Financing of Political Parties. Although it had earlier submitted recommendations for enhancement of the Law to the Working Group, Transparency International again sent comments to the new Draft Law to the members of the Group, pointing to its shortcomings and restating the recommendations for enhancement. The new Draft Law on Financing of Political Parties in Bosnia and Herzegovina increases the limit to donations, thus raising the prescribed limit for legal entities nearly four times. This increases the possibility of a donor influencing the work of a political party, contrary to all international principles and guidelines which are aimed at decreasing possible inappropriate influence over political parties. In addition, while the current Law forbids donations from private companies conducting their services based on a contract with the Government, according to the new proposal, the parties would be allowed to receive those donations unless they exceed 10 000 KM worth of annual contacts with the Government. This solution is harmful, since, due to donations to parties, certain companies might have privileges over others when it comes to signing contracts with the Government, which constitutes one of the most damaging forms of corruption. There has not even been adherence to the recommendation by the OSCE Mission and GRECO to introduce an obligation to conduct transactions using unified bank accounts, which is not mentioned at all in the draft proposal. The OSCE Mission had “...the new Law on Financ- been warning that the permitted ing of Political Parties will still purposes of budget funds not be adopted and that instead spending must be defined in defurther activities will be di- tails, which was why Transrected towards making amend- parency International B&H has ments to the current solution.” provided its recommendations in order to strengthen the role of the Department for Auditing in the Central Election Commission when supervising political parties’ expenditures. When auditing financial statements of political parties the biggest focus has so far been on their income, while very little attention has been paid to their expenditures. Since around 80% of political parties’ income consists of budget subsidies, it is necessary to pay more attention to how the tax payers’ money is being spent.

According to the new Draft Law, the issue remains unresolved and the citizens would still have no insight into the budget funds expenditures. According to the Transparency International B&H recommendations, it is necessary to proscribe sanctions which would be effective and proportionate to possible gains in case of violating the Law. Unfortunately, in the new Draft Law, financial sanctions are too low (maximum amount remained 10 000 KM) and are, by no means, proportionate to possible gains in case of violations of the Law, while at the same time any other sanctions, in addition to financial ones, have been left out. Transparency International had recommended revoking budget subsidies for parties violating the Law, but that has not been accepted. According to the new Draft Law, financial statements are to be published by the Central Election Commission B&H and the political parties, but it remains unclear whether financial statements of political parties would be published fully or only partially as it has been the case so far. Therefore, it is necessary to define that in a way that would enable full insight into the financial statements. At the Intersectoral Working Group session, the new Law did not receive support, since the Union of Independent Social Democrats (SNSD) - Milorad Dodik rejected some solutions, announcing that they would submit their own Draft Law. It is indicative that the most disputed was the Article 26 proscribing “seizing of the money earned contrary to the provisions of the Law”. After reviewing the SNSD’s Draft, proscribing for introducing competencies of the Audit Office of the B&H Institutions to replace the Central Election Commission B&H, this proposal has been rejected by other members of the Working Group and it has finally been concluded that the new Law on Financing of Political Parties will still not be adopted and that instead further activities will be directed towards making amendments to the current solution. The next session of the Intersectoral Working Group is scheduled for 2 – 5 April.

Transparency International Bosnia and Herzegovina Address: Gajeva 2, 78000 Banja Luka Tel: +387 51 216 928, +387 51 224 520, +387 51 224 521 Tel/fax: +387 51 216-369 E-mail: info@ti-bih.org Website: www.ti-bih.org

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This project is financed by BTD

Money and Politics

Regional legislation, practice and experience Npofz!boe!Qpmjujdt!.!Nbdfepojb

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he Citizens Association MOST is the leading election monitoring organization in R Macedonia. One of the fields of its work, is the political parties’ financing. In these terms the following issues were noted: The latest amendments to the Law on Financing of Political Parties were enacted in October, 2011. Some of the more important changes are: • Out of the 6 GRECO recommendations, only 2 were implemented. • The parties are no longer obliged to publish their annual financial reports/registers of donations in the daily newspapers, but only on “...SAO announces the their web pages. But, a great planned audits in its annual number of them do not have programs, but there is no planned audit of any political own web pages, so this provision contributes to decreasing party in 2012.” the level of transparency. • The provision for submitting quarter financial reports was deleted which was welcomed by state institutions as positive (?!) because the political parties did not respect this provision anyway. This also leads to decreasing the level of transparency. • The State Audit Office (SAO) is currently the key institution for supervision of the party finances, but it is questionable whether this institution has enough resources and staff to perform this task. What is more interesting, SAO announces the planned audits in its annual programs, but there is no planned audit of any political party in 2012. • А provision was deleted which regulated that the public official who is engaged in supervision of the financial work of a certain political party must not be a member of the same political party. It is not necessary to comment this amendment. Of course it will have negative implications on the supervision of the financial work of the political parties. • As for the Election code, regarding the provisions for financing of election campaign, amendments were enacted in 2011, which changed the limit for donations by legal persons. Namely, the new provisions prescribe that the companies are allowed to donate up to 5% of their annual income for the previous year. These provisions place both the donors and political parties in an unequal position, and lead to decreasing the transparency of the donations. On the other hand, a provision was enacted by

which the parties are obliged to submit three reports regarding the financing of the election campaign: the first report is to be submitted halfway through the campaign covering the first half of the campaign, the second one is to be submitted at the end of the campaign covering the second half of it, and the third final one is to be submitted after the elections covering the whole period of the campaign. Practice: • Parties make obvious breaches of the law, by non-respecting the form in which the reports should be submitted, or, even more concerning, stating donations from state institutions. • The financial reports from the last elections disclose that some parties had great differences between the income and the outcome. The income is insufficient to cover the outcome, and the report does not state where these funds were obtained from. The sum of these funds in the case of one political party is even 3 million €. Large number of natural persons donating the same amount of money was placed in the financial reports, which may indicate that a party – organized donation was conducted. From the above mentioned, it could be concluded that both the legal framework and the practice are not contributing to the transparency of the financing of the political parties in Macedonia.

Citizen’s Association MOST Address: Vanco Mickov 18b, 1000 Skoplje, Macedonia Tel: + 389 2 3099 384 Fax: + 389 2 3086 430 Website: www.most.org.mk

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Money and Politics

Regional legislation, practice and experience Cbe!tubsu!pg!ofx!Mbx!po! Gjobodjoh!pg!Qpmjujdbm!Qbsujft!

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fter several years of inadequate implementation of the earlier Law on Financing of Political Parties, as well as confirmed inadequacy of the solutions that the law had contained, the new Law on Financing of Political Parties (LFPP) has been adopted. The Law has come into effect on 1 January 2012. Although it was expected that the implementation of the new LFPP, whose solutions have been significantly enhanced, would be a step forward, the first results of monitoring conducted by the Center for Democratic Transition (CDT) have refuted the expectations. The political parties in the Montenegrin Assembly have received their budget funds on time, but on the municipalities level the practice of violation of the law continues. Namely, out of 21 municipalities in Montenegro, only five have paid the funds for financing the work of political parties on time for January 2012. In addition, it has been concluded that in one municipality the payments have been made for only those parties which have their representatives in the “...without consultations with the Municipal Assembly. This non-governmental sector and in a brings the parties in an unnon-transparent procedure, with the equal position, at the same adopted acts the State Election Com- time disabling them from conmission has disrupted the move ahead ducting the planned activities, that had been expected from imple- which has a negative effect on mentation of the law.” the political life on local level. Another major problem has been noticed in the work of the State Election Commission, more precisely in the way the Commission has arranged the issues of content of the parties' reports regarding the contributions from legal and physical entities during the election campaign and the method of calculating and reporting on the non-pecuniary contributions for political parties. In addition to the fact that the acts arranging these issues were enacted without consultations with the non-governmental sector and in a non-transparent procedure, with the adopted acts the State Election Commission has disrupted the move ahead that had been expected from implementation of the law. The instruction arranging the content of the political parties' reports regarding the contributions of legal and physical entities during the election campaign, the State Election Commission has disabled identification of physical entities as donors, because it is proscribed for the parties to only state the name of a physical entity in the report, justifying that with the need to protect personal information. By false interpretation of the Law, the State Election Commission has made impossible for itself and other competent institutions present in the procedure of financing political parties (primarily the State Audit Institution) to conduct good quality monitoring of political parties' financing during election campaign. LFPP proscribes for the political parties' reports on donations during election campaign to be published on the State Election Commission website. In such a situation, protection of personal information could have been maintained by simply not

publishing some parts of information. However, by this dubious instruction, the State Election Commission has left a huge space for political parties to violate the law. The amount that political parties received from donations by physical entities in 2010 was 667.790 €. It was publishing of information on donors in 2011 that led to charges being filed against the Democratic Party of Socialists on suspicion that the party has conducted a criminal act in an attempt to justify the donations in the amount of almost 645.000 €. Therefore, there is a fear that such practice might continue in the coming period as well, because the State Election Commission obviously invests no effort to change the current situation for the better. Another act of the State Election Commission was related to the method of calculating and reporting on the in-kind contributions for political parties. Namely, the LFPP proscribes for the inkind contributions for parties to be calculated in accordance with the market value and reported as an income, while the State Election Commission has significantly moved away from the legal norm. The State Election Commission has determined for the inkind contributions to be calculated as a difference between the paid price for the product or service and its market value, only if the difference exceeds 30%. This has practically enabled the parties to achieve up to 30% discounts, without reporting it as an in-kind contribution. The State Election Commission has therefore „legalized“giving preferences to political parties over other consumers and has disrupted the intention of legislators to bring order when it comes to the in-kind contributions. The CDT has submitted the request for amending the disputed acts in order to increase transparency, so that other provisions of the LFPP could be fully implemented. Namely, the enacted new regulations on financing of political parties was a part of the response to seven requirements from the European Commission Opinion, but adoption of a better law was only a step in meeting the EU requirements. In December last year, the Council of Europe has announced that, before the negotiations start, the progress of Montenegro in implementing reforms will be reviewed one more time, and we are certain that their decision will be influenced by the success in implementation of the LFPP. In addition, this issue will be significant for the negotiations themselves and it will be a criterion for closing the Chapter 23. We expect the next big test for implementation of the Law in late March when political parties are obliged to submit their financial statements and competent institutions to start the procedures and for the first time punish those violating the Law. The test whether the implementation of the Law has been a success will include efficiency and quality of auditing political parties’ financial statements by the State Audit Institution. Finally, judging by the announcements, we can expect early parliamentary elections, so complying with the rules on financing political parties will have a major effect on the legality and legitimacy of the election process.

Center for Democratic Transition Address: VII omladinske bb, 81 000 Podgorica, Montenegro Tel: +382 20 207 070 +382 20 207 071 Fax: +382 20 207 072 E-mail: cdtmn@t-com.me Website: www.cdtmn.org

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Money and politics, No 1  

Money and politics. Regional legislation, practice and experience

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