Elements

Regulation of campaign (and more general political) financing encompasses a number of different elements such as those in the list that follows, wherein each next element is commonly added to those which precede it as the system grows in scope and complexity: 

• Disclosure and reporting of financial contributions on a periodic basis, including after an election;
• Disclosure and reporting of financial contributions during the campaign and before the election;
• Publication of periodic and final financial reports;
• Disclosure and reporting of non-cash contributions – such as donations of goods and services – based on their economic value;
• Prohibitions on sources of contributions (such as from government agencies, State-owned enterprises, foreign individuals or organizations or the like);
• Ceiling on contributions by individual persons and organizations;
• Ceiling on overall contributions and expenditures;
• Establishment of special electoral campaign fund;
• Retention of financial manager with legal responsibility for compliance with regulations and authorization of transactions;
• Submission of audited financial reports, including related records;
• Review of financial reports and records by electoral or other authorities;
• Forensic examination of accuracy of financial reports based on internal inconsistencies or other evidence (including observed level of campaign activity or other evidence of contribution or spending violations or mis-reporting. 

The basic principle underlying the disclosure, reporting and publication of campaign finance is to enable voters to obtain information about the sources of political parties’ (and/or candidates’) funding in relation to the election and the relative amount of resources each party can devote to its campaign. This purpose can only be achieved if information received from the parties is published before and after the election.

Information technology has greatly simplified the publication of political party financial reports, on the internet, so they are accessible to the public. Even in difficult post-conflict situations it has proven possible to provide for submission of financial reports by election contestants and the publication of reports on an ongoing basis by electoral authorities.[1]

The problem with financial reporting by election contestants is accuracy and completeness.  While many systems of financial regulation are complete in themselves, they rely on the parties for information and do not provide for any external (or “forensic”) auditing of the reports that are submitted. Often the authorities merely cross-check the records (receipts, vouchers and the like) that they receive against entries in the account-book of a special campaign fund.[2]  It is difficult or impossible to determine if a party’s finances exceed the reported level since relevant information (such as applicable media rates for advertising, donations of equipment, supplies and services or gifts by third parties to voters or their communities) cannot easily be tracked. Thus non-reported contributions and expenditures regularly evade inspection. 

A number of legal obstacles often apply to financial reporting, restrictions and prohibitions.  Sometimes the authorities (including electoral and State registration bodies) take the position that contributions to a political party or for its campaign are not reportable unless they are made pursuant to a legal agreement between the contributor and the party. 

General Issues

Viewed from a more general perspective, there are six main ways of regulating political finance:

• bans on funding from certain sources
• limits on contribution amounts
• expenditure bans
• expenditure limits
• public funding/subsidies
• campaign time limits
• full and public disclosure[3]

The first four of these involve election integrity questions.

Bans on funding from certain sources.

Political finance laws generally prohibit certain persons or organizations from donating to candidates, political parties or other electoral participants. Most commonly, foreign governments, organizations or individuals are prohibited from making contributions to electoral participants or spending funds on their behalf. Also, it is generally forbidden to accept funding from domestic government sources, including state-owned enterprises, or to use government facilities, personnel, materiel or other resources for political purposes. Some countries ban donations to electoral participants by corporations and unions, or tax-exempt charities and other non-profit organizations.

Some of the prohibitions are more understandable than others, and easily defensible as a matter of public policy. The political impact and fairness becomes more uncertain with more prohibitions.

Limits on contribution amounts.

Political finance laws often limit the amount of funds or the value of non-monetary (in-kind) resources that a donor may contribute to a particular electoral participant. The laws may set different limits for different types of donor – whether individuals, businesses and other legal entities, or independent political committees. The restrictions and the distinctions between types of donor are often politically contentious, posing difficult questions of equity and fairness. For example, low contribution limits may place new candidates or anyone challenging an incumbent at a disadvantage since they may lack a broad network of supporters that established candidates or incumbents have to help in fundraising. The imbalance is particularly acute if wealthy candidates are permitted to spend their own funds without limitation, while their opponents need to raise numerous small donations.

Expenditure bans

Political finance laws also ban certain types of expenditures, including gift giving (usually above a set amount), all cases of vote buying, and other forms of electoral fraud such as bribing election officers. It is critical that these regulations be well defined. If enforced, such prohibitions can be an effective way to promote electoral integrity.

Expenditure limits

Political finance laws sometimes impose spending caps—that is, limits on the total amount of spending by an electoral participant during the election campaign or another period. The intent is usually to prevent one electoral participant from financially overwhelming the competition. Again, such restrictions have political consequences and may give certain electoral participants an advantage. In addition, very low spending limits may make it difficult for new or “challenger” candidates to raise their profile in a contest with an incumbent, who has the advantage of name recognition and can draw on the perquisites of an office holder.

Thus, although the intention may be simply to reduce corruption and level the playing field, these methods of regulating private political funding are not neutral in their political effects. Moreover, restrictions on the sources and amounts of political donations—and especially expenditure limits—could lead to evasion and cheating.

The restrictions on receiving and spending funds require effective mechanisms for law enforcement, and these in turn require effective mechanisms for financial reporting, disclosure and transparency. Without such mechanisms, electoral participants who obey the restrictions are playing by a different set of rules from those who disregard the restrictions with impunity.

Finally, in political environments where election and/or judicial authorities are fundamentally biased and dishonest, legal restrictions on political finance may be arbitrarily enforced against opposition candidates.

Election integrity issues also arise with the use of public funding/subsidies for political parties, candidates and other electoral participants -- whether the funding is in addition to or in lieu of private sources. The values of fairness, equity, accountability and transparency assume particular importance when electoral participants are to be allocated public funding or other benefits, such as free broadcast time:

• Fairness and equity are crucial in deciding thresholds and requirements for eligibility, standards for the amount of subsidy (if the amount differs for each recipient), conditions on the use of funds or particular other forms of support, and timing of receipt of the subsidy or other benefit.
• Accountability and transparency are critical to maintaining election integrity standards in the way that public subsidies or other benefits are distributed and used. Fortunately, public funding (or rather the threat of losing public funding) provides substantial leverage in stimulating eligible electoral participants to meet higher standards of financial reporting and internal accountability controls.

Campaign time limits often are intended to limit the amount of money spent in a campaign. However, political parties and candidates can evade such limits by claiming that their pre-election efforts, such as identifying and selecting candidates, are merely organizational, and therefore non-political. Further, this approach may actually encourage more spending overall by allowing money to be spent without any limit outside the campaign period. [4]

Finally, full and public disclosure is a fundamental public control mechanism.