Loopholes in regulations, especially those concerning the funding of politics, arise only in part from careless legal drafting. They are inherently difficult to avoid. It is therefore important, not only to examine particular loopholes, but also to understand the basic reasons why they occur, and the choices between incompatible objectives that policymakers are obliged to make.
Why Loopholes are Hard to Eliminate
The flow of money into the political arena may be compared to water running down a hill into a number of rivers. If one river is blocked, the flow is likely to carve out a new channel. In the same way, the introduction of new laws to restrict or control contributions to political parties or to campaigns may merely have the consequence of diverting the money through alternative or unexpected routes.
There are many examples of this 're-channelling' process. In the 1960s, the German constitutional court imposed various restrictions on the funding of political parties. It ruled that public subsidies could be given only for the parties' campaign activities; it was not permitted to subsidize their routine organizational activities between elections. This constitutional decision was easily evaded. Public subsidies for such routine activities were given to 'party foundations'. These bodies were legally distinct, and were therefore not covered by the restrictions on parties. In practice, each foundation was closely linked with its parent party. The distinction between 'party' and 'party foundation' was little more than a legal fiction, see Political Foundations.
The 'party foundation' technique has been copied frequently. In the United States, political research organizations (known as 'think tanks') are not covered by the same laws as political parties. A business corporation is not permitted to make a payment to a political party, but it may contribute heavily to a 'think tank', even if the think tank is closely connected with one particular political family.
More generally, there is a whole range of interest groups, religious organizations, and media actively involved in public affairs and in partisan debate. Since they do not present candidates for electoral office, they are not legally defined as 'parties'. The existence of this variety of bodies presents a dilemma for legislators seeking to control the use of money for political purposes. On the one hand, it seems to make little sense to regulate parties alone without also attempting to regulate these other organizations as well. On the other hand, any attempt to expand the scope of regulation to cover not only parties and candidates for electoral office, but also pressure groups, media, and religious organizations will lead to intolerable limits on the freedom of speech and on individual liberties.
The problem is illustrated by a British example 6. In the British general election of 1992, the two main parties - Conservative and Labour - spent approximately the same on their campaigns. However, many Labour party supporters complained that almost all the national newspapers with the highest readerships supported the Conservatives. What use was the relative equality of spending by the party organizations - it was argued - if public opinion was manipulated by a few pro-Conservative multi-millionaire newspaper proprietors? Some argued that there should be limits on the way in which newspapers are permitted to report on election campaigns. To others, such a drastic limitation on press freedom would be too heavy a price to pay, even if the objective was to assure that the messages of the opposing parties were fairly heard, see Interest Groups: Third parties.
Examples of Loopholes
Examples are legion. Some examples are given in other entries.
- If regulations apply to political parties and to candidates for public office, but do not apply to the political activities of pressure groups or to personal funds collected by politicians, then there will be a tendency to evade the rules by re-directing money from parties and candidates into these allied, uncontrolled bodies, see Interest Groups: Third parties.
- Donations of 'contributions in kind' instead of financial payments. For instance, putting cars, apartments, offices, telephones at the disposal of a party or candidate, see In Kind Contributions.
- Bogus business ventures of political parties. A political party may provide a service for which the donor pays above-market rates, thereby disguising what are essentially political contributions. Common examples are party yearbooks and publications in which corporations and individuals purchase advertising space, or 'consultancy' and advisory services provided by party officials. Or multiple purchases of party newspapers, literature, and political paraphernalia such as buttons, rosettes, ties, and so forth, see Profits from Party-Owned Business Activities.
- Evasion of disclosure regulations. If political donations by an individual or by a corporation must be declared if they are above a certain threshold, they can be evaded by arranging for a series of contributions, each of them slightly below the amount at which the requirement for declaration takes effect. If the disclosure barrier is DM 20,000, then contributions of DM 19,999 can be made by a husband, wife, several children, employees, and by each of several companies owned by the donor family, see Disclosure Regulations.
- Bans against foreign contributions to elections are easily evaded. In some cases, parties wishing to receive foreign contributions have established 'independent' 'non party' foundations to receive the money. In other cases, payments have been made through domestic subsidiaries of foreign companies, see Bans Against Certain Kinds of Contributions.
Strategies to Restrict Loopholes
A combination of approaches is likely to prove most effective. The laws themselves must be carefully drafted and not over-ambitious. Sanctions must be introduced as part of the regulations, and they must be enforced.
In addition to the legal apparatus of control, it is important to achieve, whenever possible, a cross-party consensus and public backing for the regulations. Public disapproval of behaviour by politicians that breaches the letter or the spirit of the law is a greater deterrent than the possibility of a fine or some other penalty. Also, one political party will be more inclined to obey the laws if it feels that its opponents will do likewise. Education, consultation, and even codes of conduct may therefore prove beneficial.
An example of the role of informal pressures and agreements is the success of the regulations introduced in Britain in the Illegal and Corrupt Practices Act of 1883, to limit spending by candidates for the House of Commons. It has been pointed out frequently that the limits introduced by the Act had important loopholes. In particular, they applied only to local election campaigns, and not to the expenditures of the parties' central headquarters. However, the fact is that the new law did work, insofar as it produced a decrease in the overall costs of campaigning. This was almost certainly because the new law embodied the wishes of politicians from the main parties in the House of Commons who all wished to see an end to the escalation of costs which had been so difficult for them all to bear.
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