6. Political finance

Ensuring transparency and integrity in the financing of political parties and electoral campaigns is crucial to effective policymaking and strong democracies. Financial contributions allow individuals and entities to channel their support to candidates, political parties and particular issues of interest to them. They are also a necessary resource for candidates and parties to run for elections and diffuse ideas and manifestos, facilitating competition and choice in elections and campaigning (OECD, 2020[12]).

However, the financing of political parties can also pose significant risks to the integrity of decision making. If the financing of political parties and electoral campaigns is not adequately regulated, money may become an instrument of undue influence and policy capture. These risks have recently come to the fore in the context of opposition to green initiatives and the securing of mineral rights, and in studies of foreign states’ attempts to manipulate democratic processes in OECD countries (Resimić, 2022[34]; Graham, Daub and Carroll, 2017[35]; Vandewalker and Norden, 2021[36]; Intelligence and Security Committee of Parliament, 2023[37]).

This chapter explores how some of OECD countries’ key mechanisms for managing transparency and integrity in political financing are performing. It shows that:

  • Anonymous donations remain a serious concern in many OECD countries.

  • Many political parties do not comply with transparency regulations.

In short, existing political finance regulations and institutions need an upgrade. They were designed to protect democracies in a national context many decades ago and have not evolved to protect against foreign influence and transnational corruption risks.

A lack of regulatory coverage in certain countries is leaving them exposed to undue influence through political financing. Anonymous contributions, especially where private donations play a significant role in a country’s political funding, increase the risk of policy capture and undue influence as they do not allow for scrutiny of the sources of funding nor an assessment of the lawfulness of donations. They also preclude scrutiny and overall analysis of donations and influence, such as trends in volume of donations by sector, or the share which certain donors have in the overall funding of political parties (OECD, 2016[38]). Yet, less than half of OECD countries ban anonymous donations leaving these countries quite exposed to undue influence and policy capture risks (Figure ‎6.1). This also enables other high-risk factors, such as foreign donations and donations from state-owned enterprises to contribute anonymously and circumvent current prohibitions.

Foreign donations can unduly influence candidates and political parties and lead to overrepresentation of foreign actors’ interests in public institutions rather than the domestic public interest. Restrictions on foreign donations and the transparency and traceability of funds are thus key elements to enhance democratic accountability and prevent foreign actors from unduly influencing domestic politics (OECD, 2016[38]). And donations from publicly owned enterprises, or state-owned enterprises (SOEs), can blur the line between public and private and distort governance framework agreements between SOEs and the state. Such distortion can lead to improper diversion of public funds to assert undue influence. They also increase the risk that donations are given in exchange for political allegiance, or that SOEs feel able to seek or accept exemptions not previously contemplated in the statutory or regulatory framework (OECD, 2019[39]). Improper political relationships between SOEs and public office holders can also affect the performance of SOEs, potentially leading to worse provision of services and outcomes for the public interest (Baum et al., 2019[40]). Strong rules which regulate these types of donations are therefore important safeguards to fair and representative democracies and effective policymaking.

Bans on contributions to political parties from foreign states or enterprises or state-owned enterprises are relatively standard regulations among OECD countries, with an average of 74% of countries having bans on these sources of funding in place (Figure ‎6.1). And three OECD countries do not ban any of these types of contributions to political parties (Figure ‎6.1).

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A political finance independent oversight body can improve co-ordination, information sharing, and responsiveness, and can ensure greater independence from the individuals and institutions it is responsible for regulating (OECD, 2016[38]; IDEA, 2014[41]). However, only 60% of OECD countries have an independent body with a mandate to oversee political financing (Figure ‎6.2). While many countries may have laws and regulations on party and election financing, if they do not support them with effective oversight institutions with the independence and legal authority to meaningfully regulate potential violators, regulations may be much less effective.

As well as establishing independent oversight institutions, reporting and transparency of political financing enables the proper functioning of oversight mechanisms and provides stronger safeguards against undue influence. Effective reporting of political financing is essential for responsible authorities to assess compliance and act where necessary. Transparent political financing builds trust in democratic processes, by enabling scrutiny of donations and political relationships, and helps responsible authorities uphold the rules. This level of scrutiny is particularly important in the context of political donations from foreign states, whose donations and attempts to influence OECD countries’ democratic processes could otherwise go unchecked.

However, requirements on political parties’ financial reporting and transparency are not always being observed. In only 15 OECD countries have all political parties submitted annual accounts within the timelines defined by national legislation for the past five years. And in just 12 countries have all political parties submitted accounts related to elections within the timelines defined by national legislation for the past two election cycles (Figure ‎6.3). Regarding transparency requirements, in 25 countries are financial reports from all political parties publicly available, and in 22 countries are all financial reports available on one single online platform in a user-friendly format (Figure ‎6.3). Enhanced adherence to political finance and reporting regulations is imperative for political parties.

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