The article has been prepared for analytical articles’ contest on "Public Administration Reform in Georgia“, announced by the Institute for Development of Freedom of Information (IDFI) within the EU-funded project “Contributing to PAR through Civic Monitoring and engagement”. The content may not reflect the opinion of IDFI/the European Union.
Author of the article: Nika Khomasuridze
Discussions on the regulation of political finances began in Georgia in 2003, after which the Georgian legislation underwent several waves of amendments and chose the path of strict regulation in this area. The norms regulating political financing are scattered in various normative acts: the Organic Law on Political Association of Citizens, Election Code, etc.
Considering the current practice, there are significant challenges both in terms of the legislative framework, as well as its implementation and monitoring, posing a threat to representative democracy.
Political parties and election candidates face an unequal environment daily. The difference in terms of political funding between plutocratic parties and newly created entities with scarce resources is often a decisive factor in the political race. For example, 46% of total donations for the 2020 parliamentary elections went to the ruling party.
In addition, citizens' political unions do not have sufficient state funding for a full-fledged election campaign and systematic party development. For example, a party does not have the opportunity to receive funding based on the results of local government elections.
There are gaps in the activities of the State Audit Office in terms of monitoring political finances. The Audit Office has insufficient investigative powers and institutional capacity to oversee the circulation of political money throughout the country.
Lack of information and nihilistic attitudes among the voters towards reducing the risks of political corruption by the state is one of the impediments to democratic processes.
Every state that understands the role of sound election processes and strong political actors in the process of building representative democracy needs to support the principles of political accountability and transparency, the latter being an important indicator of confidence in political systems.
In the modern world, the impact of financial resources on political processes has increased. The difference between the finances of political entities creates unequal conditions for parties and candidates, which may lead to fundamental erosion for democratic shifts. The state must guarantee fair competition and create equal and fair conditions for the political race.
It is impossible to find a state that has been able to fully address the challenges in terms of political finance. Political funding is not an independent field that can be regulated by a linear approach and the development of a legal framework. To maintain the degree of transparency and accountability refining the number of normative acts on the one hand and strong cultural and civic elements for effective implementation on the other are necessary due to its complex features.
Significance of Political Finance
Political financing is a major tool in political processes. There is no universal definition of political finance. According to the general definition by the Organization for Economic Co-operation and Development (OECD), “resources raised and spent by parties and candidates for political competition” are political finances (OECD, 2014, p. 5). On the other hand, the International Foundation for Electoral Systems (IFES) offers two forms of political financing noting that political finance is the sum of the financial resources held by a party for organizational operations and actively used during the election campaign. (IFES, 2013, p. 8).
Thus, political finance is the fuel for political campaigns, which is vital for a pluralistic political environment (Bértoa & Molenaar, 2014, p. 356). Political parties are complex organizations that are in dire need of stable resources for organizational support; for relations with the electorate; for development of party programs and action plans; to carry out election campaigns, etc. “Thus, money plays an important role in political competition and is "an instrument for gaining political influence" (Federman & Alexander, 1989, p. 10).
International practice defines two types of public and private political finance. According to the legislation, part of the accumulated amount in the budget is used to finance political actors in various ways, such as direct funding from the budget, subsidizing the campaign expenses, exemption from the taxes, etc (See Annex 1). While in the case of public financing, taxpayers act as indirect donors, in the case of private funding, entities directly donate the money to the desired party. Any kind of contribution, be it financial, physical, or intellectual can be considered as political finance. Approaches of different states to donors differ - 67.3% of countries worldwide prohibit donations from foreign individuals or entities. It also imposes monetary limits (45.8%), prohibits anonymous donations (67.8%) and introduces other regulations (See Annex 2) (IDEA, 2020). Thus, the degree of state intervention directly affects the volume of political money circulating and at the same time creates shadow funding threats.
The Role of Transparency and Accountability
Transparent political finances are a cornerstone of democratic electoral systems that build trust in state institutions. High levels of transparency contribute to increasing citizen involvement in political processes. The taxpayers should have full authority and information about the disposal of the finances issued by them. The higher the level of awareness of the citizen, the more the citizen has confidence in specific subjects and the more he/she expresses the willingness to engage, which can be expressed in the form of donations or other contributions. On the other hand, on electoral subjects the burden of accountability is increasing and in response to the threat of a decline in political dividends caused by the loss of support the quality of reporting is improving.
The founders of political parties are often oligarchs thus the difference between a plutocratic and a newly established party with few resources is huge. Especially in developing countries, where public wealth is low, it is difficult for parties to receive the number of donations from the population to compete with rich political players. Given that the political entity is accountable to the sponsor, the influence of bigger donors (so-called Fat Cats) on party interests increases, while the importance of party programs and connection to the population weakens. As a result, this formation of accountability contributes to the risk of gaining political influence and capturing the state by specific entities.
According to the National Parliamentary Library of Georgia, discussions on the importance of regulating political finances began in 2003, since the Council of Europe focused on the degree of transparency of political finances (Council of Europe, Committee of Ministers, 2003, pp. 2-14). Georgian legislation underwent several waves of amendments to regulate political finance and chose the path of strict regulation in this area. The norms regulating political finances are scattered in various normative acts: the Organic Law on Political Associations of Citizens, Election Code, Criminal Code, Administrative Code, Law on State Audit Office etc.
As characteristic to parliamentary systems, Georgia's institutional approach to political finance is party-centered (party-centered model) and passive towards candidates (candidate-centered model). Accordingly, the state regulates the rules of issuing and supervising funding. Considering the current practice, there are significant challenges in the Georgian legislative framework, its implementation and political finance monitoring field, posing a threat to representative democracy. The difference between the resources of political parties should also be noted, which creates an unequal environment for political actors. Although the legislation provides for both private and public forms of funding, government party finances are still uncompetitive - 46% of total donations for the 2020 parliamentary elections went to the ruling party (State Audit Office, 2020). This difference is difficult to balance with the sources of state funding, which is only 10 percent (GEL 3.7 million) of the total financing (GEL 38.1 million) for the parties.
Citizens' political associations can only receive funding based on the results of the parliamentary elections, which is a demotivating factor for small parties to run in local elections. It is noteworthy that to increase the quality of decentralization and municipal development, it is necessary to staff a multi-party representative body.
Georgian legislation allows legal entities to make private donations. Often the big donors to the ruling party become the winners of state procurement (Transparency International Georgia, 2021, pp. 17-24). In addition, the donations made and the winning of the tender coincide with the same period, which calls into question the integrity of the processes and raises suspicions of elite corruption.
The use of administrative resources in election campaigns is often observed in Georgia, despite its strict prohibition by the Election Code, public servants are still often involved in agitation while performing their official duties (Transparency International Georgia, 2020, p. 33).
According to public statements by political actors, the pandemic had a significant impact on electoral processes, especially in terms of political finance. As the Coronavirus pandemic triggered an economic recession, rising unemployment and declining wealth, donations to political parties increased by GEL 33.3 million compared to previous years (State Audit Office, 2020). Is it legitimate to question: while facing the negative impact of the pandemic, what led to the sharp increase in donations, the rise of the shadow (illegal) political money flow or the strong desire for political change in the population? Unfortunately, there is no indicator to measure the latter.
The transparency of political finance is directly related to the degree of perception of party accountability, as evidenced by the political party Girchi. The mentioned political union has been refusing to cooperate with the Audit Service since the day of its establishment. Despite the imposed sanctions, the party continues to function uninterruptedly. In addition, the State Audit Office's Political Finance Monitoring Department employs less than 10 people, which is insufficient resources to oversee the issue countrywide. It is clear that the Audit Office does not have effective punitive and investigative powers to respond effectively to violations.
The development of the digital world has had a significant impact on political processes, the field of political financing has been affected too. In the context of the Coronavirus pandemic, election campaigns have shifted to the social space and it is logical that the spending of political money on Internet platforms has increased. Georgian legislation does not have a tool to monitor the resources spent on social media. The same applies to the use of cryptocurrency for political financing purposes. Due to its nature, it is almost impossible to monitor cryptocurrency flows.
Evidence of the failure of the development of the field of political finance is the bill initiated by the ruling party in the Parliament of Georgia in September 2020, which aimed to create an Anti-Corruption agency, but for unknown reasons the adoption of the bill was postponed (Parliament of Georgia, 2020). This act can be interpreted as weak political readiness to strengthen oversight mechanisms.
As for the challenges in the field of private financing, the norms that have lost their practical significance are noteworthy, bypassing the law is not an obstacle. Under Georgian law, individuals are not allowed to make donations of more than GEL 60,000 per year, while legal entities are not allowed to make donations of more than GEL 120,000 per year (Parliament of Georgia, 2020). Given the current practice, it is easy to find so-called intermediary donors who can make a donation on behalf of someone else.
Public involvement and voter awareness play an important role in increasing the accountability of political actors, the informed electorate monitors the activities of the parties themselves, including their financial activities, and “forces” them to follow the “rules of the fair play”. The low awareness of the population in Georgia is shown in their flawed donations and low susceptibility to corruption.
The above-mentioned challenges, which can be classified as legislative, implementation and monitoring problems, require immediate response to reduce corruption risks and increase confidence in state systems.
Creating an equal and fair environment for political parties and candidates, reducing the risks of elite corruption, raising public awareness, targeted use of state resources and maintaining effective oversight mechanisms, are factors that not only improve the political, economic and social situation of the country, but also establish Georgia as a credible partner. A successful model of political financing is one of the cornerstones of representative democracy, which cannot be built without a high degree of transparency and accountability.
- To eliminate an unequal environment for political entities, it is necessary to reduce the barrier for receiving funding. In addition, political parties should be able to receive funding based on the results of local self-government elections;
- It is important to reduce monetary thresholds on private political finance, which will reduce the amount of shadow funding;
- Engagement in public procurement of legal entities that are political donors need to be limited;
- Georgian legislation needs to be improved in terms of the declaration of cryptocurrencies and social media campaign costs;
- An Anti-Corruption agency needs to be established for the effective enforcement of a supervisory/monitoring mandate; The agency will be staffed with the involvement of civil society and will be equipped with effective investigative and enforcement powers;
- The government, civil society, and the media should pay more attention to raising the awareness of voters to eliminate political corruption.
References
1. Organic Law of Georgia On Political Associations of Citizens, 1997, available at: https://matsne.gov.ge/en/document/view/28324?publication=34.
2. Parliament of Georgia, briefing on the anti-corruption reform legislative initiative, 1 September 2020, available at: http://www.parliament.ge/en/parlamentarebi/news1/sainformacio-brifingi-antikorufciuli-reformis-sakanonmdeblo-iniciativis-taobaze.page.
3. State Audit Office, Political Finance Monitoring, Tbilisi, 2020, available at: https://monitoring.sao.ge/ka/elections/parliamentary-elections/%E1%83%AC%E1%83%9A%E1%83%98%E1%83%A1-%E1%83%A1%E1%83%90%E1%83%9E%E1%83%90%E1%83%A0%E1%83%9A%E1%83%90%E1%83%9B%E1%83%94%E1%83%9C%E1%83%A2%E1%83%9D-%E1%83%90%E1%83%A0%E1%83%A9%E1%83%94%E1%83%95%.
4. The International Foundation for Electoral Systems (IFES), Political Finance Oversight Handbook, Washington, 2013.
5. OECD, Money in Politics: Sound Political Competition and Trust in Government, Paris, 2013, available at: https://www.oecd.org/gov/ethics/Money-in-politics.pdf.
6. Council of Europe, Recommendation on common rules against corruption in the funding of political parties and electoral campaigns, Brussels, 2003, available at: https://www.coe.int/t/dg1/legalcooperation/economiccrime/cybercrime/cy%20activity%20interface2006/rec%202003%20(4)%20pol%20parties%20EN.pdf.
7. Federman, J., & Alexander, E., Comparative Political Finance in the 1980, New York, Cambridge University Press, 1989.
8. Political Finance Database (IDEA), available at: https://www.idea.int/data-tools/data/political-finance-database.
See Annex.
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