Moneyproofing our Political System

referendumPost by Iain McMenamin (Dublin City University)

The hydraulic theory of political finance holds that money, like water, will always find its way through cracks in the regulatory system.  Humans have become very good at waterproofing buildings.  It should also be possible to moneyproof politics, to ensure that political finance only flows through the approved channels. 

The current government has been criticised for the lack of progress on serious political reform.  However, it should be acknowledged that the coalition’s record on political funding has been impressive, even if it would have been very hard to ignore the Moriarty Tribunal’s recommendations.  New caps and disclosure thresholds have reduced the potential for donors to exert undue influence on Irish political parties.  In particular, corporate donations are unlikely to be a cause of corruption in the future.  Nonetheless, there are still cracks to be sealed.

The Standards in Public Office Commission (SIPO) has released draft guidelines for the disclosure of political party accounts.  The guidelines require political parties to provide an audited set of accounts that accurately reflect their overall financial situation.  This is welcome and useful.  Nonetheless, the bland categories of accounting do not tell us much about potential influence that financial relationships might give to particular interests.  I see two cracks in the current guidelines.

The first is the policing of the notion of commercial value.  In other jurisdictions, a lot of de facto donations evade disclosure and limit regulations by masquerading as commercial payments.  If a party receives money in return for goods or services, the price must reflect the commercial value of the goods or services to avoid classification as a donation.  Essentially, we have to trust the party and its auditor’s classification of payments.  SIPO does not have the mandate, never mind the resources to contest such judgements.  The banking crisis shows that it is difficult to sue auditors.  This might appear to be a classic case of who will guard the guardians, but, as so often in matters of political finance, the solution is simply more transparency.  Australian parties have to report all receipts over the threshold, whether it is a political donation or not.

The second crack is in relation to loans.  The guidelines will report the total value of outstanding loans, but the loans won’t be itemised and we won’t know to whom they are owed.  Moreover, we won’t know the interest rate.  Loans at below market rates raise the issue of commercial value again.  In other jurisdictions, notably the UK, pseudo-loans have helped parties hide massive donations.  Again, transparency solves the problem.  British political parties now have to disclose their loans.

The argument against further transparency is that it is an unreasonable burden on private voluntary organizations.  Parties have a special role in democracy.  That’s why they should have their own special accounting standards.  Irish parties now receive substantial public funding, some of which can be used to professionalize their accounting function.

If these cracks are not sealed, money will seep in.  Perhaps it has already.  SIPO is accepting comments on its draft guidelines until September 14.

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5 thoughts on “Moneyproofing our Political System

  1. In what way has the government been ‘impressive’?

    Fine Gael published on page 28 of its ‘New Politics’ document to publish accounts from 2010 and here we are in 2013 and still no accounts. The money declared and the amounts spent on elections doesn’t tally. Not one single government TD/Sen/Cllr or MEP (or non government either) publishes receipt for the expenses they receive and yet every single one of them receives the maximum amount – where does that money go?

    Enda Kenny alone has received €1 million in tax free unverified expenses since 2002 alone – on top of his salary and whatever other payments he receives for his campaigns. The idea that Fianna Fáil has the monopoly on brown envelopes and back handers is an insult to peoples’ intelligence.

    There is no lobbying regulation and yet time and time again we find out that a bill or regulation here and there was tweaked for the interests of certain corporate interests – why? Why does the same not happen for other people who have just as valid needs for tweaks on issues that affect them.

    Then look at the second and third homes and local offices paid for by the taxpayer but where the TD retains ownership – why? Why can’t TDs share local offices in a state building – like in the local social welfare office. Wouldn’t it be cheaper for the State to buy some unused hotel/guesshouse and refit it out so that TDs who need accomodation can have it but allocated to the seat like in Sweden.

    Every cent claimed in expenses should have a published receipt.
    Every cent spent on an election campaign (as in every activity that is politically related) should be declared and every cent from €5 from your granny to €5k from some corporate lobby should be declared.

    Ideally there should be state funding as the long term cost would be cheaper than paying for the mistakes caused by decision making due to corporate lobbying.

    But in all things it all comes down to ethics and integrity – an honest person wouldn’t need a sea of legislation but ethics doesn’t rank high in Ireland, in the type of person who gets through a selection process and in the attitude of voters – look at the rallies for Quinn and wait and see Lowry top the poll again.

    The bottom line is that politics should involve sacrificing private sector earning potential so as to serve your country, not using politics as a means to enrich your self far and above what you would have earned if you’d stayed in the private sector. Look at the current cabinet – all of whom are far wealthier than they would have ever have been had they stuck with their original career choices, which explains why the calibre of politicians are so poor when compared to previous generations (even allowed for all the faults they had in the past).

    All it would take is for one person to have the honesty to publish receipts. To publish audited accounts of where they got the money from for their election campaign and how it was spent. To publish their diary and detail all their contacts (in what ever form) with lobbyists.

    Just one person could set that example. Sadly it seems setting the bar that low is still too high for an Irish politician.

    • I think we agree transparency is virtually always a good thing when it comes to money and politics and that Irish politics still has quite a few financial secrets. Actually, I think all public-sector salaries and expenses should be published. I don’t think Fine Gael has an impressive record of transparency in financial matters. Indeed, they seem to have organized their affairs over the last ten years so that they have very little to report to SIPO. I do think the 2012 act is a good piece of legislation. It has effectively removed legal corporate donations from the financial repertoire of Irish parties, while reducing the threat of undue influence from individuals too. Irish politicians’ expense claims are sad and pathetic but don’t warp public policy generally. I think the real threat to good government is money coming from the corporate sector. This is where the usurpation of the public by the private can have massive consequences.

      • If ‘legal’ corporate donations have been dealt with then where does Fine Gael keep getting so much money from? It’s national draw funding and State funding doesn’t come close to the money it spends.

        If by default its illegal then why does SIPO not do anything?

        Swedish FOI applied the same way would go a long way to changing attitudes to transparency but of course such a change would only happen over TDs’ dead bodies.

  2. Legalised corruption is endemic and removing a threat to political careers is to only possible way political finance reform will be accepted. I think that a top down approach gives discressionary power to a few at a choke point behind closed doors. A bottom up choke point is far better.

    I think with a good law donors will be limited to €200 in aggregate to all political donations per tax year; no more leaflet drops, no more €200 plate political funding dinners & increased active membership drive. SIPO will have to devise a system where by membership fees and merchandising will not replace donations. Donors have to be registered to vote at the local level in Ireland (includes residents), while excluding body corporates thus empowering citizens and residents.

    The key is to have a choke point where all lobbying groups, politicial parties can only accept donations through SIPO monitored political bank a/cs. These can be in a the SEPA zone, but have a transaction lodgement limit of €200. No cash donations or benefit in kind services (PR) as these will be subject to a Revenue audit. Tip offs to SIPO should keep everyone paranoid.

    Transfers can only be from a Irish registered bank account (with a PPSN these days) or via an Irish post office money order to a listed bank account with an identity number stamped by the postmaster/mistress. No more anonymouse donations.

    First offense – Donors are named and shamed in the press, receivers just return the money. Second offense – Revenue Commissioner audit the donor and name and shame the receiver. This stops donors entrapping receivers. Subsequent offenses get a fine of twice the amount of the donation to a minimum of €200. The Revenue commissioner audit of the receive if s/he fails to contact SIPO within 5 working days from an illegal transaction entering an account.

    A facility will exist, that requires activation by the account holder, for banks to automatically reject transactions and notify SIPO of a lodgement(s) by the same account in excess of the limit. Banking fees for these specialist accounts will be paid by the tax payer with SIPO disclosing anonymised transactions or mean/modal statistics. All payments from political parties and lobby goups must come directly from the bank account. Offenses for breech of this should be the same as for fraud.

    • Interesting idea to bring transparency close to its logical conclusion by allowing SIPO access to bank accounts and declaring all other income illegal. Actually, I think there is an even stronger case for disclosure of this type for the state itself. The parties are legally, and to a substantial extent substantively, private entities. The state is (supposed to be) “us”. Your proposal goes some way beyond “Freedom of Information”.

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