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.