Funding of Political Parties

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2 Original title Algemene Rekenkamer (2011). Financiering politieke partijen. Tweede Kamer, vergaderjaar , , nrs ISBN Den Haag: Sdu.

3 Contents Summary 1 1 Introduction 3 2 Party funding in the Netherlands 4 3 Party funding international context 14 4 Comparative studies 23 5 Conclusions 30 6 Response by the Minister of the Interior and Kingdom Relations 32 Annexe 1 GRECO member states 33 Annexe 2 Implementation of Council of Europe s recommendations in the Netherlands 35 Abbreviations 37 Bibliography 38

4 Summary 1 The funding of political parties has important implications for integrity and transparency in public administration. The public and private funding (gifts, donations etc.) of political parties is regulated by law. International organisations like the Council of Europe and the United Nations devote attention to this issue, particularly in the context of combating corruption. The Court of Audit attaches great importance to promoting transparency and integrity in public administration and for that reason has examined the rules and regulations governing political party financing. The Political Parties (Grants) Act (Wet subsidiëring politieke partijen, WSPP), enacted in the Netherlands in 1999, provides for a grant system for political parties that are represented in parliament. The annual budget is approximately 15 million. Although there are statutory provisions governing grants for local political parties, in 2009 the Minister of the Interior and Kingdom Relations introduced a grant scheme for educating and training councillors (Subsidieregeling vorming en scholing raadsleden). The WSPP contains a limited number of rules for donations and other private funding sources. Political parties or movements that do t accept members are t eligible for grants under the WSPP. In the Netherlands, grants to political parties are fairly small (per capita) relative to those of other European countries. Here, the size of the grant a political party receives depends in part on the number of paying members the party has. In other countries, only the number of seats in parliament or the number of votes a party receives is taken into account. The Netherlands is different from other countries in that grants are determined in part by whether the party has a research institute and a youth organisation. The Netherlands is conservative in its regulation of donations and other sources of private funding for political parties. So conservative, in fact, that it is t in compliance with some of the Council of Europe s recommendations to which the Netherlands has committed itself as a member of the Council and its Group of States against Corruption (GRECO). For example, in the Netherlands there are very few restrictions, if any, on the origin or size of donations. Many other European countries

5 impose restrictions on the type of dor (e.g. legal entities, anymous or foreign dors) and/or the maximum amount that may be given. Furthermore, the Netherlands is t in full compliance with the recommendations pertaining to transparency and there are sanctions on political parties that break the rules. 2 Under Dutch law, political parties are required to disclose in their financial statements donations of 4, and higher that are t received from natural persons. The name of the dor does t have to be reported if he or she objects. This is a high threshold compared to that of other countries. Transparency is limited and information is provided only via party websites. In 2008 GRECO published a critical evaluation of party funding in the Netherlands. It found that too little information about party funding is available to the public, and oversight and sanctions are inadequate. In response to the report, the Minister of the Interior and Kingdom Relations stated that the government agreed with GRECO s findings. In a subsequent report published in mid-2010, GRECO concluded that the progress made implementing the recommendations had been disappointing. A Bill that would eliminate some of the shortcomings in the current Political Parties (Grants) Act has been in preparation since It is still uncertain when the Minister of the Interior and Kingdom Relations, who bears primary responsibility for legislation in this area, will present the Bill to the Council of State (Raad van State). It is also uncertain whether the new legislation will eliminate all the relevant shortcomings. In a motion put forward by MP Pierre Heijnen and adopted on 7 December 2010, the House of Representatives asked the Minister to submit the Bill before 1 March In addition, at the end of November 2010 MPs Tofik Dibi and Gerard Schouw presented a provisional draft of a Private Members Bill on public disclosure of donations to political parties. To enhance the transparency of political party funding, new legislation should comply with the Council of Europe s recommendations on party funding. On 19 January 2011 the Minister responded to our report, stating that he saw reason to comment on it. He is currently considering the Bill prepared by the previous government and intends to submit it to parliament as soon as possible.

6 1 Introduction 3 The Court of Audit took stock of the rules on grants given to political parties and on other funding sources, such as gifts and donations. 1 We also investigated how these rules compare with similar regulations abroad and with the recommendations made by the Council of Europe Political party funding is of broad interest, nationally and internationally, because there are integrity risks associated with it that can affect how well a democracy functions. International organisations such as the Council of Europe and the United Nations are interested in this subject because it has implications for fighting corruption. In its investigation, the Court of Audit: 1 identified existing and future legislation on party funding; 2 examined how political parties are subsidised; 3 identified the requirements that funding from other sources (e.g. donations) has to meet; 4 identified accountability, transparency and auditing requirements; 5 determined whether political parties disclose information about their funding in annual reports or by other means; 6 compared the regulations in the Netherlands with EU rules and sought relevant European Court of Justice case law; 7 determined whether the Netherlands is in compliance with the Council of Europe s recommendations for transparency in political party funding. The first five points concern Dutch legislation on political party funding and are addressed in Chapter 2. Chapter 3 covers international regulations (points 6 and 7), including EU arrangements and the relevant recommendations drafted by the Council of Europe. Party funding regulations differ from country to country. Chapter 4 presents a summary of comparative studies conducted by others. Chapter 5 contains a number of general conclusions and Chapter 6 presents the Minister s official response to this report. 1 We did t take into consideration financial and other provisions for parliamentary operations, including MP remuneration and support for parliamentary parties.

7 2 Party funding in the 4 Netherlands 2.1 Public funding of political parties National political parties The Political Parties (Grants) Act (WSPP) of 17 May 1999 is the legislative framework for public funding of national political parties. Under section 2 of this Act, the Minister of the Interior and Kingdom Relations provides annual grants to political parties that participated in the most recent House of Representatives or Senate elections and won at least one seat. A political party is defined as an association whose name, in accordance with section G 1 of the Elections Act (Kieswet), is recorded in the register of appellations for elections of members of the House of Representatives (section 1, WSPP). In order to be eligible for a grant, a political party must have at least 1,000 members on the reference date (1 January of a particular year). Qualifying members are those who have the right to attend and vote at meetings and who pay an annual contribution of 12 or more (section 2, subsection 3, WSPP). This means that political parties that do t admit members are t eligible for a grant under current legislation. Under section 5 of the WSPP, grant money may be used only for expenses that are directly related to the following activities: political education and training activities; publicity; maintaining contact with sister parties outside the Netherlands; support for education and training activities pertaining to sister parties outside the Netherlands; political research activities; activities aimed at encouraging young people to become politically active; member recruitment;

8 involving n-members in activities that the party is permitted to use grant money to pay for; recruitment, selection and training of political office holders; electoral campaign activities. 5 The WSPP contains specific provisions on the use of grant money for youth organisations and research institutes of political parties. A party may designate one political youth organisation and one political research institute and conclude a grant contract with them. The youth organisation must be an association that is engaged exclusively or primarily in activities aimed at encouraging young people to participate in the political process and must have at least 100 members aged 14 to 27. The research institute has to be a legal entity that is engaged exclusively or primarily in political research. Size of grant and distribution Grants totalling approximately 15 million are paid out under the WSPP every year. A grant comprises the following elements (section 6, WSPP): A fixed basic amount (2008: 182,886 / 2009: 187,138 / 2010: 187,990). A fixed amount per seat in parliament 2 (2008: 53,046 / 2009: 54,279 / 2010: 54,526). An amount per member of the political party. The total ( 2,002,505 in 2008, 2,049,063 in 2009 and 2,058,386 in 2010) is divided among the parties in proportion to the number of members. If the party has designated a political research institute, it receives a basic amount ( 128,450 in 2008, 131,436 in 2009, 132,034 in 2010) and an amount for each seat in parliament ( 13,202 in 2008, 13,509 in 2009, 13,570 in 2010). If the party has designated a youth organisation, it receives an amount for each seat in parliament and an amount for each member of the youth organisation. The total for this grant component is divided up among the political parties proportionally. The total amount for the first category was 514,901 in 2008, 526,872 in 2009 and 529,269 in 2010 and an equal amount was divided among the parties in accordance with the number of members in the youth organisation. We compiled the following tables using data published by the Ministry of the Interior and Kingdom Relations on grants to political parties in the Netherlands in 2008 and Ten parties received public grants in those 2 This refers to seats in the House of Representatives. If a party has seats in the House, the calculation is based on the number of Senate seats it has.

9 years. Nine were represented in the House of Representatives and one 6 party, the Independent Senate Group (Onafhankelijke Senaatsfractie, OSF), had just one seat in the Senate. All of these political parties had an affiliated research institute and, with the exception of the OSF, a youth organisation with eugh members to qualify for a grant. 3 Table 1 Grants to political parties in 2008 (amounts in euros) Party No. No. of No. of Grant, Grant, Grant, youth Grant, of members youth general research organisation total seats members institute CDA 41 54, ,742, , ,781 3,594,445 PvdA 33 58,334 1,277 2,343, , ,013 3,076,936 SP 25 45,867 2,143 1,822, , ,693 2,382,448 VVD 22 36,832 1,294 1,609, , ,489 2,157,409 GL 7 17, , ,864 49, ,641 CU 6 26,766 1, , ,662 79, ,664 D66 3 9, , ,056 48, ,164 SGP 2 26,663 4, , , , ,339 PvdD 2 7, , ,854 22, ,274 OSF 1 1, , , ,633 13,556 11,347,734 3,079,608 1,018,999 15,446,341 Source: Ministry of the Interior and Kingdom Relations Table 2 Grants to political parties in 2009 (amounts in euros) Party No. No. of No. of Grant, Grant, Grant, youth Grant, of members youth general research organisation total seats members institute CDA 41 54, ,811, , ,448 3,689,447 PvdA 33 55, ,384, , ,196 3,123,645 SP 25 43,856 1,569 1,864, , ,929 2,394,179 VVD 22 36,678 1,294 1,649, , ,763 2,204,470 GL 7 16, , ,999 51, ,414 CU 6 25,378 1, , ,490 75, ,719 D ,604 1, , ,963 77, ,230 SGP 2 28,874 3, , , , ,707 PvdD 2 7, , ,454 30, ,977 OSF 1 1, , , , ,049 13,224 11,617,143 3,120,935 1,045,299 15,783,377 Source: Ministry of the Interior and Kingdom Relations At the beginning of 2011, when this report was completed, the grant settlement for the year 2010 had t been drawn up yet. The Ministry of the Interior and Kingdom Relations had only paid out advances equal to 80% of the estimated grant total for that year to the political parties. The grant advances for 2010 are given in the table below. 3 The PVV and TON did t apply or receive grants in 2008 or 2009.

10 Table 3 Grant advances for political parties in 2010 (in euros) 7 Party Advance for 2010 CDA 2,980,351 PvdA 2,470,053 SP 2,008,346 VVD 1,746,161 GL 773,140 CU 774,567 D66 578,760 SGP 624,478 PvdD 435,831 OSF 315,526 Total 12,707,213 Source: Ministry of the Interior and Kingdom Relations Financial accounting Political parties that receive WSPP grants are required to keep financial accounts so that it is always possible to check the party s receipts and expenditures and verify the rights and obligations that are relevant to determining the size of the grant (section 9, WSPP). Parties are obliged to retain their accounting records and the associated documents for ten years. In accordance with section 10 of the WSPP, parties must submit the application for a grant determination within six months after the end of the year. A financial report and an activity report must be submitted with the application. The financial report is an account of receipts and expenditures accompanied by explanatory tes that is relevant for determining the grant. The financial report is to be compiled in accordance with generally accepted standards. Cash-basis accounting is the obligatory method. The report should also state the number of members of the political party and of the political youth organisation, in so far as this is relevant for determining the grant. Political parties are required to engage an accountant to audit the financial report (section 11, WSPP) to determine whether it meets the requirements and whether the activity report, in so far as he can judge, is consistent with the financial report. The auditor also investigates whether the party is in compliance with the obligations associated with the grant and the accuracy of the reported number of members, in so far as this is relevant to the determination of the size of the grant. The auditor s report is to be submitted with the application requesting a grant determination Local political parties In 2009 the Minister of the Interior and Kingdom Relations set up a grant scheme for educating and training councillors (Subsidieregeling vorming

11 en scholing raadsleden). 4 National, provincial and local political parties can apply for this grant to cover the costs of training councillors and candidate councillors. 5 8 The size of the grant depends on the number of council seats the party has on 1 January of the year concerned. The total amount available for these grants each year is 400,000. The grant amount per council seat is calculated by dividing the total by the number of council seats of the parties that applied for a grant before 1 February of the year concerned. Only parties that are associations with full legal capacity are eligible for grants. Parties or groups that are organised differently and individual councillors may t apply for grants. The grant money is to be used to pay for education and training activities of the party or the association of elected and appointed representatives, or for the party s training institute. The party may also pay fees and costs for courses offered by third parties. The Ministry of the Interior and Kingdom Relations determines grants of up to 25,000 on the basis of the applications. Applications for grants of 25,000 or more must be accompanied by a financial report and an auditor s report verifying the accuracy of the report Political party broadcasts Government provides indirect funding in the form of free air time on radio and television for all the political parties represented in parliament. Extra air time is allocated to parties that take part in elections in all polling districts. In accordance with section 6.1 of the Media Act (Mediawet) the Media Authority (Commissariaat voor de Media) makes a number of hours of air time 6 available each year to political parties which won at least one seat in the most recent House of Representatives or Senate elections. In addition, the Media Authority allocates air time to political parties that field candidates in all polling districts for the House of Representatives or take part in European Parliament elections. 4 Ministerial order of 18 May 2009, , Government Gazette 2009,. 100, 4 June A local chapter of a national or provincial political party cant apply for a grant as a local party, r can a provincial chapter of a national party. 6 In total 18.5 hours of television air time in accordance with the Television Broadcasting Time Decree (Televisiezendtijdbesluit ) and 35 hours of radio time in accordance with the Radio Broadcasting Time Decree (Radiozendtijdbesluit ).

12 9 The Media Authority makes the air time available in a period immediately prior to the day that the relevant election is scheduled in the Netherlands. Neither the Media Act r the broadcasting time decrees (zendtijdbesluiten) stipulate how air time is to be allocated to the political parties. The Media Authority gives all political parties that apply and meet the conditions the same amount of air time. The order in which their messages are broadcast is decided by drawing lots Netherlands Institute for Multiparty Democracy The Netherlands Institute for Multiparty Democracy (NIMD) is an organisation of Dutch political parties that fosters democracy in Africa, Latin America, Southeast Asia and Eastern Europe. The NIMD receives funding from the Ministry of Foreign Affairs. Because the grant is t intended to finance Dutch political parties, it falls outside the scope of this report. For more information about the supervision of the NIMD, we refer to our report on the 2009 annual report of the Ministry of Foreign Affairs Private funding Section 18 of the WSPP requires political parties to disclose in their financial statements all donations of 4, or more that are t from natural persons. Successive donations from the same contributor that add up to 4, or more in a given year are to be treated as a single donation. Political parties are also obliged to report in their financial statements the total amount they receive in donations other than the contributions paid by members of the party (section 18, WSPP). The following information must be reported: the amount; the date on which the donation was made; the name of the dor (unless the dor objects, in which case a description must be given of the category 8 of institution or organisation to which the dor belongs). Section 18 of the WSPP is the only legal provision that sets parameters for private donations to political parties. No other rules are imposed on national and local political parties with respect to funding and associated transparency. 7 Court of Audit (2010). 8 No categories are specified.

13 10 Donations made by elected representatives to their party The WSPP contains provisions pertaining to the donations made by a party s elected representatives to that party. Political parties and their elected representatives are free to make whatever arrangements they choose. It is possible for a political party to conclude assignment agreements with its MPs. The Senate, the House of Representatives and local authorities are then required to transfer part of the elected representatives remuneration directly to the party. Because the Minister considers this an undesirable situation, at the end of 2009 a Bill was submitted to the House of Representatives to change the law so that in future payments must be made by the individuals concerned. 9 Access to political parties annual reports During this investigation we checked whether the 2009 annual reports of political parties could be found easily on the parties websites. This was possible in the case of five parties (PvdA, VVD, SP, CU and D66). The websites of the other parties did t offer any access as far as we were able to determine. Political parties that receive grants under the WSPP are required to present their annual reports to the Ministry of the Interior and Kingdom Relations. In principle, the Ministry does t disclose them, but in response to requests submitted under the Government Information (Public Access) Act (Wet Openbaarheid Bestuur) the Ministry posted the 2006 and 2007 annual reports on its website. Donations in the 2009 annual reports We studied the 2009 annual reports submitted to the Ministry by the political parties in order to determine what information they provided about private funding. We found that the various parties employed different methods of classifying and specifying their sources of income. Going by the annual reports, donations of 4, or more from sources other than natural persons are rare. Seven political parties included information about this category of donation in their reports. Two of them reported donations exceeding 4, One party reported a donation of 15,025 from a named natural person and the other parties disclosed donations from two named foundations, which gave a combined total of 110,000. The latter party also received a donation of 10,000 from a named natural person. The other five parties stated explicitly that they had t received donations exceeding 4, in House of Representatives, session, ,. 2.

14 Three of the ten parties that received WSPP grants for 2009 did t specify whether or t they received donations exceeding 4, The n-grant receipts of one of the three were so small that it could t have received donations exceeding 4, Legislative developments Bill on political party funding A few years ago, the Ministry of the Interior and Kingdom Relations drafted a new Bill setting out rules for grants and oversight of political party funding (Political Parties (Funding) Act, WFPP). This Bill was submitted to the Court of Audit in April 2006 for commentary in accordance with section 96 of the Government Accounts Act (Comptabiliteitswet), but still was never presented to the House of Representatives for debate. In 2009 the Ministry revisited the Bill. At the time, the policy department responsible 10 expected that the Bill would be ready for presentation to the Council of State in spring 2010, but this was t possible due to the fall of the Balkenende IV government in February 2010, the elections in June 2010 and the subsequent formation of a new government. Below is a summary of the main changes that are expected to be made to the Political Parties (Funding) Act with respect to the WSPP: Like political parties with an association structure, political movements without legal personality are expressly subject to the rules for party funding. The right to a grant will still be reserved for political parties that are associations and have the minimum number of members. Political movements and national subsidiary organisations of political parties will be required to register the names and addresses of dors who give more than 150; the limit on donations in kind will be 700. These limits will apply to each individual subsidiary organisation. Political parties will be required to report the names and addresses of contributors who give more than 3,000 in their financial reports. This provision does t apply to donations given by political office holders under the parties own rules or to bequests. When elections for the House of Representatives are called, each party will be required to give the Electoral Council (Kiesraad) a list of all donations 10 Directorate-General for Governance and Kingdom Relations / Public Administration and Democracy Department.

15 exceeding 3,000 received by the party or its candidates in the previous six months. The Electoral Council will then publish the list. The maximum donation a political party can accept from a single dor (natural person or legal entity) will be set at 50,000 a year. Parties will be required to register their loans and debts, stating the names and addresses of the creditors; debts and loans exceeding 25,000 are to be reported in their financial statements, along with the names and addresses of the creditors. The same rules apply to donations from natural persons. Payments in kind are explicitly included too. Grant funds will be distributed differently. The number of party members will count more heavily relative to the number of seats in parliament. The current ratio is 35:65 and the proposed ratio is 50:50. The total amount available for grants will be reduced to 13.6 million a year if the proposal is adopted. Political parties that win seats in parliament for the first time may use their grant to cover expenses they incurred during the electoral campaign. The Electoral Council will distribute the grants and monitor compliance with the law. The Council has the authority to impose administrative fines when the rules are broken. 12 The rules on donations received will t apply to regional, provincial or municipal chapters of the party on the advice of the Electoral Council, which doubted whether this arrangement was proportionate given the aim of the Bill. Contributions from chapters to the central party organisation are considered contributions to the party. The Bill was raised again in the debate on the Ministry s 2011 budget. The Minister anunced on 2 December 2010 that he intended to review the original Bill again. His plan is to submit the Bill as soon as possible, but he has t made a specific commitment as yet. MP Pierre Heijnen submitted a motion during the budget debate asking the Minister to submit the Bill before 1 March The motion was adopted on 7 December Private Members Bill on disclosure of donations to political parties At the end of November 2010 MPs Tofik Dibi (GL) and Gerard Schouw (D66) presented a Private Members Bill to amend the Political Parties (Grants) Act in relation to the disclosure of donations to political parties. 11 House of Representatives, session, VII,. 7.

16 The provisional draft of the Bill calls for political parties to disclose donations of 1,500 or more (per dor) per year. This would apply to donations by both natural persons and legal entities. In addition, political parties would be required to disclose the names of legal entities that are affiliated with them, and donations to these legal entities would also fall under the disclosure obligation. The preliminary draft also contains a sanctions provision. Breaches of the provisions carry a maximum fine of 20,

17 3 Party funding international 14 context 3.1 European Union EU Regulations Regulation (EC) No. 2004/2003 of the European Parliament and of the Council on the regulations governing political parties at European level and the rules regarding their funding was adopted in Regulation (EC) No. 1524/2007 of the European Parliament and of the Council of 18 December 2007 on the regulations governing political parties at European level and the rules regarding their funding made far-reaching changes to the 2003 Regulation, t least by adding the concept of the political foundation at European level. Foundations of this kind are affiliated with political parties at European level and carry out support activities for the party, such as research and analysis, and organising seminars and training for stakeholders, including youth organisations. Conditions for funding Political parties at European level may submit applications for funding from the general budget of the European Union. To qualify, a party must meet the following requirements: It must have legal personality in the member state in which it has its seat. It respects the principles on which the EU was founded, i.e. freedom, democracy, human rights, the fundamental freedoms and the rule of law. It has participated in European parliamentary elections or intends to do so. It is represented by members of the European Parliament or members of a national or regional parliament in at least one-quarter of the member states or, in at least one-quarter of the member states, received at least three per cent of the vote in each member state in which it fielded candidates in the most recent elections to the European Parliament.

18 When the party files its first application for funding it must submit a constitution specifying the bodies responsible for political leadership and financial management, as well as the bodies or natural persons holding, in each of the member states concerned, the power of legal representation, in particular for the purposes of acquiring or selling movable and immovable property and of legal proceedings. In addition, the party must submit a political programme setting out its objectives at European level. 15 The EU requires political parties at European level that apply for funding to: publish an annual statement of receipts and expenditures and statement of assets and liabilities; disclose party funding sources by submitting a list of dors and their annual donations for amounts exceeding 500; reject: o anymous donations; o donations from the budgets of European Parliament groups; o donations from companies which are potentially subject to direct or indirect government control, by virtue of ownership or financial participation or through the legal provisions that apply to the company; o donations of more than 12,000 a year per dor from other natural persons or legal entities; o donations by any public authority of a n-eu country. Spending restrictions Funds distributed to political parties at EU level from the EU s general budget or from any other source may t be used to fund other political parties (especially national parties or candidates) directly or indirectly. National rules continue to apply to funding of that nature. Funding from the EU budget may be used only for costs that are directly related to the objectives of the party s political programme, including administrative expenditure and expenditure linked to technical assistance, meetings, research, cross-border events, studies, information and publications, and to finance campaigns conducted in the context of the elections to the European Parliament. The funding of and restrictions on European Parliament election costs are governed by national legislation in each member state. 12 National law also applies to the costs of national elections and referendums. 12 Article 8 of the Act concerning the election of the representatives of the European Parliament by direct universal suffrage.

19 16 Size of grants and distribution For 2010 the EU made approximately 11 million available for political parties and an additional 7 million for political foundations at EU level. The funds are distributed to political parties as follows: 15% is distributed in equal shares; 85% is distributed among those which have elected members in the European Parliament, in proportion to the number of elected members. Funding from the general EU budget may t exceed 85% of the budget of a political party at EU level. Donations may be accepted from national political parties that are members of a party at EU level or from natural persons who are members of a party at EU level. However, such donations may t add up to more than 40% of the party s annual budget. Oversight The Regulation contains provisions on oversight by the European Parliament. European political parties are required to publish an annual report and have their accounts audited by an external, independent auditor once a year. The Regulation also confers powers on the EU Court of Auditors. Any funds improperly received by political parties at European level from the general budget of the European Union must be refunded to that budget. Differences between EU and Dutch rules The rules concerning the funding of political parties at EU level differ from the rules that apply in the Netherlands, in terms of distribution of funds and spending restrictions. Unlike the Dutch rules, the EU Regulation imposes explicit restrictions on the acceptance of certain types of donations. However, the EU Regulation does t contain provisions regarding transparency on donations from private individuals and legal entities. There are also sanctions, apart from the requirement to refund grants received improperly. European Court of Justice case law A number of actions against Regulation 2004/2003 have been brought before the European Court of Justice. 13 The applicants disputed t only 13 T-13/04 Bonde and Others, T-17/04 Le Front National and Others and T-40/04 Emma Boni and Others.

20 the necessity of the Regulation, but also its substance. For example, they consider that the Regulation violates the principles of proportionality and subsidiarity. They also claim that it does t provide adequate guarantees that the funds distributed will t be used for the activities of national political parties and discriminates against smaller and mirity political groups. On 11 July 2005 the Court of First Instance of the European Communities dismissed the three actions as inadmissible Council of Europe The Council of Europe takes various steps to promote democracy and combat corruption in the member states. The CoE has taken an interest in the funding of political parties and electoral campaigns for years, and has issued several publications and organised meetings and workshops on the subject. In 2003 it adopted recommendations on the funding of political parties and electoral campaigns (see 3.2.1). In addition, this is one of the themes of the review rounds in the member states belonging to the Group of States against Corruption (GRECO). 14 The evaluation report of the review held in the Netherlands was adopted in June The report is discussed in below Recommendations of the Council of Europe In the pursuit of its aim of promote democratic principles, the Council of Europe drafted recommendations (2003) on political party funding. 15 As a member of the Council of Europe and of GRECO, the Netherlands is committed to upholding the recommendations of the Council of Europe. The recommendations are summarised below: Objective, fair and reasonable criteria should be applied regarding the distribution of state support. What is considered reasonable in this context is t specified. However, states are advised to ensure that any support from the state does t interfere with the independence of political parties. Donations to political parties should be regulated by the state in order to avoid conflicts of interest, ensure transparency of donations and avoid secret donations and ensure the independence of political parties. States should provide that donations to political parties are made public, in particular those exceeding a fixed ceiling ( specific 14 See annexe 1 for a list of the GRECO member states. 15 Recommendation Rec(2003)4 of 8 April 2003.

21 amount is mentioned). States should consider the possibility of introducing rules limiting the value of donations to political parties and adopt measures to prevent established ceilings from being circumvented. Donations to political parties may be tax deductible. States should provide that donations from legal entities to political parties be registered in the books and accounts of the legal entities and that shareholders or any other individual member of the legal entity be informed of donations. The state should take measures aimed at prohibiting or strictly regulating donations from legal entities which provide goods or services for any public administration. States should prohibit legal entities under the control of the state or of other public authorities from making donations to political parties. Rules governing donations to political parties should also apply to all entities which are related to a political party. They should also apply analogously to the funding of electoral campaigns of candidates for elections and political activities of elected representatives. The state should prohibit or otherwise limit donations from foreign dors. The state should consider adopting measures to prevent excessive funding needs of political parties, for example by establishing limits on expenditure on electoral campaigns. States should require particular records to be kept of all expenditure, direct and indirect, on electoral campaigns, each list of candidates and each candidate. Political parties should be required to specify the nature and value of donations to the party. In the case of donations over a certain value, dors should be identified in the records. Political parties and the entities connected with them should be required to keep proper books and consolidated accounts. Political parties should be required to present their accounts to an independent authority at least once a year and to make those accounts (or at any rate a summary) public at least once a year. An independent authority should be charged with the supervision of the accounts of political parties as well as their presentation and publication. The state should promote specialisation in the judiciary and police in the fight against illegal funding of political parties and electoral campaigns. Proportionate and dissuasive sanctions should be introduced to promote compliance with the rules concerning the funding of political parties. 18

22 3.2.2 GRECO evaluation 19 To prevent and fight corruption GRECO carries out reviews in the member states to determine whether they are in compliance with the guidelines. The review process includes an evaluation of the state s rules on transparency of political party funding. In June 2008 GRECO issued an evaluation report on the situation in the Netherlands. GRECO concluded in its report that the legal framework in the Netherlands on the financing of political parties was t in line with the requirements of the Council of Europe s Recommendation (Rec(2003)4) on common rules against corruption in the funding of political parties and electoral campaigns. Specifically, the legal framework does t ensure that the electorate has sufficient access to information on the financial interests of political parties (and other groupings in parliament) and it does t provide for adequate supervision or an effective, proportionate and dissuasive sanctioning mechanism. GRECO considers the Political Parties (Financing) Bill (see 2.3) a first and significant step in the right direction because it recognises that there is significant room for improvement of the current legal framework on funding of political parties and addresses a number of concerns expressed in the report. GRECO issued the following recommendations to the Netherlands: Require all entities represented in parliament (political parties and other groupings) to submit an annual financial report which includes information about receipts, expenditure, assets and liabilities in a standardised format (accompanied by appropriate guidelines, if necessary). Require all entities represented in parliament to report at least once a year all donations and bequests received from natural persons (including party members) and legal entities, including information about the source of these donations (at least above a certain threshold), and their nature and value. Lower the current disclosure threshold of 4, for (corporate) donations in the Political Parties (Grants) Act to an appropriate level. Prohibit donations from dors whose identity is t kwn to the political party/grouping/candidate. Extend the applicability of the future provisions on donations (and possible limits on donations) to local and regional/provincial chapters of political parties and ensure that the accounts of political parties are

23 consolidated to include the accounts of local and regional/provincial chapters in line with article 11 of Recommendation Rec(2003)4. Take measures to enhance the transparency of fundraising activities by entities related, directly or indirectly, to political parties and other groupings in parliament. Take measures to ensure that the annual reports of political parties, as well as financial information on parties and other groupings represented in parliament currently t under any reporting requirement are disclosed to the public. Take measures to enhance transparency of income and expenditure of political parties at local level. Establish independent monitoring of political funding, including electoral campaigns, in line with article 14 of Recommendation Rec(2003)4 and provide the body to be entrusted with carrying out this monitoring (most likely the Electoral Council) with adequate powers and financial and human resources. Take further measures to safeguard the independent and impartial functioning of the Electoral Council and its Secretariat in the future supervision of political funding rules. Clearly define infringements of political funding rules and introduce effective, proportionate and dissuasive sanctions for these infringements. Clarify the provisions on sanctions in the Political Parties (Funding) Bill, ensuring that sanctions for violations of political funding rules can be imposed on all entities on which the Bill imposes obligations. Introduce appropriate sanctions for less serious violations of political funding rules, to complement the criminal sanctions provided for by the Political Parties (Funding) Bill. Consider providing the Electoral Council with the authority to impose sanctions for less serious violations. Provide advice and training to political parties and candidates on the applicable political funding regulations. 20 On 3 September 2008 the Minister of the Interior and Kingdom Relations informed the House of Representatives in a letter 16 that the government concurs with the criticisms in the GRECO evaluation. According to the Minister, GRECO s recommendations would be incorporated into the Political Party (Funding) Bill. In addition to the shortcomings cited in the GRECO evaluation, we find that the Netherlands deviates from the Council of Europe s recommendations on a number of other points. For example, there are 16 House of Representatives, session, VII,. 77.

24 ceilings on donations from foreign entities/persons and there is prohibition on donations from legal entities which are affiliated with any public administration or provide goods or services for any public administration. Nor are there any restrictions on spending by political parties and there are specialists in this field in the judiciary or police On 11 June 2010 GRECO (2010) issued a compliance report on the Netherlands which addresses, inter alia, the progress on the implementation of the recommendations on transparency of political party funding. GRECO concludes that the Netherlands progress is disappointing. Six of the thirteen recommendations have been partially implemented. The others have t been implemented at all. GRECO mainly bases its assessment that the six recommendations have been partially implemented on the fact that measures are included in the Political Parties (Funding) Bill. As indicated in 2.3.2, MPs for GL and D66 presented a Private Members Bill at the end of November 2010 on the disclosure of donations to political parties. The Bill addresses most of GRECO s objections to the current system of disclosure, but does t address GRECO s suggestions concerning: a ceiling on donations by a single organisation or individual; donations in kind; donations by companies that provide goods or services for any public administration; donations from foreign entities and individuals; the organisation of supervision of the accuracy and completeness of donations disclosed to the public; donations to local chapters of parties; a ceiling on party expenditure on, for example, electoral campaigns. 3.3 United Nations The United Nations Convention against Corruption, concluded in 2003, provides that states must strive towards transparency in the funding of political parties and of candidatures for elected public office (article 7 (3)). The United Nations Democracy Fund (UNDEF) was established as a result of the Convention. It financed a multi-year political funding project of the International Foundation for Electoral Systems (IFES). In November 2009 IFES published the Political Finance Regulation: The 17 See Annexe 2 for an overview on the implementation in the Netherlands of the Council of Europe s recommendations.

25 Global Experience. Though it contains specific guidelines, it describes a number of lessons learned from studies on and experiences with the funding of political parties and campaigns. 22 First, IFES concludes that money is essential for democratic politics. Regulation of political funding must t curb healthy competition between political movements. Nevertheless, regulation is desirable, because money is never an unproblematic part of the political system, according to IFES. The local environment and culture must be included in the discussions when a strategy is developed to regulate the funding of political parties and candidates. Effective regulation and openness can help to control the adverse effects of money in politics, but only if it is well designed and properly implemented. If it is t, regulation can even be abused to limit the options of political opponents. According to IFES, effective supervision is ather requirement and should be based on transparency. In its report, IFES states that despite the good intentions, much work remains to be done. Of the 136 countries that were parties to the United Nations Convention against Corruption by 1 September 2009, sufficient information to assess their compliance with disclosure requirements regarding the funding of candidates for political office is available in just 107 countries. Of those 107 countries, 61 (57%) have formal disclosure requirements for the income and expenditure of candidates (see also 4.2). IFES also points out the need to ackwledge the often significant gap between formal rules and practical application. In a large number of countries there is a lack of effective oversight.

26 4 Comparative studies 23 For this report, we took stock of the comparative studies that have been done on party funding. In 4.1 we discuss two studies on party funding in European countries. One was commissioned by the Ministry of the Interior and Kingdom Relations and conducted by Groningen University, and the other was conducted by the Council of Europe. In 4.2 we discuss two studies on party funding in countries outside Europe: IFES research into party finance in state parties to the United Nations Convention against Corruption and a study by Michael Pinto-Duschinsky, who is affiliated with IFES. 4.1 Research into party funding in European countries Groningen University The Ministry of the Interior and Kingdom Relations asked Groningen University s Documentation Centre for Dutch Political Parties (DNPP) to carry out a comparative study of regulations for government grants and private or corporate donations to political parties in Europe. The study did t examine grants to local or regional parties. The Minister presented the research to the House of Representatives in September The study provides an overview of regulations in Austria, Belgium, France, Germany, Ireland and the United Kingdom, and compares them with the regulations in the Netherlands. The researchers supplemented their investigation by studying GRECO reports on six other European countries: Estonia, Iceland, Latvia, Luxembourg, Slovenia and the Slovak Republic. The study shows that the legislation in the Netherlands (the Political Parties (Grants) Act 1999) is modest in comparison to that of many other EU member states. The researchers also found that per capita public spending on grants is lower in the Netherlands than in other countries (see table 4). 18 House of Representatives, session, VII,. 72.

27 Table 4 Direct government grants to political parties in European countries per capita (2008) 24 Country Amount in euros per capita Iceland Germany 5.79 Luxembourg 5.14 Austria 5.11 Estonia 4.46 Belgium 1.89 Ireland 1.35 Slovenia 1.30 France 1.20 Netherlands 0.93 Slovak Republic 0.92 United Kingdom 0.04 Latvia Average 2.58 Source: Documentation Centre for Dutch Political Parties / Groningen University Unlike other countries, the Netherlands distributes grant money partly on the basis of the number of paying members a party has; in other countries, grants are based on the number of votes and/or seats a party has. The Netherlands also looks at whether a party has a research institute and at the number of members of youth organisations; other countries do t take these factors into consideration in their distribution of grant funds. In Germany youth organisations of political parties are eligible for grants under legislation other than political party funding laws. The report also discusses limits on donations to political parties. Table 5 sets out the limits for each of the European countries surveyed; the researchers express reservations because the GRECO reports are t entirely clear in parts.