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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by Jean-Pierre Méan
RELEVANT PROVISIONS OF ICC RULES AND THE OECD CONVENTION
Article 1 of the 2005 edition of ICC Rules of Conduct on Combating Extortion and Bribery provides that enterprises should prohibit bribery and extortion, and defines bribery to include:
“ ... the offering, promising, giving or accepting of any undue pecuniary or other advantage to or by: a political party, party official or candidate in order to obtain or retain a business or other improper advantage, e.g., in connection with regulatory permits, taxation, customs, judicial and legislative proceedings”.
Article 4 of the Rules deals with political and charitable contributions and sponsorships and provides:
Accordingly, ICC Rules of Conduct permit political and charitable contributions and sponsorships if they are made transparently and in accordance with the law, and are not used to obtain an improper advantage. Where the latter is the case, contributions to a political party or a charity or sponsorships constitute a bribe in the same way as any undue advantages granted to a public official, and should therefore be prohibited.
By contrast, the OECD Convention is limited to the bribery of foreign public officials and does not address the issue of political contributions. Item 10 of the Commentaries on the Convention recognizes that “ ... there is a commonly shared concern and intent to address this phenomenon through further work”. However, at this point, contributions to political parties or politicians who do not hold any legislative, administrative or judicial office are not covered by the Convention.
The issues
Political parties and democracy
Political parties are a crucial elements of a democratic system and are also a key factor in protecting the liberties of expression and association. When individuals have the right to express themselves freely and publicly, they will articulate different opinions, and those sharing the same ideas will naturally join forces to work toward their common goals. The expression and consideration of various currents of thought will permit the development of pluralistic structures in the political arena similar to what competition is to the economy. This will serve to reinforce the legitimacy of the decision-making process by screening issues through a wide spectrum of diverging opinions.
Attempts to establish democracy without political parties, such as in the early days of the American Republic, have failed. On the other hand, there cannot be true political parties in non-democratic systems but, at the most, factions representing tribal, ethnic or religious divisions with no plan for the future beyond their own interest. The “single parties” of authoritarian regimes do not permit the emergence of a differentiated public opinion but, on the contrary, diffuse the official “party line” and prevent any deviation from orthodox thinking.
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Political parties are a bridge between state institutions and civil society (a role for which they are often challenged by NGOs). They develop a programme for state action, take positions on issues arising in the legislative process and make those positions known to the public. They also identify candidates for office and help them make their ideas known. Thus, political parties make an essential contribution to democracy by facilitating the participation of the largest number in the political process.
Essential financial resources
Political parties need financial resources in order to fulfil their role. Although a large number of volunteers will turn out to help in an election campaign, every party needs permanent staff for professionalism and continuity. The major area of spending, however, is for advertising, media time and printing in order to disseminate the party’s ideas and programme and to mobilize voters.
The 2008 US Presidential election was arguably the most expensive political campaign in history. Its spending topped USD 500 million for each candidate. This was more than 15 times the amount spent in 1976 and more than one-and-a-half times the amount spent in 2004.
Although the costs of a US presidential election dwarf the costs of similar campaigns in other countries, there is a consensus that the costs of politics is exploding everywhere, with the most important cost item being electoral advertising in the media.
Power and funding needs
Political parties do not exercise power directly, but they are in the antechamber of power. They organize and designate the members of the legislature and, to a certain extent, the executive and judiciary. They commonly use their position as political power brokers in order to procure financial resources or for purely partisan goals. This may be the object of an explicit commitment to large contributors, but even if it is not, when the election has been won, party officials are likely to accommodate these backers in the hope that the flow of money will continue.
Contributions to political parties can help build up a network of contacts and secure access to the highest levels of government, which is not questionable as such. However, the interaction of private interests with those of party officials can also occur in such hazardous areas as the awarding of public works contracts, the granting of permits and licences, the drafting of new laws, the granting of titles or the nomination to positions in the civil service or to ambassadorial postings.
Where the regulatory framework is weak or lacks independence, political parties have been highly creative in harnessing resources often in questionable ways. In order to build up their war chests, political parties in power have used subterfuges,[Page147:] such as adding fictitious or non-working employees to the payroll of a state or local agency or levying a quasi-tax on construction companies that are awarded public works contracts. In all of these cases, the public interest is derailed by reciprocating financial support with illicit favours. It is not surprising that, at a time when the costs of the political process is increasing exponentially, widely publicized scandals in many countries have highlighted the dark side of party financing. These scandals and the lack of transparency in party financing have stirred up considerable mistrust of the political process.
Party financing
Several attempts have been made to curb abuses in the financing of political parties by addressing the various sources of funding. The questions which arise in this context include the following:
So far no single system has come up with the ultimate solution to party financing in spite of a wide spectrum of different approaches, some leaning towards more public funding, others towards limitations on private contributions and detailed reporting. There probably is no perfect solution, and the optimum compromise is some combination of these approaches.
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Some legislative approaches to party financing
A brief survey of national approaches to party financing shows that the methods vary widely from country to country, going from total regulatory freedom to practical exclusion of private financing. Legislation on party financing is also relatively new and therefore changing quickly to close detected loopholes or adapt to new circumstances.
In a minority of countries, the financing of political parties is left entirely to the private initiative. This is the case in Sweden, where the issue has been raised and the decision taken to abstain from legislating. This is also the case in Switzerland where the issue has never been confronted head-on, and the financing of political parties is an area of great opacity. So far, this lack of transparency has not been perceived to interfere unduly with the democratic process, because of the relatively low level of funds invested in the political process. However, this is changing, and there is a growing unease about the increasing resources engaged in the promotion of party ideas and positions or the choice of electoral candidates.
By contrast, in Belgium the financing of political parties is made almost exclusively through public funds. Individuals may only make nominal contributions, and corporations are entirely barred from making any contributions. All parties represented in parliament are entitled to a public grant consisting of a fixed amount applicable to all parties and a variable amount proportional to the number of votes validly cast for a party in the elections to both chambers of parliament.
In France, the lack of control over party financing led to the use of subterfuges such as the use of phony “bureaux d’études” (consulting firms) or nationalized companies (most notably Crédit Lyonnais) to channel funds to political parties. The public exposure of these shams caused much public outcry and, in 1988, a first Act was passed to create some transparency in the finances of political parties. Several other Acts followed and political parties now have access to public funds proportionately to the votes obtained in the first round of the last legislative election and to the number of elected parliamentarians. Donations by legal entities are forbidden (except for donations by other political parties), and donations by individuals are subject to an annual ceiling ( euro 4600 for donations to candidates and euro 700 for donations to political parties). Campaign expenses must be submitted to a special commission (the Commission Nationale des Comptes de Campagne et des Financements Politiques – CNCCFP) and are reimbursed if they do not exceed set limits. However, expenses incurred by third parties without the express consent of a candidate do not have to be reported and thus escape any control.
In Germany, a series of scandals culminated in 1999 with the discovery of a whole system of party financing by illegal donations put into place under the aegis of ex-Chancellor Helmut Kohl for his party, the CDU. Chancellor Kohl steadfastly refused to disclose the names of the donors and, as a consequence, his party had to pay a penalty of DM 47.5 million (some euro 24 million). In response to this and[Page149:]other scandals, efforts were then made to improve the transparency of party financing. Under the current version of the law, parties must file an annual report of their income and expenses, a balance sheet of their assets and liabilities and a list of all contributions received exceeding a certain threshold (contributions exceeding another (higher) threshold must be reported immediately). The annual reports are verified by auditors. The bulk of the resources of political parties comes from public funding and members dues; between 5 and 20 per cent comes from donations, with the Socialist party (SDP) being at the lower and the small parties at the higher end of the range. The German system has brought more transparency into party finances, but this transparency comes after the fact and, although the information is available, it is doubtful that it reaches the wide public.
In the United Kingdom, party financing is governed by the Political Parties, Elections and Referendums Act 2000 (as amended by the Electoral Administration Act 2006) which, as in France and Germany, was enacted following public criticism of the funding of political parties. It establishes an Electoral Commission to overview party financing and receive annual statements of accounts, as well as reports on campaign expenses and donations. Anonymous and foreign donations are prohibited. There is no limit on individual donations, but details of donations exceeding GBP 5000 (for donations received centrally) or GBP 1000 (for donations received locally) must be provided to the Electoral Commission. However, public knowledge of donations has not muted critics who keep questioning the motives of donors that contribute large sums. Questions were also raised regarding the provision of commercial loans which, it was alleged, may have been a way to dress up donations in order to avoid the disclosure prescribed by the law. In 2006, reports that individuals nominated for peerages had made such loans caused considerable embarrassment to the government.
The United States has the most comprehensive system, with a mix of disclosure and caps on contributions and spending. The principal legislation is the Federal Election Campaign Act (FECA), administered and enforced by an agency, the Federal Election Commission (FEC). However, the latter’s lack of efficiency has drawn criticism. It is said to lack resources and its structure (six members, three from each party) has often caused its decisions to be blocked by deadlock. It has also investigated only a small number of alleged violations and has imposed rather mild penalties.
The FECA provides for limits on spending and donations from individuals or political action committees, as well as aggregate limits on all donations. It also bars unions and corporations from making donations in support of a candidate, although they may make contributions through Political Action Committees (PACs).
Until recently, corporations and unions, as well as individuals, could also make unlimited contributions of “soft money”, i.e., funds spent on electioneering materials (badges, bumper stickers, yard signs, leaflets, voter registration). In 1995–6, soft money collected by both parties’ national organizations exceeded USD 250 million. It was therefore decided in 2002 to ban the contribution of soft money[Page150:] in federal campaigns by the Bipartisan Campaign Reform Act (BCRA). The BCRA also restricted “issue advocacy”, i.e., spending on materials supporting certain policies or issues (often the same as those advocated by one candidate), without expressly recommending the election or defeat of a candidate.
Another issue addressed by the BCRA in an effort to establish a level playing field is the use of their own money by wealthy candidates. The Supreme Court had decided that any limitation on candidates’ using their own wealth was a violation of the first amendment. The BCRA then introduced a “millionaire opponent” provision, which raised the ceilings on individual contributions for the opponents of House and Senate candidates spending large amounts of their own money. Although the BCRA has been challenged on several counts in court, most of its provisions have been upheld.
International conventions
International instruments remain vague with respect to political donations. The United Nations Convention against Corruption provides in its article 7 (3) that: “Each State Party shall also consider taking appropriate legislative and administrative measures, consistent with the objectives of this Convention and in accordance with the fundamental principles of its domestic law, to enhance transparency in the funding of candidatures for elected public office and, where applicable, the funding of political parties”. This is a discretionary article; parties shall consider taking legislative and administrative measures (emphasis added).
The Council of Europe Criminal Convention on Corruption provides in its Article12 under the heading “Trading in influence” that signatories shall criminalize “ ... the promising, giving or offering, directly or indirectly, of any undue advantage to anyone who asserts or confirms that he or she is able to exert an improper influence over the decision-making of [public officials or members of public assemblies] in consideration thereof, (...) as well as the request, receipt or the acceptance of the offer or the promise of such an advantage, in consideration of that influence ... ”. The Committee of Ministers of the Council of Europe has also issued a Recommendation Rec (2003) to member states on common rules against corruption in the funding of political parties and electoral campaigns. Member states are encouraged to provide for disclosure of political donations and to possibly introduce limits on the value of such donations, and should also regulate or prohibit donations from foreign donors. Best practices in the area of party financing are further detailed in Financing political parties and election campaigns – guidelines published by the Council of Europe.
The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions does not cover political contributions. This has raised concern and led a TI-sponsored group of 28 individuals to issue, on 14
October 2000, a document known as the La Pietra Recommendations, in which they recommend to extend the scope of the Convention to bribe payments to foreign political parties and their officials; action taken in this respect could include a prohibition of trading in influence. Signatories of the Convention should also[Page151:]require appropriate disclosure of political contributions and expenditures and should prohibit corporations based in their own countries from making political contributions in violation of the laws of other countries.
Comprehensive information on party financing worldwide can be found on the site of the Institute for Democracy and electoral assistance (IDEA) at: http://www.idea.int/parties/finance/db/index.cfm.
Companies and political contribution
Companies must consider several angles when addressing political contributions to political parties or candidates for public office.
First, companies must comply which the law applicable to the contributions which They contemplate. This implies knowing the law of the country in which the contribution is made and also considering the law of the country from which the contribution will be made, as both may be relevant to the permissibility of political contributions and their tax deductibility.
Companies should also consider the possible reputational risk linked with the support of political parties or candidates to an election. Because of many scandals in the past, the public tends to view political contributions as an attempt by the corporate sector to influence the political decision-making process in their interest. As a consequence, they are viewed with distrust. For this reason, there are companies that have a policy of abstaining completely from making any political contributions at all.
There may, however, be good bona fide reasons for companies to support the democratic political process. Companies who decide to make financial contributions are well-advised to carefully reflect on how to proceed, as there are numerous pitfalls on the way. Should they support only one party or candidate at the risk of being on the losing side of an election or should they support two or more parties and candidates? In the latter case, should they spread their support equally or according to a neutral key (such as representation in parliament), or should they mark their preference for one party or candidate by making a higher contribution than to the other(s)?
Companies making political contributions should avoid the appearance of any link between their contribution and a possible decision in their favour. This could be the case if their contribution to one party or candidate is so disproportionate compared with the contributions of others that it makes the party or candidate overly dependent on them, or if they bring substantial support to a local candidate in an area particularly relevant to the activities of the company. The appearance of a link could also arise from the closeness of the contribution to the award of a government contract to the company or to a favorable decision in a matter of interest to the company. Political contributions should therefore be timed so as to avoid the appearance of such a link.
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Several countries have disclosure rules for political contributions. In countries where this is the case, companies should, of course, comply with these rules. Where such rules do not exist, companies may be well-advised to consider disclosing their political contributions in any case. There is a definite trend for transparency of parties’ financing, and the Transparency International Business Principles for Countering Bribery do, in fact, advocate the disclosure of all political contributions. The benefit of transparency is to diffuse any subsequent accusation of conniving to manipulate the democratic process. The disclosure can be made in the company’s annual report or in its corporate social responsibility or corporate citizenship report. It can also be disclosed on the internet site or in any other way to make the information accessible to the public.
Because of the sensitivity of political contributions, companies should have a clear policy on whether they are allowed and, if so, to what extent and in which form. They should also provide for an approval process at high level at least for political contributions exceeding a pre-established threshold, and for a monitoring process in order to ensure compliance with the letter and the spirit of the policy.
Model Code of Conduct for Corporate Political Spending
The Center for Political Accountability has issued the following 11-point model code to provide guidance to companies on political spending :
Source : Open windows: How Codes of Conduct Regulate Corporate Political Spending and A Model Code to Protect Company Interest.
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Companies and charitable contributors and sponsorships
Charitable contributions and sponsorships are commendable ways for corporations to further, and be associated with, cultural, educational, welfare or other non-profit making activities. They deserve to be encouraged. However, the rationale for a cautionary approach toward political contributions also applies to charitable contributions and sponsorships as they can be used to disguise an improper advantage. This is obviously the case when these contributions are diverted from the purpose for which they have been made and are used for private gain. That risk is greatest when charitable organizations are controlled by politicians or their relatives. It is also the case when a public official or a politician benefits indirectly from the charitable contribution or the sponsorship.
A contribution to a foundation fighting heart and circulatory disease and used essentially to finance the heart operation of a close relative of a public official is thus, in fact, a bribe and a donation to a local community to build a school at a time when the local government is standing for re-election can be as effective as a political contribution in supporting the incumbent administration. It is therefore essential to check the integrity of those involved and the use of the funds made available for charitable goals and sponsorships in order to make sure that they are used unequivocally in the public interest for the intended purpose.
Before making a charitable contribution or engaging into a sponsorship, a due diligence review should be conducted on the organization requesting the contribution or the sponsorship to make sure that it enjoys an untarnished reputation, does not have a hidden agenda and has the financial and personnel resources required to reach its goal. The charitable contribution should be made against a receipt, and the sponsorship should take the form of a sponsoring agreement specifying the use of the funds in detail and providing for the opportunity to check whether the funds are, in fact, used as intended. Larger amounts should be disbursed in several instalments after checking that each instalment has been properly used.
Fully disclosing charitable contributions and sponsorships is an efficient way to avoid subsequent accusations of manipulation. As for political contributions, the disclosure can be made in the annual report or on the internet site.
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The TI Business Principles for Countering Bribery
The Business Principles for Countering Bribery issued under the aegis of Transparency International and Social Accountability International address political contributions and charitable contributions and sponsorships as follows:
Political Contribution
Charitable Contributions and Sponsorships
Summary of the ICC recommendations on political and charitable contributions and sponsorships
Although political contributions are allowed in most countries, there is an evolution towards more regulation. In reaction to scandals widely covered by the media, which have brought political contributions in disrepute, many countries have tried to impose limits on contributions or spending or the disclosure of either or both of them. International conventions are lagging behind these developments, but the regulatory framework is changing rapidly.
It is therefore important for companies to comply strictly with the letter and the spirit of all applicable laws and to establish internal procedures and safeguards in order to avoid possible adverse exposure in the media with the consequent negative reputational impact.
With respect to charitable contributions and sponsorships, the emphasis must be on monitoring the use of funds in order to avoid their misuse or misappropriation.
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Therefore companies should:
Jean-Pierre Méan has been General Counsel and Chief Compliance Officer for SGS SA, the world leading verification, inspection and certification company from 1996 until 2008.