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Political Party Financing – Mongolia’s Grand Corruption

 

Mr. Tom Wagenmakers- Master of International Relations,

University of Gronigen, Netherlands

 

As the Mongolian Parliament is getting closer to debating the law on the financing of political parties, it is time to take a look at why this is important. Arguably, political party financing is the source of grand corruption in Mongolia. If Mongolia wants a future with a stable democracy, the problem of grand corruption needs to be tackled. This article will explain what grand corruption is and why in Mongolia the source of it is found in the financing of political parties. Once this has been identified, the systems of political party financing of other countries will be assessed in order to see what Mongolia can learn from them.

Grand Corruption: what is it?

Transparency International has made a legal definition of what grand corruption exactly is.[1] Put simply, it is the abuse of high-level power that benefits the few at the expense of the many, and causes serious and widespread harm to individuals and society, while often going unpunished. A well-known example of this is stealing from public budgets that have been used to construct schools and hospitals. The more complex legal definition is as follows: “Grand Corruption occurs when a public official or other person deprives a particular social group or substantial part of the population of a State a fundamental right; or causes the State or any of its people a loss greater than 100 times the annual minimum subsistence income of its people; as a result of bribery, embezzlement or other corruption offence.”[2] Transparency International has created this legal definition in order to encourage advocates, scholars, lawmakers and others to seek ways to enhance accountability of public officials and others who engage in corrupt affairs. The ultimate goal Transparency International set with creating this legal definition is to designate grand corruption as an international crime.[3] Once this has been done, universal jurisdiction can be exercised by countries, just like war-crimes are now treated with near universal jurisdiction. As of now, domestic authorities are often unable or unwilling to act, and it is at moments like that when the individual states could act through universal jurisdiction.

            Grand corruption undermines sound financial practice and clean business, it deepens poverty and inequality and it increases exclusion. This is why it is a major impediment in the sustainable development of a country and why it should be tackled. One of the most recent examples of grand corruption that shows the importance of universal jurisdiction is the case of the former Ukrainian president: Yanukovych. Yanukovych has been accused of stealing $7,5 billion and of murdering activists. At the moment, he is living from his stolen money in Russia. If Yanukovych would travel to a country which would have a grand corruption statute that included universal jurisdiction, he could be caught and put to trial in that country.

Grand Corruption in Mongolia

Grand corruption in Mongolia is situated mostly in the political parties. According to the Asia Foundation, in 2017, political parties were ranked second on the list of most perceived corrupt areas and institutions in Mongolia.[4] In 2010, political parties ranked sixteenth.[5] This shows that political parties have become increasingly corrupt at a lightning speed in the past few years.

This is how the grand corruption within political parties work.

Using loopholes in the law, the parties have been accumulating a lot of money.[6] This money is then used by officials to repay financial backers through public tenders after the official got into a political position. There are several political ‘factions’ that are able to get government power, and they follow each other up. The question of which one rules depends on how much money they will get after the elections and how much has been spent on the party. When a new government comes to power, positions of power are redistributed through organisational changes, which makes the government unstable. This corruption of the political parties leads to a corrupt government. Furthermore, government agencies also come under the control of the corrupt politicians, while press freedom is weak. This is why the corruption is so enduring. 

The clearest example of these practices of grand corruption in Mongolia is that of the Shiilegdamba case. Shiilegdamba, the former Minister of Health and Sports and General Secretary of the Mongolian People’s Revolutionary Party, publicly stated that he had given $50.000 to his party leader and that he was caught preparing to give another $120.000.[7] He is now going to prison for this.[8] According to the UB Post, these practices are simply the reality of how political parties function in Mongolia.[9]

            This all qualifies as grand corruption, because it severely weakens the government. The people in positions of power have to attend to the wishes of their financial backers who got them in power in the first place, while the officials should instead be focusing on governing the country. This deprives the Mongolian people of good governance. This issue is even aggravated further by the framework of and the law concerning political party financing in Mongolia. This system is not transparent and very corrupt.

The problem of political party financing in Mongolia

In general, the Law on Political Parties in Mongolia does not do well concerning transparency on political party financing. Article 20.1 of the Law on Political Parties in Mongolia does not oblige parties to provide its financial statements to any state-controlled entity. Furthermore, the parties’ annual financial statements are not regulated by the Political Party Law. The monitoring and accountability of political party financing and its reporting is done entirely on the parties’ own initiatives. In practice, the parties do hand their election expenditure reports to the General Election Commission of Mongolia (GEC). The expenditure reports during elections only require clarification on the expenditure parts: there is no transparency required in the income part of the financing, or on how and when the reporting is done. Also, clarity on the accuracy of the reporting is not required. According to the Crinis study, in 2012, almost 50 percent of the total financial resources of the political parties have not been reported. Furthermore, internally, the income and property information of the parties are not open to all members, thus creating an atmosphere of secrecy inside the parties. These results show us that the parties basically are their own boss and that they can do whatever they want. The lack of obligation to submit financial statements to a state-controlled agency makes it possible for politicians and party members to allocate resources in every way they want, including to corrupt practices like bribery. We have to ask ourselves how the 50 percent of the income not reported in 2012 has been spent. Those funds should have been used to benefit the public, while now they are most probably used in malignant practices. The money has thus been stolen from the public. Also, with no clarity on the sources of the income of the parties, influence can be easily bought. These practices are all reinforced by the lack of a clear law regarding a sound and transparent legal framework of political party financing. This how the grand corruption in the financing of political parties in Mongolia endures. If Mongolia wants to break free from this vicious circle, it has to change its mentality and its legal framework. The country would do well to look at how other countries regulate their system of political party financing. If changes are made there, the first steps at tackling the problem of grand corruption have been made.

Political party financing in the Netherlands, Canada, France and Germany

In the Netherlands, the financing of political parties is completely regulated by the law. There are several ways in which the parties can be funded, but the most important thing related to Mongolia is that all the gifts that the parties receive are subject to public scrutiny.[10] Every year, a list containing all the gifts above 4.500 euros is published. The law also provides for sanctions if the rules concerning the financing of the parties are broken. A fine of a maximum 25.000 euros can be given, while in extreme cases, a party can even lose its right to the governmental subsidy for a maximum of four years.[11] The Dutch rules are thus already strict, compared to Mongolia. However, as of 2018, controls on the financing of political parties might become stricter. Besides wanting to increase the transparency of the “other resources” by lowering the required amount of the gift in order to be published publicly from 4.500 to 2.500 euros, the Dutch government will also propose a law that will ban political parties from receiving gifts from other countries, in order to prevent the buying of political influence from other countries.[12] This is most probably connected to the allegations of Russian meddling in the American elections, and the money the Front National in France received from the Russians. The Dutch government wants to prevent even the slightest appearance of foreign meddling in the Dutch democracy.[13]

            In the Canadian system of political party financing, the rules are even stricter. On the federal level, there are limits on who can contribute what to.[14] Corporations and trade unions are not allowed to donate, only individuals can. Contributions are limited up to $1.500 a year to each political party and up to $1.500 to all of the registered electoral district associations, contestants wanting party nomination and candidates for each party. Furthermore, the Canada Elections Act has put limits on the expenses made during election campaigns.[15] Each electoral participant or political entity must submit financial reports to the Canadian Chief Electoral Officer. These reports must include the names and address of anyone contributing more than $200. All these reports are published online for the public to see. The same is true for gifts to third parties, organisations linked to a political party.[16] Thus, like in the Netherlands, public scrutiny on the finances of political parties serves to keep the parties in check. However, despite all the rules and limitations, there has been a scandal concerning the imposed limitations. The Prime Minister, Justin Trudeau, used cash-for-access meetings with members of the Chinese community, some of them having ties with the Chinese Communist Party, in a fundraising campaign.[17] There have been significant discrepancies between the official ticket price and the actual cost of entry, up to amounts that exceed federal contribution limits. Some of the Chinese community sought federal approval for business deals. Trudeau said he used these meetings with wealthy donors to promote his party’s policies on the middle class. Nevertheless, investigations will be made. This example shows us that even when there are strict limits on the financing of political parties and candidates, people will always try to find a way to get around these rules.

            In France, the financing of political parties during campaign periods is governed very strictly. The start of the official election campaign is strictly regulated.[18] Concerning private contributions, cash contributions cannot exceed 150 euros. Contributions of more than 150 euros have to be paid by cheque or online, with identification of the donor. A person identified is allowed to contribute up to 4.600 euros. Again, we can see that donors have to be identified. It has to be known who is giving money to which party or candidate, in order to determine whether influence is being bought or not. Business or trade union contributions are illegal.[19] No legal entity is allowed to participate in directly or indirectly financing a political candidate or a political party. The same is true for foreign contributions: foreign states or foreign legal entities cannot make direct or indirect donations to a political candidate or political party. Concerning a candidate’s own contribution to his or her campaign, there is no limit other than the ceiling on campaign expenditure. For the presidential elections in 2007 this was 16.166.000 euros in the first ballot and 21.594.000 euros for the second ballot. For MPs the ceiling is 38.000 euros. Financial control is strict as well. The year before an election, candidates have to appoint an individual or an association to handle their financial matters related to the coming election. Furthermore, each candidate’s account needs to be certified by an accountant. The CNCCFP is an organisation that keeps further check on the campaign accounts. The CNCCFP determines the fine that needs to be paid when a candidate is not sticking to the rules. Thus, in France the focus is clearly more on the candidates than on the political parties. However, most of the rules that are in place to keep the candidates in check are also in place for the political parties. In addition to the rules, sanctions to keep people from breaking the rules are also in place. If a candidate or individual breaks the rules concerning the limit of the ceiling of expenditures or the financing of campaigns, the CNCCFP will determine how much the candidate has to pay to the public treasury.[20] In addition, a fine of 3.750 euros and possible imprisonment can follow. However, despite these strict rules and possible sanctions, there have also been controversies in the French elections. The clearest example comes from Marine Le Pen’s party Front National. In 2014, Le Pen borrowed 9 million euros from a private Russian bank.[21] The repayment conditions have not been made public. According to the rules, this should not be possible: no legal entity from a foreign state should be allowed to give direct or indirect aid to a candidate or political party. The current president, Emmanuel Macron, did something similar. He took out a personal loan of 8 million euros from a French bank, without revealing his name. This is a common way in France to circumvent the imposed restrictions. Another clear example comes from former president Sarkozy. He is going to be formally investigated about his 2007 campaign, which was allegedly funded illegally by the late Libyan dictator Muammar Gaddafi.[22] As if this wasn’t worse enough already, it has been claimed now that Sarkozy also allegedly tried to contact a senior judge who was investigating claims about this campaign funding, offering the judge a promotion in return for information about the fraud inquiry.[23] These events show us that, just like in the Canadian system, people will always try to circumvent the rules, even when these rules are very strict.

            In Germany, control is also strict. Transparency is, again, key. Concerning private funding, there is no limit to the amounts that individuals can give to the parties. The identity and the address of the donor need to be made public if the gift is higher than 500 euros.[24] The identity and the address of the donor needs to be made public in the annual financial statement of the party only if the gift is higher than 10.000 euros per year.[25] Private donations above 50.000 euros need to be made public immediately. Donations from charitable organisations, trade unions, professional associations, and industrial or commercial associations are prohibited by the law. Donations to individual representatives for their own political use area allowed, but these are subject to similar restrictions. Donations from governmental bodies and anonymous donations above 500 euros are prohibited. Concerning gifts from foreign countries, these are prohibited, except when the gift comes from a German citizen or a citizen from the European Union or a company from which the majority of the stakes is owned by Germans or citizens of the European Union; when the gift is to a party for national minorities from a country where that minority also lives; when the gift from a foreigner is below 1000 euros. Every year, the political parties have to make an annual financial statement which will be published. These will be reviewed by the Bundestag. If a political party or an individual breaks the rules, sanctions are in place. If a party received a subsidy unlawfully, the chair of the Bundestag can be called upon to step down, since it’s the Bundestag deciding which party gets what amount of the subsidy. If a party took gifts from an unlawful donor, three times the amount of money accepted will be reclaimed. If a party took a gift above 10.000 euros and did not publish it in the annual financial statement, two times the amount of the accepted money will be reclaimed. If the financial statement has been obstructed on purpose, a fine or imprisonment can follow. Finally, if a party fails to submit its financial statement for a period of six years, it can lose its registration as a party, it can lose its subsidy from the government and the leadership of the party can get a fine of minimum 500 and maximum 10.000 euros.

            There are several common elements that we can discern from the legal frameworks of political party financing adopted by these countries. Firstly, transparency about the sources of funding is key. That way, it is immediately clear whether influence is being bought. Secondly, restrictions on the sources of funding are key. Businesses and foreign states should not be able to donate to political parties or candidates, since this would amount to buying influence. Thirdly, a review of the sources of funding is key. This review will show how the money is being used. Public scrutiny is of utmost importance here. By publishing how the funds are allocated and spent, parties take responsibility and show transparency. Lastly, a system of sanctions when parties or individuals cross the line should be in place. This will prevent people from engaging in malignant practices.

Recommendations for Mongolia

The legal framework for political party financing in Mongolia only aggravates the problem of grand corruption. Therefore, this system should be changed. Based on its results, the Crinis study made some recommendations in order to make the financing of political parties more transparent.

Firstly, the Law on Political Parties should be changed in such a way that parties will be obliged to submit their financial statements to a state control body. As of now, that is not the case. Secondly, the financial statements of political parties should become more detailed. Crinis identified eight ways in which this could be done:

             1. legislation on transparency of the funding sources of political parties;

2. formulate a law concerning the time period for the submission of financial statements at any time, not just election time;

3. make the organisations that receive financial reports more transparent (GEC, Constitutional Court, NGOs, National Audit Office, Ministry of Finance, Ministry of Justice, etc.).

4. deciding which institution will be responsible for assessing the financial reports and statements of the parties (e.g. the Administrative or Supreme Court)

5. formulate a law concerning the publication and publishing of the financial statements of political parties. As of now, Article 20.3 of the Law on Political Parties states that the parties’ financial activities will be audited and announced publicly annually, but there is no clear regulation as to which media will publish, etc.

6. formulate a law concerning the information on donations given by everyone and every organisation to political parties and party members

7. when donations are prohibited by international standards, the proceeds should be regulated by the state budget

8. a law should be made which regulates the promotion by media organisations of political parties and candidates for state institutions.

If Mongolia can increase its transparency about the sources of funding, if Mongolia can implement restrictions on the sources of funding (especially from other countries, now that China and Russia are reasserting their roles on the world stage), if a review of the sources of the funding would be done at least annually and if a good system of sanctions would be in place, Mongolia will have a chance of escaping its vicious circle of grand corruption stemming from the weak system of political party financing. This is of the utmost importance, since, as the French and the Canadian examples show us, just having a sound system in place is just the beginning. Individuals and parties will try to go around these rules. Therefore, a change in the mentality of the people is important as well. This is exactly why the work of Transparency International is so important: Transparency International tries to bring about a mentality change in the youth. If the youth are educated that corruption is a bad thing and that transparency is the fairest way to go, the chances of abusing the political system will be lower in the future. This is what Mongolia needs. A youth that can change the political system in such a way that transparency and honesty become the norm.

 


[1] “What is grand corruption and how can we stop it?” Transparency International (website), Transparency International, accessed April 10, 2018, https://www.transparency.org/news/feature/what_is_grand_corruption_and_how_can_we_stop_it.

[2] “Legal Definition Grand Corruption,” Transparency International (August 19, 2016), found via: https://www.transparency.org/news/feature/what_is_grand_corruption_and_how_can_we_stop_it, accessed April 10, 2018.

[3] “What is grand corruption and how can we stop it?” Transparency International (website), Transparency International, accessed April 10, 2018, https://www.transparency.org/news/feature/what_is_grand_corruption_and_how_can_we_stop_it.

[4] The Asia Foundation, “Survey on Perceptions and Knowledge of Corruption 2017,” The Asia Foundation, Global Affairs Canada, Sant-Maral Foundation (2017): 56.

[5] Bayanmunkh Ariunbold, “Political Party Financing in Mongolia: A Road to Grand Corruption?” The Asia Foundation (website), accessed April 10, 2018, https://asiafoundation.org/2017/10/18/political-party-financing-mongolia-road-grand-corruption/.

[6] The UB Post, “Corruption will not be diminished in Mongolia until 2020,” The UB Post (website), accessed April 10, 2018, http://ubpost.mongolnews.mn/?p=18623.

[7] The UB Post, “Corruption will not be diminished in Mongolia until 2020,” The UB Post (website), accessed April 10, 2018, http://ubpost.mongolnews.mn/?p=18623.

[8] T. Bayarbat, “Former Minister D. Shiilegdamba’s sentence reduced,” The UB Post (website), accessed April 10, 2018, https://www.pressreader.com/mongolia/the-ub-post/20180212/281530816483348.

[9] The UB Post, “Corruption will not be diminished in Mongolia until 2020,” The UB Post (website), accessed April 10, 2018, http://ubpost.mongolnews.mn/?p=18623.

[10] “Financiering politieke partijen,” Kennisbank Openbaar Bestuur (website), Ministerie van Binnenlandse Zaken en Koninkrijksrelaties, accessed March 26, 2018, https://kennisopenbaarbestuur.nl/thema/financiering-politieke-partijen/.

[11] “Wet financiering politieke partijen,” Wet- en regelgeving (website), accessed March 28, 2018, http://wetten.overheid.nl/BWBR0033004/2018-03-09#Paragraaf5: §5.

[12] “Buitenlandse financiering politieke partijen aan banden,” Rijksoverheid (website), Rijksoverheid, accessed March 26, 2018, https://www.rijksoverheid.nl/actueel/nieuws/2018/02/01/buitenlandse-financiering-politieke-partijen-aan-banden.

[13] Drs. K. H. Ollongren, “Aanbieding evaluatie Wet financiering politieke partijen,” Ministerie van Binnenlandse Zaken en Koninkrijksrelaties (February 1, 2018): 2.

[14] Harold Jansen, “Political Party Financing in Canada,” The Canadian Encyclopedia (website),accessed March 27, 2018, http://www.thecanadianencyclopedia.ca/en/article/party-financing/.

[15] “Political Financing,” Elections Canada (website), accessed March 27, 2018, http://www.elections.ca/content.aspx?section=res&dir=ces&document=part6&lang=e.

[16] I. C. van Biezen, T. A. Mickler and J. N. O. Lindqvist, “De financiering van politieke partijen – een internationale vergelijking,” Universiteit Leiden (September 2017): 34.

[17] Craig Offman and Nathan Vanderklippe, “Cash-for-access organizers sought payments that exceeded federal contribution limits,” The Globe and Mail (website), accessed March 27, 2018, https://www.theglobeandmail.com/news/politics/cash-for-access-organizers-sought-payments-that-exceeded-federal-contribution-limits/article33409043/.

[18] “Campaign Finance: France,” The Library of Congress (website), accessed March 27, 2018, https://www.loc.gov/law/help/campaign-finance/france.php#f18.

[19] “Campaign Finance: France,” The Library of Congress (website), accessed March 27, 2018, https://www.loc.gov/law/help/campaign-finance/france.php#f18.

[20] Ibid., accessed March 28, 2018.

[21] Becker, “French elections,” Deutsche Welle (website), accessed March 27, 2018, http://www.dw.com/en/french-elections-who-finances-the-candidates/a-38704682.

[22] Angelique Chrisafis, “Nicolas Sarkozy faces formal investigation over alleged Libya funding,” The Guardian (website), accessed April 6, 2018, https://www.theguardian.com/world/2018/mar/21/nicolas-sarkozy-former-president-back-in-police-custody-over-libya-case.

[23] Kim Willsher, “Nicolas Sarkozy to face trial for corruption and influence peddling,” The Guardian (website), accessed April 6, 2018, https://www.theguardian.com/world/2018/mar/29/nicolas-sarkozy-to-face-trial-for-corruption-and-influence-peddling.

[24] Van Biezen, Mickler and Lindqvist, “De financiering van politieke partijen,” Universiteit Leiden (September 2017): 42.

[25] “Campaign Finance: Germany,” Library of Congress (website), accessed March 28, 2018, https://www.loc.gov/law/help/campaign-finance/germany.php#t1.

 

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