2.1. Reporting of Political Parties
Quarterly reports by political parties are a key tool for checking political finances. Until recently, each political party submitted its reports to the NACP in two forms, namely, in electronic (PDF and XLS) form and paper. The NACP, in turn, published these reports on its website (in PDF and XLS formats). Despite their openness and accessibility, this reporting format had several shortcomings.
- The reports published on the site were enormously massive and often of poor quality. The experts reckon that their processing took a lot of resources and time because before the direct analysis the reports had to be unified, cleaned, and digitized.
- Paper reports, in turn, were very huge and required a significant amount of paper. For example, to print a report of one fairly large political party it was necessary to consume 70-80 packs of A4 sheets of paper. Transporting such a report to the NACP required several cars or one truck.
In May 2021, the situation radically changed when the NACP completely commenced the electronic system for reporting by political parties, i.e., POLITDATA. Its launch significantly increased transparency in political funding. From one side, civil society is able to check the report in a shorter time and more efficiently due to the fact that information is accessible and unified, and on another side, political parties save their resources and time when submitting their reports. Unlike the usual placement of copies of reports on the NACP website, POLITDATA provides for automatic processing of such information. In particular, in addition to displaying reports in XLS format, POLITDATA provides information in the form of statistical and practical data with a search engine to find the required report. All data in POLITDATA is placed in the open data format, particularly in API (machine-readable format), which greatly simplifies working political party reports out by the public. By 2021, political party reports are submitted exclusively in the electronic form to POLITDATA. For this purpose, political parties and their branches are registered in the system. As of September 2021, 112 political parties (out of more than 600) have been registered with POLITDATA, and 31 reports have been submitted.
Despite increasing transparency in political financing, political parties have the right (on days when this paper was being written) not to submit such reports. In April 2020, a law, that postponed the submission of reports by parties until the end of the quarantine imposed by the COVID-19 pandemic, entered into force. Taking such measures looks more like the “whim” of political parties than an urgent need since the quarantine hardly poses any obstacle to submitting such reports. As of September 2021, there was still a quarantine period, consequently, political parties did not submit their reports for more than a year. Because of this, the public has not known for a year what money was spent for the local elections held in October 2020, and how political parties spent state funds. Upon completion of the quarantine, political parties are obliged to submit all previously non-submitted reports almost simultaneously. Experts are of the opinion that it can also cause negative consequences. First, after the resumption of reporting, the NACP will obtain a large number of reports at one time, which will not allow them to be processed qualitatively due to the short deadlines for inspections. Second, those political parties that reported during the quarantine period can be in a worse position than others because their reports can attract more attention from the NACP and the public.2.2. Election Campaigns Reports
The reports on election campaign funds are published on the websites of NACP, CEC, TEC, etc. in pdf and xls formats. Despite the commencement of the electronic system, the submitted reports will not be placed on POLITDATA. Such an approach raises the same shortcomings as those in terms of quarter reports happening before, specifically, their processing will take a long time and resources. It is unlikely to result in effective state and public scrutiny of election campaigns finance.
The levels of openness and accessibility of the reports on local election campaign funds are low. There are no problems with this in the national elections (president and parliament), and the CEC and NACP publish election campaigns reports in a timely and complete manner; however, the situation is worse in local elections. As the Table shows, ____ election campaign fund reports are published on the official websites of TECs (not usually available), or local councils, or otherwise, during local elections. However, in practice, these provisions of the law are not followed. The public monitored the publication of reports by political parties and candidates in 15 major Ukrainian cities during the recent local elections. The results found that local branches of political parties did not publish 55% of their final financial reports. In turn, mayoral candidates published only 44% of all reports. The quality of inspections of reports is also poor. The results of the selective analysis carried out by the public revealed that a significant part of TECs did not check any report, although, in situations where the checks were conducted, they were of declarative nature. Experts are of the view that this problem arises because TECs are much busier counting votes and processing election results, consequently, not having enough capacity to properly audit financial statements.2.3. Financing of Political Parties
Despite the openness of financial statements of political parties and the ability to control every incoming to the party’s budget, it cannot be said that, in Ukraine, political parties are fully transparent. It is almost impossible to understand who finances political parties and how big financing is.
Legislative requirements for party financing can be easily circumvented with the help of developed schemes, the most popular of which are described below.1) Use of fictitious donors.
This scheme is as follows: a person who is interested in financing political party hands the cash over to another person (he or she is called “pidstavna osoba”). This person, in turn, transfers, identifying his or her name, the money to the party’s bank account and receives a reward for such a transaction. Given that the maximum sum of a voluntary contribution paid by an individual is EUR 75000, it is not necessary to involve many fictitious donors to transfer big money.
In 2020, one political party used such a scheme. In the 2nd quarter of 2020, it declared zero receipts, an office with an area of 14.8 m2, located in Kyiv, one laptop, a table, and two chairs. But in the 3rd quarter that year, the party received almost EUR 1 million as voluntary contributions. The public found out that that money was contributed towards that political party mainly by students and unemployed people.
According to experts, besides fictitious “poor” donors (whose insolvency can be easily proven), there are also schemes with fictitious “rich” donors. That means that political parties are looking for people who can easily explain the legality of their earnings and use them to fund political parties. For example, one party received funds directly from the top management of large Ukrainian companies owned by an oligarch.2) Use of fictitious legal entities and civil society organizations.
This scheme is similar to the previous one, but legal entities are used instead of individuals. For example, in 2019, one of the largest political parties in Ukraine received approximately EUR 90,000 from two companies that were registered by one person a month before the transfer. Approximately the same scheme was used by the ruling party. Experts note that there are cases when the amount of donation paid by a legal entity is equal to (or even less) its total annual revenue.
Due to the financing of political parties by legal entities, it is possible to evade the restrictions imposed on financing made by foreign citizens. For example, a foreign citizen can invest in a legal entity registered in Ukraine, and the latter, in turn, can legally finance the party.2.4. Financing of Election Campaigns
There are also many ways for political parties to hide their ingoings and outgoings during election campaigns. To give you some of the most spread of them:
1) Use of public organizations with the same name as a political party
To implement this method, there must be a civil society organization registered with the same name as a political party. Then the civil society organization finances political advertising pays salaries to employees, advertisers, and headquarters members of a political party, and so on. The political party does not report on these expenses, as they were, de jure, carried out by a separate legal entity. For example, such a scheme was actively used during the local elections in 2020 and the parliamentary elections in 2019.2) Concealment of expenses on advertising on social networks.
The popularity of political advertising on social networks is growing rapidly. According to civil society estimates, in the first half of 2020, politicians spent on advertising on Facebook about USD 850000, and USD 1.2 million for the same period in 2021. Despite such high expenses, political parties mostly did not report on it. As a result, a huge amount of money spent on election campaigns remains in the shadows.
Experts note that in practice there are several shortcomings in reporting the cost of advertising on social networks, and among them are:
- Lack of a convenient way to pay for advertising from the election campaign fund account. It happens due to the inability of legal entities to pay for advertising on Facebook, and due to the lack of official representation of the company in Ukraine;
- lack of a separate category of expenditures (columns) in the forms of final and interim reports approved by the CEC. Experts believe that the form of reports should be further detailed, as at the moment the “other expenses” column covers a significant number of possible transactions that need to be allocated separately.
Shadow cash used by political parties during election campaigns is widespread. A large amount of money is spent on the salaries of political party observers and members of polling stations, and is paid “in envelopes”. One of the interviewed experts estimates that about half a million people are needed to organize the election campaign. Accordingly, one can only imagine the scale of this practice.2.5. Responsibility for violation of requirements of the law
Widespread use of the described schemes is possible for several reasons, but the main one, in our opinion, is the evasion of bringing to liability, and petty sanctions for violations of the law. In addition to the general problems being experienced in bringing to administrative liability that we described in Section ___, the cases regarding violations of the requirements for financing a political party and election campaigns have certain features.
Efficiency in bringing to administrative responsibility for violation of rules of financing political party (election campaigns) and reporting (hereinafter “cases”) is extremely poor. Courts close most of the cases, impeding bringing to justice. According to information provided by the NACP, in 2020, courts closed 299 cases, that is 88% of all the cases heard in courts. Among them, 198 cases (66%) were closed on the ground of with the expiry of procedural deadlines, 81 cases (27%) - the absence of the constituent elements of the offense, and 8 cases (2,7%) - due to minor insignificance. The tendency of closing cases goes up, particularly, in 2018, courts closed 77% of cases, but, in 2019, 82% of cases. Factually, administrative liability is enforced in 12% of cases, even it happens, the sanctions impede prevention because, in 2020, the average sum of fine imposed by court resolution was EUR 144.
Among the main shortcomings appearing in the consideration of this category of cases by courts (except for the general shortcomings that are inherent in all administrative cases), the experts point out:
- Lack of a clearly defined subject of the commission of an administrative offense, who is responsible for submitting the report of the political party, and the place of commission of such an offense, which affects the jurisdiction of such cases;
- Insufficient period (24 hours) fixed to draw up a report, starting from the moment when the person who committed an offense was identified;
- Absence of a deadline during which the NACP representatives are obliged to send the report to the court after the report is drawn up;
- Ambiguity of court practice regarding the return of case materials in case of violation of jurisdiction, etc.
The efficiency of bringing to criminal liability is even poorer. In particular, in 2020, the NACP sent 22 notifications to the police about the detection of the facts of a criminal offense, as a result of which 11 proceedings were opened, but those cases did not reach the court. And for the whole time of existence of the article of the Criminal Code (since 2006), there was only 1 court case ruled guilty sentence.2.6. State Financing of Political Parties
State financing of political parties is one of the main sources of income for political forces. The amount of state financing is increasing each year, and it is rather huge. As of July 2021, only 5 parties were applying for the state funding. In 2021, the total state budget allocated for political parties financing was approximately EUR 21.9 million. For comparison, in 2020, this figure was approximately EUR 8.8 million. As of July 2021, since the beginning of the year, the NACP transferred approximately EUR 16.2 million to political parties.
These funds are distributed in proportion to the votes received by voters in the recent parliamentary elections. For example, since the beginning of the year, the ruling party of the President, which has had a significant majority in the Parliament, has already received about EUR 7.5 million. To compare, during the same period, the least represented political party in the Parliament received about EUR 1.5 million.
The oversight mechanism is efficient, but not perfect. On one side, the NACP rather properly and thoroughly scrutinize the reports of political parties, and on grounded reasons suspends state financing. But on the other side, the currently applicable mechanism of suspension of state funding does not fully guarantee political parties against whimmy decisions of the NAPC. The issue of suspending public funding in 2020 was quite acute. Then, the NAPC suspended state funding for three parliamentary parties, namely, the ruling political party and two opposition ones. Two political forces submitted clarifying reports to correct the shortcomings identified by the NACP. As a result of the verification of clarifying reports, state financing was resumed. The third political force appealed the NACP’s decision to court. The final decision has not yet been ruled, but the party no longer receives money from the state budget. The grounds to suspend financing of those political parties were numerous violations of the Law on Political Parties.
The NAPC claims that:
- one of the parties paid more than EUR 15000 for media monitoring services. For these funds, the contractor provided a report, which is an exact copy of publicly available information previously posted on the official website of one of the public organizations;
- the reports of another party indicated that it transferred more than EUR 62000 for the organization and provision of forums based on documents that did not exist at that time;
- Another party transferred money to five companies for printing products under contracts worth more than EUR 437 000. According to state authorities, the heads of local organizations who, according to the documents, received these products were abroad at that time. At the same time, the bank accounts of these companies, to which the funds were to be transferred, were opened later than the date of the conclusion of contracts.
The arguments of the NAPC were quite convincing and indicated a good level of inspection. However, political parties believed that the NAPC had exceeded its authority in assessing the services provided to parties. As a result of these events, representatives of all political forces in Parliament submitted a bill, which in fact provided for the deprivation of the NAPC of the power to control political finances. Due to public pressure, consideration of the bill had to be suspended. Instead, another bill is being considered in the Parliament, that envisages additional guarantees against NAPC’s arbitrary decisions, but entitles the oversight body to exercise control of political financing.