This section looks first at political finance regulations, which require detailed accounting of revenues and expenditure by parties and/or candidates. These accounts should be rendered to an oversight body with the resources, independence and capacity to analyse the accounts, investigate irregularities and instigate judicial proceedings in the case of breaches of campaign funding laws. The section then turns to the issue of public funding, addressing the issues of to who and how much funding should be distributed. Finally, this second section addresses methods for strengthening internal party controls.

What to regulate?
A number of questions must be considered when regulating the financing of political parties and candidates: what is the subject and the scope of the legislation? How to legislate for party versus candidate-focussed elections? How to effectively combine regulations for campaign periods and between elections? Should the same regulations apply at state and local level that apply at the national level? Should they also be extended to internal party elections, since a candidate may be "bought" with interested money when competing in a primary election on the expectation that the payback (the policy favour) will come if he or she is elected in the subsequent election?

A related question is: how deep within the party to regulate? Political parties are often complex organisations, with cascading networks of branches and satellite organisations. Thus regulations should apply not only to political parties and candidates, but also to the political activities of pressure groups or to personal funds collected by politicians. If not, parties and candidates might choose to evade the rules by re-directing money from parties and candidates into these bodies that fall outside the sphere of control. Political parties that delegate their research functions to satellite think-tanks may also be delegating activities that are the traditional preserve of political parties and that therefore should also appear on the party's books.

A rule of thumb is that political party finance regulations should not ignore any sector of financing. The risk of doing so is that money will find the easiest course to flow into campaign coffers, choosing channels that are not supervised by enforcement bodies.

Getting the institutions right
The institutions charged with regulating the financing of political parties and election campaigns need to be impartial. If not, there is a risk that they will use campaign finance regulations to favour the party in power by harassing or sanctioning opposition parties. In some countries, the ceiling on campaign spending is unrealistically low, which means that any party could be challenged at any time by an impartial enforcement body for violating the ceiling.

In addition to being independent, institutions must also be adequately resourced, and staffed with skilled professionals. Regulating campaign finance, especially actual expenditure, is costly and time consuming. In order to verify accounts properly, enforcement bodies need to do more than merely rubber stamp the parties' and candidates' balance sheets. It takes time to scrutinise party records adequately and to verify not only that declared expenditure and income tally with receipts and invoices, but that they tally with what parties have visibly raised and spent.

Ideally, electoral commissions should be responsible for monitoring political finance. Other bodies that are often charged with this task include: the legislature, the tax authority, the ministry of justice, ministry of finance or ministry of the interior, the accounting court, the anti-corruption agency or the state audit office.

Party finance regulations not only place a burden on watchdog institutions to monitor their implementation, but on the parties and candidates who must comply with them. Cumbersome regulations, such as the requirement to produce very detailed balanced financial reports that have been certified by a chartered accountant, might lead to the penalisation of smaller, less well-resourced parties or might drive practices underground. In some jurisdictions, different reporting requirements are placed on smaller parties. For instance, parties that raise less than a certain amount of funds might be required to present accounts audited by a chartered accountant and not by a registered auditor.

Coalition building
Parties must feel ownership of the regulations and therefore cross-party consensus is important. A political party will be more inclined to obey the laws if it feels that its opponents will do the same. Cross-party involvement is also important to avoid reforms that are tailored to benefit or damage a particular party, for instance by capping contributions from party members if an opposition party is known to gain most of its funding in this way. Party buy-in is also important because they are among the most vigilant monitors of party financing rules, monitoring each other for signs that spending limits have been exceeded or large donations omitted from reports.

Public backing for the regulations is also important since a key objective of any attempt to regulate the financing of politics is to bolster voter confidence in the democratic process. Public involvement in the drafting stage, for instance through consultation with civil society organisations, can help build support for reforms.

It is important to note that clear language and a clear definition of what constitutes a political party are necessary in order to build consensus and to avoid confusion in the administration and enforcement of political finance regulations.

Ensuring that reforms are strategic rather than ad hoc responses to crises
From the Watergate scandal onwards, the impetus for reform of political finance regulations is often public pressure in the wake of a scandal. When reforms are introduced with the short-term goal of quelling a scandal, they are often flawed and improperly thought through. In Chile, for example, regulations adopted following a series of corruption scandals introduced a ceiling on campaign spending, but failed to provide for sanctions if that ceiling were exceeded.

Ensuring that reforms are workable and commensurate with enforcement capacity
Regulations should be proportionate; over-regulation can stifle political activity and become a burden, both in terms of time and cost to political parties and candidates, as well as to the authority charged with running elections. Complete transparency is difficult to achieve and may not be desirable. Very small individual donations that are unlikely to exert undue influence on the electoral process may, for example, be very time consuming and costly for the party to report and the enforcement body to audit.

Regulations need to be backed-up by the necessary monitoring and enforcement mechanisms to ensure compliance. When drafting laws it is important to consider the capacity and impartiality of enforcement agencies. Sanctions must be introduced as part of the regulations, and they must be enforced.

Regulations need to be in line with other laws and regulations that have an impact on the funding of parties and campaigns, for instance electoral codes or trade union laws.

Avoiding common loopholes
Political party finance regimes rarely prove watertight. Loopholes exist and, when they are patched, new ones are sought. Some regulations are easier to circumvent than others, in particular bans and limits, and special care needs to be taken to ensure they are realistic. The examples provided below are not intended to deter lawmakers from introducing political party finance reforms, but rather to highlight potential pitfalls.

• Bans on donations are difficult to police. Groups or individuals that are prohibited from participating directly tend to find other ways to contribute, for instance through indirect financing of independent expenditures, which are difficult for oversight bodies to detect. Banned foreign contributions can be given to 'non-party' foundations established for this purpose, for example, and foreign companies can donate via local subsidiaries. This does not meant that bans should not be introduced but that, in enforcing them, consideration is given to common methods of circumvention.
• Ceilings on donations can be evaded by individuals or corporations dividing the donations between a series of contributors, each giving below the ceiling. To counter this problem, parties should be required to submit audited balance sheets with accompanying invoices and related documentation. Auditing requirements should, however, take care not to over-burden small and fledgling parties with excessively detailed reporting criteria.
• Disclosure regulations can be similarly evaded by splitting the donation between a number of contributors, each giving slightly below the amount that triggers the requirement for the donation to be disclosed. Declarations of assets and liabilities of candidates and party office holders are important to ensure that money is not being channelled through individuals rather than the party and to protect the party from embezzlement. In order for disclosure to work, the public must be given access to information, in an easy to understand format, including via the internet. Citizens must be able to file complaints easily (even anonymously) and should be made aware of the regulations and funding caps.

What should political parties be required to include in their financial reports?
The level of reporting requirements for political parties is important. The laws should specify that donations are not only direct money contributions, but may also be gifts or services (media time, use of transport facilities for candidates, printing services and so on).

Regulations should also be specific about the level of detail that parties and candidates should include in their financial statements. In many jurisdictions, because of the influence political parties have on the process of legislating, the threshold for reporting has been set lower than for other entities in the country. The result is that the reports provided by parties are of little value to enforcement bodies or watchdogs such as the media and NGOs who want to analyse the information.

A good set of political finance regulations and rules is of little use if it is not properly enforced. Effective enforcement requires independent oversight agencies endowed with powers to supervise, investigate and, if required, institute legal proceedings in cases of malpractice.

Enforcement agencies
As many as three bodies can have a role to play in controlling money flows into political parties and election campaigns:

• control bodies on campaign financing (such as parliamentary audit commissions and electoral commissions);
• anti-corruption agencies;
• the judiciary.

The different stages of the enforcement process - from compliance to investigation, prosecution and trial - are suited to different bodies. For any one stage of the process, the choice of the most suitable agency will depend on a number of factors: independence of the body, technical capacity, and interest in taking the job seriously.

Control usually takes place on two levels, first by chartered accountants and second by the supervision body. Very often the control is limited to investigating the irregularities in the accounts that are provided by candidates and parties. This might be because the supervisory bodies are not empowered to investigate party accounts (e.g. in France and Spain the supervisory bodies are not entitled to investigate party accounts) or to penetrate bank secrecy laws to cross-reference information (up until recently in Mexico and Latvia); or for practical reasons such as lack of evidence, lack of time, size of the constituency and complexity of funding mechanisms (for instance in-kind contributions or contributions from third parties are difficult to monitor). Many scandals occur after supervision bodies have scrutinised party accounts.

What should trigger an investigation?
The media and civil society organisations have a vital role to play in demonstrating where funding irregularities might have occurred, in particular showing where candidates and parties have failed to declare expenses. Some enforcement agencies systematically compare press reports of campaigning activities with reported expenditures, though this requires an enormous amount of resources. The French national committee for political campaign funding, for example, hires some 170 rapporteurs during the election period to help with this, among other tasks.

The importance of timing
Preliminary campaign accounts may be published before election day, with final reports published some time after the election. Parties and candidates should not be allowed to submit unrealistic preliminary balance sheets since this is the information the electorate has access to when it casts its vote. If the election is won by a comfortable margin, it is politically very difficult to challenge the result on the grounds that campaign finance regulations were violated.

The judiciary at the cornerstone
Prosecuting and investigating judges also have a role to play since politicians may well fear judicial power more than they fear control over campaign accounts. Many political corruption offences should be prosecuted under the criminal code, not under electoral or party funding laws. In such cases, a criminal judge is the appropriate judge to investigate corruption; it is not the job of the supervision body or an electoral court. In order to be effective, judges must be independent and must have the means to conduct proper investigations. International cooperation should also be forthcoming should various jurisdictions be involved. When procedural errors are made by judges resulting in many dismissals of charges concerning political corruption, the credibility of the judiciary is eroded.

Sanctions
Four kinds of sanctions may be used to punish offences in political party financing:

• Financial: loss of part or all of its entitlement to public funding, or fines. Fines usually relate to the offence, for instance they are proportional to the sum by which the expenditure ceiling was exceeded.
• Civil: temporary loss of right to sit and vote in the legislature by successful candidates who have failed to submit a return of expenses on time, forfeiture of seat in the legislature by a successful candidate later found guilty of a serious offence, loss of civil rights by those found guilty of offences (e.g. the loss of the right to vote for a certain period of time).
• Criminal: less common, but in force in Britain, Canada, France, Italy, Spain and the United States.
• Political disabilities: disqualification or the loss of a mandate.

It is important that sanctions are proportionate to the offence. If they are too harsh, the judicial authorities will be reluctant to prosecute. In the United Kingdom, for example, candidates may be disqualified for relatively minor infringements of reporting requirements under an electoral law dating from the nineteenth century. Because the law is considered outdated and penalties unduly harsh, it is rarely invoked. If sanctions are too lenient, however, they will not serve as a useful deterrent.

A related question is who should be sanctioned, the politician or the party? In most countries candidates are largely shielded from liability, except when they were actively involved in a particular violation. In Germany, the executive committee member responsible for the party's financial affairs is the one who risks sanctions for wrongdoing. In Britain, the party treasurer carries criminal liability if illegal contributions are accepted or reports are filed inaccurately. Some level of personal liability is generally desirable.

Considerations for public funding

Public funding is important not only in terms of transparency - since it is a non-corrupt source of funding that usually comes with reporting requirements attached - but also in terms of strengthening parties and levelling the playing field. Public funding is often very important for smaller or emerging parties who find it more difficult to attract other sources of funds.

The provision of benefits in-kind, such as free broadcasting time, may be a cheaper way of subsiding candidates than cash subsidies. Broadcasting networks are sometimes obliged to provide this facility as a public service, passing the cost burden from the public purse to broadcasters themselves. Another way of subsiding parties is through tax exemptions and income tax benefits for parties and donors. Tax credits, which allow a donor to claim some part of the donation against his or her income tax liability, have the added benefit of encouraging small individual donations and may be appropriate for countries with strong tax-collection systems and little evasion. Where such systems are weak, however, such regulations may distort the political process.

To avoid wasting public funds on opportunistic parties, a threshold, such as the requirement that the candidate or party obtain a certain percentage of the vote in a local, regional or national election, or a certain number of seats in legislative elections, is necessary. Low thresholds for qualifying for public funding help emerging political parties; high thresholds deter parties that are not serious contenders for political office.

Several criteria could be used to establish the level of public funding. The subsidy may be proportional to the actual cost of a party reaching out to voters, for example it could be calculated on the basis of how much it costs to send one campaign leaflet to each registered voter. It may be proportional to the number of votes gained in the previous general election or to the number of seats a party has in the legislature.

It is important to note that only genuine parties and candidates should receive public funding. Public money should not be a means of keeping a few members of capricious parties employed. Nor should it fund an escalation in the costs of electoral competition.

Internal party controls and codes of conduct

Political parties can voluntarily introduce checks and balances and can choose to disclose information about financing. Parties can also require members to disclose assets, and can introduce codes of conduct for members, which should refer to fundraising activities and the violation of which should incur sanctions.

On regulations:

• Regulations should be clear, accessible and regularly up-dated. They should contemplate public funding (direct or in-kind), limitations on large private sector donations, and ceilings on spending.
• Political parties, candidates and politicians should disclose assets, income and expenditure to an independent agency on an annual basis, but particularly before and after elections.
• Political parties and civil society organisations should be involved in the drafting of regulations.
• Regulations should be proportionate to the capacity of oversight bodies to enforce them and of parties to comply with them.

On internal controls:

• Political parties should undertake effective and independent auditing.
• Political parties should adopt codes of conduct for members that hold them accountable for the way in which they conduct campaigns.

On enforcement:

• Regulatory authorities need adequate powers of supervision, investigation and referral to criminal justice authorities. The regulatory body should itself be subject to legal accountability.
• The regulatory body should provide information which is accessible to those who need it, produced in a timely manner and available on the internet.
• There should be independent supervision of regulatory organisations.
• Sanctions should be proportionate to the type of misdeed.