Foxes in the henhouse: politicians remain in charge of party financing

The Spanish parliament is currently considering extending legislation on transparency, access to information and good governance to the country's political parties - a reform that has been stalled for the past year as deputies have sought to weaken its proposals. The funding of Spain's political parties is particularly opaque, and has led to a series of scandals in the past two decades. Political parties receive about 90 percent of their financing from the public treasury, and the two main parties decide between them who will be appointed to the Audit Office's tribunal.

The source of funds for political parties around the world varies according to culture, precedent and legal standards. In most European states, political parties are at least partially funded from the national budget in the form of various types of allowances, including those for regular party operation, functioning of parliamentary groups of party representatives, and for campaign expenses in an election year. In the United Kingdom and the United States, private financing of parties represents the largest portion of campaign expenses. In emerging democracies, there are examples of the different legal models as well as of compliance in actual practice. A mixed model with public and private financing is frequently established with an obligation for disclosure by political parties to an audit office. More often than not, a legal vacuum exists regarding sanctions for non-compliance or other enforcement mechanisms at the disposal of the implementing authorities.

In Spain, a mixed model applies, with public funding provided to political parties for ongoing and electoral operations. Public funding for campaigning is not directly a part of the electoral budget, and parties can also receive funds from private sources. Campaign subsidies are calculated in proportion to the number of votes and seats obtained. Political parties also receive funds from their membership, private donors, their own investment revenues, and bank loans. Access to state radio and television is free of charge and is managed by a special commission supervised by the electoral committees.

Successive laws to regulate the financing of Spain's political parties have sought to establish limits on the donations they can receive. Despite this, parties have held on to ways to channel funds, the source of which they would prefer to keep quiet.

Rajoy said he wants to set "clear rules" on party treasurers' responsibilities

The first attempt to impose controls on party funding was in 1987, which permitted anonymous donations up to the equivalent of five percent of state funding, which in 1987 was a total of 45.18 million euros for all parties; with a limit of 60,000 euros for donations from individuals. Twenty years later, the law was changed, preventing anonymous donations, but increasing the amount individuals could give to a party to 100,000 euros.

The most recent change was last October, which forbids companies which supply services to the state, as well as any companies affiliated to them, from making donations. But the law still allows donations from such companies to think-tanks associated with a political party.

This law also attempted to restrict another form of backdoor funding of political parties: banks canceling their debts or loans. From now on, banks can only cancel debts amounting to no more than 100,000 euros per year.

But in the wake of the illegal funding accusations arising from the investigation into former Popular Party (PP) treasurer, Luis Bárcenas, Spain's political parties have been forced to reopen the debate on financing, which is why Prime Minister Mariano Rajoy has suggested extending the legislation introduced to improve transparency in state institutions.

We have tried many times to do this ourselves; let's be honest, we failed"

Speaking during last month's State of the Nation debate, Rajoy said he also wants to pass legislation to control parties' "economic and financial activities," setting "clear rules" on the roles and responsibilities of party treasurers, obliging them to appear before Congress once a year to present their accounts.

Meanwhile, the Socialist Party opposition leader Alfredo Pérez Rubalcaba has taken advantage of the Bárcenas scandal to put forward proposals he says will "prevent, investigate, and punish corruption."

Why is all this necessary just four months after Congress approved new legislation on party financing? Rubalcaba admitted to journalists during the debate that the country's politicians have not been able to establish mechanisms to regulate financing, or to guarantee transparency. "We have tried many times to do this ourselves," he told deputies, "and, let's be honest, we have failed. So now let's look for help outside with this. We are going to elect an independent commission of well-known figures to diagnose the situation, and to come up with proposals that will help us draft new legislation."

But in the event, deputies proved themselves unable to agree. Rajoy's proposals were approved, with the Socialist Party and the United Left coalition abstaining, both saying that they wanted something "more ambitious." No time frame has been placed on implementing the PP's draft legislation, which also includes a proposed reform of the Audit Office, providing it with more resources and establishing ways to work in conjunction with the tax office and Social Security system.

Democracy is expensive. Parties cannot survive on subscriptions alone"

This last point is crucial, because if better legislation were introduced, there are not sufficient controls over party finances. The Audit Office has a staff of 801, "but until now, only seven have been employed in looking into party accounts, because we also have to look into the spending in all electoral processes, and of the 8,000 town and city halls, as well as public entities such as RTVE state radio and television," says a member of the Court of Auditors.

So seven civil servants are trying to keep tabs on 31 political parties, as well as a further 26 think-tanks linked to them. They will now be joined by a further 15, and their job will be to look into the accounts of all the political parties dating back to 2008, carrying out work that has piled up over the last four years by this July.

"Their work will be to audit: they can only look into the accounts that they are given," says the same Audit Office official. In other words, they would never have access to the kind of information included in the Bárcenas papers.

José Antonio Bermúdez de Castro, the PP's spokesman on party financing, describes the current legislation as "very tough" and believes it is important that parties are no longer able to receive donations from companies under contract by the state. "The business world should not be in bed with those in power," he says, adding that he does not believe that think-tanks will be able to be used to siphon funding to parties.

Maybe we need to think about being more austere, to cut campaign spending"

But the Audit Office disagrees. "The accounting procedures applied to think-tanks and other organizations linked to parties have been amended, which suggests that there will be greater permissiveness regarding the criteria and limits on donations, which means that the current limits will no long apply," says a source at the Audit Office.

Bermúdez de Castro says that the government is open to all proposals to improve the system and that these could be applied this year or the next.

The Socialist Party's Diego López Garrido says that all companies should be forbidden from making donations to parties. "An individual can make a donation on ideological grounds, or because of sympathy toward a party, but companies always want something in return," he says, citing deregulation on Wall Street. "The two main parties in the United States are both financed by Wall Street. Clinton implemented the biggest deregulation of the sector thinking: 'you finance me, and I'll leave you alone.' And we all know how that ended up. The crisis dragged us all over the edge. Democracy is expensive. Parties cannot be financed just by members' subscriptions, but financing must be clearly public." López Garrido says that the law must be ever vigilant to abuses, and punish those found responsible for illegal funding of political parties: "This means prosecuting those who engage in corrupt practices."

The conservative CiU Catalan nationalist bloc, which receives more private donations than any other grouping, says that it is important not to "criminalize" parties, and that the real issue is not how much money parties receive: it is how much they spend. "Maybe we need to think about being more austere, to cut spending on campaigns," says a CiU official. "The important thing is maximum transparency." The United Left wants a 50,000-euro donation limit, applicable to businesses and individuals.

Broadly speaking, Spain's rightwing parties want private financing to continue. In 1993, former PP cabinet minister, Pilar del Castillo, suggested Spain move toward the US model, whereby parties are almost exclusively funded by private sources. Between 2003 and 2011, the PP received almost 44 billion in private donations, while the Socialist Party was given just under 18 billion euros. Little wonder that many Socialists would like to see donations by businesses banned. In 2006, the last year in which anonymous donations were legally permitted, of the 3.74 million the PP declared as donations, 3.10 million were anonymous. The Socialist Party received 560.439 euros that year in donations, of which only 1,484 euros were anonymously given.

CiU received 46.5 billion between 2003 and 2011, without taking into account anonymous contributions. And all this just from Catalonia.

In the majority of European countries, party financing is mixed. In Portugal and Belgium, which have the toughest legislation, businesses are not allowed to donate to political parties. In Portugal, parties can receive up to 10,500 euros a year per individual. In Spain that figure is 100,000.

The Council of Europe's Group of States Against Corruption said in its 2009 report that Spain "should take measures to increase transparency regarding the revenue of think-tanks and charities associated with parties; increase the resources of the Audit Office; and implement fines that are genuinely dissuasive."

The country's political parties have failed so far in their efforts to create a law that does this. Now, forced by scandals and mounting public anger and mistrust, they have decided to do something. Perhaps they would be advised to task an outside body.

Three decades of scandals

Illegal financing of Spain's political parties dates back to the early days of the country's transition to democracy.

- 1984. Flick. The Socialist Party, led by Prime Minister Felipe González, was accused of receiving money from a German businessman named Flick, who in turn was found guilty of bribing German politicians. Three years on, the first legislation on party funding was introduced, forbidding them from receiving money from foreign governments or political parties.

- 1989. Filesa. The Socialist Party was found to have created a network of bogus companies that received government money, which was then channeled into the party for use in election campaigns. González threatened to resign as party leader, and thus as prime-ministerial candidate in the general election due by the end of November of that year, if someone within the party who knew about the Filesa scam did not own up and go. The party's number three, Txiki Benegas, promptly offered to resign without accepting any responsibility for Filesa and complaining about the lack of solidarity within the party. His offer widened the rift between González and the party's more traditional wing under its number two, Alfonso Guerra. Guerra resigned in January 1991 as deputy prime minister after a scandal involving a brother who had been acting as his "advisor."

- 1990. Naseiro. The Popular Party (PP) was accused of charging a construction company commissions and using the money for financing. Rosendo Naseiro, the PP's treasurer, was arrested and held for several days on bribery charges. Police wiretaps of conversations between him and the PP's former treasurer and a senior party figure in the regional government of Valencia seemed to substantiate the accusations of kickbacks for contracts handed out to suppliers of PP-run municipalities, but the Supreme Court rejected the recordings as evidence.

- 2009. Gürtel. The Gürtel case involved leading regional figures in the Popular Party and brought down judge Baltasar Garzón. Garzón ordered the arrest of a key suspect in the case, businessman Francisco Correa, and around two dozen others in 2009. They were accused of paying conservative officials millions of euros in kickbacks in exchange for contracts with Popular Party municipal and regional governments in Madrid, Castilla-La Mancha and Valencia. Correa is accused of bribing officials and politicians with cash, luxury cars, designer clothing, expensive watches and Caribbean holidays. Garzón was convicted of abuse of power for ordering police wiretaps of suspects who were in jail and under investigation in the case. The wiretaps allowed the authorities to listen in on their conversations with defense attorneys and others. The lawyers later filed a lawsuit, arguing that the wiretaps violated their constitutional right of attorney-client privilege. The wiretaps, which were backed by state prosecutors, continued after Garzón passed the case in March 2009 to Madrid's regional High Court. Swiss investigators have uncovered some 24 million euros in bank accounts linked to Correa. He used a number of shell companies with names such as Special Events, Easy Concept and Orange Market to carry out his activities. The former head of the government of Valencia, Francisco Camps, and his former deputy, Ricardo Costa, were subsequently acquitted on corruption charges. The two men were accused of accepting bribes from the Valencian branch of the Gürtel network in the form of designer suits in exchange for contracts. The jury decided by a margin of five votes to four that the charges could not be proven. Camps, who was re-elected with a strong majority as head of the Valencia regional government in local elections in 2011, stepped down to fight the corruption allegations. Garzón, the judge who led the investigation into the Gürtel scandal, is thus the only person so far to be convicted in relation to it.

- Palau, Palma Arena and Pallerols. Other high-profile corruption cases in Spain abound. The Millet or Palau case, involving the diversion of 35 million euros from the Palau de la Música auditorium in Barcelona to the CDC party, one half of the ruling CiU bloc in Catalonia; the Palma Arena case, involving 30 defendants accused of misappropriating tens of millions of euros linked to construction of a 100-million-euro indoor sports stadium in Mallorca; the Pretoria case, involving 20 defendants accused of receiving millions of euros in bribes in exchange for building permits in Catalonia; and the Pallerols case in which European Union funding that was destined to go to job training programs for the unemployed instead found its way into the treasury of the Unió party, the other half of Catalonia's CiU.