Parties’ opaque finances are cause for concern as they fuel corruption

Parties’ opaque finances are cause for concern as they fuel corruption

How rich are Nepal’s political parties?

This is a million dollar question even for the Election Commission, the top constitutional body that keeps tabs on parties, apart from conducting the elections.

That Nepal’s political parties are extremely opaque about their finances is an open secret and multiple calls have been made to ensure transparency, but efforts towards that end have been too little.

Firstly, how do parties make money?

Parties say they manage finances through the levy collected from members and donations from “well wishers”, which include rich individuals and business houses.

Hardly any Nepali party, however, has ever disclosed such funds.

In a bid to bring transparency, the Election Commission is now planning to make it mandatory for the parties to disclose their sources of income.

An official at the commission said the commission has developed an “accounting template”. The commission has sought feedback on the template from the parties.

“We have prescribed the format where the parties are required to provide details about the contributions made by institutional donors and individuals. Parties also need to mention the purpose of funding,” said Mukunda Keshari Pokharel, an under-secretary at the accounts section of the commission. “The parties must issue receipts for the funds.”

He said if any party fails to enter data, it would amount to financial indiscipline.

The way Nepal’s political parties and their candidates spend during elections makes one wonder if they are too rich in a country that is one of the poorest in the world.

Though the commission has fixed the cap for candidates’ election expenditures, candidates rarely stick to the rules.

In the last parliamentary elections held in 2017, the election body had set spending limits at Rs2.5 million for a House of Representatives candidate under the first-past-the-post (FPTP) system.

A 2017 study conducted by the Election Observation Committee Nepal, a poll monitoring body, had revealed that each candidate winning the federal parliamentary elections under the FPTP system had spent, on an average, Rs21.3 million, more than six times the limit set by the Election Commission. The runners-up spent an average of Rs14.9 million and the remaining candidates spent Rs8.5 million each.

A winning candidate for provincial elections under the first-past-the-post system was found to have spent Rs12.5 million, almost 11 times the ceiling, while runners-up spent Rs11.7 million and others spent Rs7.1 million, according to the study. The election body had set a cap of Rs1.5 million for provincial election candidates.

Officials at the commission said that the candidates, however, submit their spending reports by keeping their expenditures within the set threshold, hence it cannot initiate action against anyone.

“None of the candidates who contested in the last parliamentary elections submitted details showing expenses more than Rs2,499,999,” Komal Prasad Dhamala, assistant spokesperson for the commission had told the Post in early October.

Chief Election Commissioner Dinesh Thapaliya told the Post then that he was not aware of any complaint registered at the commission about overspending by any candidate.

With individual candidates’ expenditures going through the roof, many wonder about the finances of the parties, which are said to be distributing election tickets based on who can pay more. And this creates a vicious circle of corruption, making the elections extremely expensive.

Officials and experts say bringing transparency in political parties’ finances is crucial as the country is set to go to polls. Federal, provincial and local elections will be held next year.

The new accounting template, however, is not for the candidates and is for political parties, according to commission officials. The sole purpose of introducing the template is ensuring transparency in parties’ finances, they say.

Shyam Ghimire, coordinator of the audit committee of the Nepali Congress said that his party has received the template and that the party would respond within a week.

“Our party’s transactions in the last fiscal year are also being audited currently,” told the Post.

According to Ghimire, his party had raised as much as Rs120-130 million through the levy from party leaders and cadres in the last fiscal year.

“We collected separate amounts as a levy from elected leaders and members. So I am not sure how much earnings we made through the levy,” he said.

According to him, the amount collected as levy from leaders and cadres remained high in the last fiscal year as most of it was collected for the first time in five years in the lead up to the upcoming general convention.

“Otherwise, normal annual earnings of the party hover around Rs30 million,” he added.

The parties, however, also receive funds in the form of “donations” from business houses and interest groups. And such donations are never made public.

“Businessmen do fund parties and candidates during elections and general conventions. Such contributions can be disclosed, but the donors don’t want their contribution to be made public,” said Ghimire.

It is not that the Election Commission has not made any effort in the past to ensure transparency in political parties and candidates’ finances.

Neil Kantha Uprety, former chief election commissioner, said when he was leading the commission, he had also developed an accounting template and trained people of the finance committee of political parties before the second Constituent Assembly elections in 2013.

“We had prepared the accounting template in a way that the parties needed to disclose the source of their funding. They needed to keep a record of the income and expenditure in the prescribed format every month, get the transactions audited, and submit it to the commission after the end of the fiscal year,” he said.

But parties ignored it, according to him.

“When parties submitted their audit reports, they failed to mention election expenditures in detail and would just mention certain amounts the party provided to each candidate,” said Upreti.

Anti-corruption activists and election experts have been arguing that the nexus between political leaders and business interest groups is the main reason for large-scale policy corruption in the country.

Uprety said that the parties do not disclose where the money came from and how the party channelized the money.

“Non-transparency in these issues has been a source of policy corruption in the country,” Uprety told the Post.

Commission officials are hopeful that the parties would abide by the rules once the accounting document is made mandatory.

Guru Prasad Wagle, deputy attorney at the commission, said that the template has been prepared as prescribed by the Office of Auditor General to a large extent.

“The parties need to keep a record of income of expenditure by disclosing whether the funds were received as donations, or levy from party members or other sources,” said Wagle.

Currently, details about parties’ incomes and expenditures become clear only when an audit of their transactions is completed.

As per section 41 (1) of the Political Parties Act-2017, the parties are required to get their books of accounts audited within six months after the fiscal year ends and submit the audit report to the commission within a month. A large number of political parties have invariably failed to get their transactions audited on time and submit the audit report to the commission.

In August, the commission had scrapped the registration of 41 political parties, all small outfits, after fining Rs50,000 each. The names, flags, and symbols used by these parties cannot be used by any other political parties for one year, according to the commission.

“Once the template is approved by the commission after receiving feedback from the parties, it will encourage them to maintain their account books properly,” said Wagle.

Uprety, the former chief commissioner at the commission, however, is not optimistic.

“I can tell from my own experience that just an accounting format won’t bring transparency,” said Uprety. “Without strong laws and enforcement mechanisms, we cannot make it certain that the parties will keep their accounts transparent by disclosing their sources of income,” said Uprety.

Experts say transparency in parties’ finances, as well as that of the candidates in elections, is important to ensure parties and leaders work in the interest of the larger public instead of certain interest groups.

Uprety recalled how the parties removed the provision proposed by the commission to bring transparency about the properties of candidates.

“As part of reforms in elections laws, we had proposed amendments to the House of Representatives Election Act and Political Parties Act making a provision that candidates should declare their as well as their family members’ properties during the nomination,” said Uprety. “The amendment proposals were taken to the legislature-parliament formed after the second Constituent Assembly elections. But lawmakers removed the provisions.”

The commission has also been proposing public funding for political parties to run the party and election campaigns so that their finances could be audited by the Office of the Auditor General.

“It is one way of bringing transparency in the finances of the parties,” said Uprety.

In its five-year strategic plan, introduced early last year, the commission had proposed state funding for political parties based on the votes obtained in the previous elections.

In 2003-04, then finance minister Prakash Chandra Lohani in his fiscal budget had introduced state funding for political parties. As per his proposal, the government would provide grants to nationally recognized political parties two months before the parliamentary elections based on the votes they received in the recent elections for the House of Representatives.

As per the proposal, a party would receive Rs20 per vote obtained in the latest parliamentary elections. Lohani said that he also proposed providing tax exemption on the donations made by business houses with the provision that they declare the donation made to the parties.

All political parties enjoying this benefit are required to publish their annual Income and expenditure statements and balance sheets audited by a chartered accountant affiliated to the Nepal Chartered Accountants Association, as per the budgetary announcement in fiscal 2003-04. This was for the first time that budgetary allocation was made for financing political parties in Nepal.

“I still believe that the state should finance political parties to contest elections and even to run the parties as political parties are an essential part of democracy,” Lohani told the Post. “It also helps minimise corruption as the candidates do not have to rely on donations.”

He said that the parties should also be allowed to accept external donations but such donations should be criminalised if they are not made public.

“Firstly, parties across the spectrum must agree to the principle of state funding,” said Lohani. “And there should be a strong law to hold the parties to account.”

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