**OVERVIEW OF DISCLOSURE AND TRANSPARENCY IN POLITICAL FUNDING IN LATIN
AMERICA**

Organization of American States Meeting,

Vancouver, Canada, December 5-6, 2002

By

Gene Ward, Ph.D.

Democracy Fellow,USAID

**Introduction**

Development experts as well as democracy practitioners are now realizing
that politics is as important to successful development as
economics[^1]. The question of how to promote the growth of good
governance has now reached parity with the traditional question of how
to best promote sustainable economic development. According to the World
Bank[^2], good governance leads to higher investment and growth, and
\"political accountability\" is one of the variables identified in the
governance equation. Political accountability is defined in part by
\"transparency in party financing\" as well as \"asset disclosure.\"

Transparency of money in politics thus identifies one of the important
components for policymakers to consider while contemplating sustainable
national development. According to observations by some academicians and
non-governmental organizations, the lack of openness in money and
politics has contributed to the corruption of political finance and
transparency remains a challenge to the promotion of good governance.

Many researchers in the field of money and politics claim that ***too
much money is either hidden, goes unreported, or is from illicit
sources, and Latin America is no exception nor is it alone in facing
this challenge***. Secret money and corruption hurts the economy and the
polity of a nation as well as distorts the behavior of politicians,
hence development falters and citizen confidence in democracy wanes.

Though civil society has begun to play an increasingly important role in
Latin American politics, many of the countries in the region still do
not openly reveal the sources and origins of their political party and
campaign funds. This is particularly true for private funding sources
where there are many uncertainties about the amounts and identities of
these funds generally across the 34-member OAS countries.[^3]

This paper briefly discusses the anatomy and status of disclosure and
transparency in Latin America and considers some of the benefits of open
political finances. It poses the following questions:

1.  Why is disclosure in Latin America important?

2.  What does transparency in political fundraising in Latin America
    mean?

3.  What does disclosure of money in politics look like in Latin
    America?

4.  How does Latin America compare to the rest of the world?

5.  What, if anything, can be done about it?

**Why is Disclosure in Latin America Important?**

There are three main reasons why countries in Latin America can benefit
by increasing emphasis on transparency:

1)  **Increased Legitimacy and Confidence by the Electorate**: Illicit
    or illegal money can too easily find its way into the governance
    equation and cast aspersions on all. Recently, for example, a
    \"pornography king\" was found to have contributed a large sum of
    money to the Labor Party in the U.K. and more than just eyebrows
    were raised. In South Africa, to the consternation of many, it was
    recently learned that Libya\'s Ghaddafi had been channeling huge
    sums of money to the ANC and Nelson Mandela. In Latin America most
    remember the recent financial scandal between the president of
    Colombia and the druglords. The point is that ***without disclosure,
    money can come from anywhere in the world, and in any amounts.***
    Since money often determines who wins a political contest,
    transparency in its origins and use are key.

2)  **All Political Finance Regulations Begin with Disclosure: No
    Disclosure Means No Enforcement is Possible:** The second big reason
    to pay attention to [disclosure is]{.underline} that it is [the
    cornerstone of *all* campaign and political party regulations.
    Without it there is no way to keep track of limits, bans, or
    ceilings.]{.underline} For example, without disclosure reporting
    requirements for contributions, there would be no way to enforce
    campaign contribution limits. Without disclosure about spending,
    there could be no way of enforcing spending limits. Without
    disclosure of a donor\'s identity and citizenship, there is no way
    to enforce bans on foreign contributions. Countries that have weak
    enforcement of political finance therefore will also likely have
    weak or non-existent disclosure.

3)  **Transparency Builds Confidence in the Democratic Process:**
    Lastly, in addition to the above regulatory and accounting
    dimensions, there is also a loftier dimension attached to it in a
    democracy. In a democracy, the underlying principle behind
    disclosure is that the more transparent and open a nation with its
    public and political finances the more trusted the government and
    the more confident and legitimate its citizens consider it. As it
    was once put by a US Supreme Court justice, \"disclosure is the best
    disinfectant.\" In short it makes citizens feel confident and
    comfortable with their government and political leaders when it
    knows what they are doing with public and political finances.

**What Does Transparency in Latin America Mean?**

Disclosure is only one of the many ways that nations have tried to
control the flow of money into politics. (See Annex 1 for an overview of
spending limits, bans, prohibitions, etc.). Disclosure, however, means
different things to different people. From the perspective of NGOs and
civil society organizations, disclosure is being able to see where
political money originates and flows and how it may influence
legislative behavior. Transparency International in Argentina has been
very active in this area of concern.

From the point of view of a candidate or a political party, disclosure
means giving up some privacy but gaining credibility through
accountability. And from the point of view of the media, disclosure is
revealing a scandal involving political finances and a public figure.
All of these perspectives share the common goal of requiring more
openness regarding political finances.

The need for more disclosure laws on the books, however, does not assume
that there is dishonest money in a political system. It could mean that
parties simply need to be more open about their honest money and allow
some transparency. ***In a democracy, disclosure reports are to
politics, what financial statements are to businesses.*** Both are
\'accounting systems\'; one for the accuracy of profits, the other for
the level of \'accountability\' of elected leaders to the public and to
their members.

**Transparency Defined**

For political financial disclosure laws to be credible as well as
enforceable they should contain two major structural components:

1)  ***A disclosure law should first contain in clear language a
    provision that money and \"anything of value\" (including in-kind
    resources such as loans or equipment, etc.) should be accurately and
    promptly reported to the government, or a designated
    agency/commission;***

2)  ***Secondly, a disclosure law should contain a provision that the
    government will facilitate making these financial reports available
    to the public for review and analysis as soon as practicable.***

A country\'s legislation containing the above two components, however,
could still fail to be truly a disclosure law that promotes transparency
and openness in political finance if it does not pass the \"transparency
test\" listed below in the form of the following five questions.

**Transparency & Disclosure Laws\' Test:**

1.  **Who gave?** (The donor identity question.)

2.  **How much?** (The itemized amount attached to the donor\'s name)

3.  **When?** (The date of the donation.)

4.  **To Whom?** (The name of the party or candidate receiving the money
    or \"anything of value\".)

5.  **For What?** (The name of the vendor or person receiving the money
    identified by name and category of the expenditure.)

If political parties, candidates and donors could answer these five
questions with the records they keep and would be willing to be
transparent (in a timely manner and accessible by the public) about
their political financing arrangements, there would be no need for
disclosure laws. The reality in Latin America, as well as in all parts
of the world, is that a considerable proportion of those involved in
political life will try to keep their fundraising activities private and
will not volunteer information, and or will simply ignore laws about
disclosure; alternatively, they may seek legal ways to circumvent the
rules via loopholes.

This is not to say that disclosure is immediately applicable for all
countries. Threats of intimidation and harassment often accompany
disclosure of political finances in countries such as Ukraine and Egypt.
Still, as democracy matures these incidences decrease and transparency
is able take root. Getting transparency codified and into law is a
critical eventual step.

**What does disclosure look like in the world?**

Based upon a USAID survey of 118 nations[^4]4, 37% of the countries
surveyed had no disclosure laws. Another 13% have "hidden transparency"
where finances are reported only to the government, and the public is
not allowed to view the reports. Another 35% of the countries surveyed
provided reports that were so brief that they were of little value,
particularly for informing the public about the political finance of
their leaders.

When added together, 85% of countries surveyed have hidden, partial or
no disclosure, with only the remaining 15% of the countries examined by
USAID actually reporting openly and fully to their governments and
people.

**What does disclosure look like in Latin America?**

How open is political finance in Latin America compared to the rest of
the world? Overall, it appears that requiring disclosure of donors and
vendors in an itemized fashion is in short supply in Latin America.

**Disclosure**[^5] **Levels Compared**

**World Latin America**

Presidential Candidates Must.Disclose 29% 6%

Parliamentarians Must Disclose 29% 14%

Donor Identity Must be Disclosed 31% 16%

Parties Must Disclose 49% 40%

According to the above table, presidential candidates are considerably
less likely to have to report their finances in Latin America than the
worldwide average. Legislative candidates in Latin America are also less
likely to have to report the origins and amounts of their monies. On the
other hand political party financial reporting is about on par with the
rest of the nations surveyed, though slightly less in Latin America.

Overall in terms of transparency and openness required by extant laws,
Latin America as a region has less transparency and openness than Europe
and former members of the Soviet Union, but considerably more disclosure
than Asia, and Africa which has the least amount of disclosure. If
accountability of only private funds is considered, it is possible that
Latin America would score even lower on disclosure in comparison to the
rest of the world.

**Latin American Countries Compared to Each Other:**

Within the Latin American region, however, an even more diverse picture
of transparency emerges (see table below) with Brazil being the most
\"open\" and almost half of the region being totally \"closed\" with no
transparency laws. However, it should be noticed that most of these
closed nations are in the Caribbean with populations of under 1 million.

It should also be noted that the table below only represents the
disclosure laws that are on the books, not whether or not laws are
enforced, or whether loopholes exist in these laws. For example, the
table below rates Argentina rather high on its level of disclosure and
transparency. According to Transparency International of Argentina,
however, only political party funds which comprise about 10% of revenues
spent on campaigns is covered by the disclosure laws of Argentina.
Another 90% of campaign funds are raised by Argentinean candidates
themselves through the establishment of their own private non-profit
organizations and entirely escape having to report to the government or
the public. The point is there is a distance between the existence of
the law and the practice of the law.

**LATIN AMERICAN PROFILES OF DISCLOSURE**

![](media/image1.wmf){width="5.885416666666667in"
height="1.4583333333333334e-2in"}

**What can be done about disclosure in Latin America?**

Generally speaking, disclosure and transparency tend not to be planned.
Scandals revealed by the media are probably the biggest driver of
reforms and calls for more transparency. For example, without Watergate
or the Enron scandals, campaign finance in the US would likely look
quite different.

However, some countries choose to set their legal framework for
disclosure from the outset. For example, most all of the former Soviet
Union countries have financial reporting to the government with copies
being shown to the public. On the other hand some countries chose
gradualism and a slow approach to disclosure by implementing \"personal
asset disclosure\" as a way of opening the door for later, more
comprehensive reporting by candidates and parties.

Whichever route a country chooses it usually follows along the lines of
what is politically realistic at the time. If a party or leaders feel
not yet ready to make public their funding sources, they may well be
vulnerable to public embarrassment if disclosure were implemented. Every
country works through this at a difference pace. In the US for example,
it took almost 40 years between disclosure laws being enacted and
disclosure laws being enforced.

For this reason, there is a disclosure continuum along which countries
fall from being totally wide open with public participation to no
disclosure of political funds and public engagement. Every country must
work from the vantage-point of its present location. What\'s clear,
however, is that there are more benefits of transparency than secrecy
for Latin American democracies.

USAID\'s commitment to work in the area of political finance began with
the publication of a handbook on money in politics and is now moving to
providing technical assistance to political parties, non-governmental
organizations, election commissions and the media related to disclosure
in support of Latin American countries initiating reforms. For example,
any Latin American country interested in placing its political party and
campaign finance reports on the Internet, is invited to see the MAP
(Money and Politics) \"Transparency through the Internet Program\"
presentation by IFES (International Foundation for Election Systems) and
sponsored by USAID at the Vancouver OAS conference, December 5-6, 2002.

**Annex 1**

**MONEY And POLITICS:**

**CARROTS & STICKS STRATEGIES**

## MAJOR REFORM APPROACHES

**TO LIMIT MONEY IN POLITICS**

**\"STICKS\" (RESTRAINTS)**

+------------------+--------------+----------------+------------------+
| ### **Typ        | ### **How I  | ### **Expe     | # *[Unint        |
| e of Restraint** | mplemented** | cted Outcome** | ended Consequenc |
|                  |              |                | es]{.underline}* |
+------------------+--------------+----------------+------------------+
| **1.Contribution | Dollar caps  | Restrict       | Disguised income |
| Limits:**        |              | funding        |                  |
+------------------+--------------+----------------+------------------+
| **               | Corporations | Stop illegal   | \"Soft           |
| 2.Contribution** | & Union      | contributions  | money\"/Dirty    |
| **Bans**:        |              |                | Money/           |
|                  |              |                |                  |
|                  |              |                | Laundered Money  |
+------------------+--------------+----------------+------------------+
| **3.Contribution | Fin          | Ease reporting | Reporting        |
| Thresholds:**    | Reporting    | burden         | deception        |
+------------------+--------------+----------------+------------------+
| **4. Spending    | Spending     | Restrict       | Disguised        |
| Limits:**        | caps         | spending to    | spending and     |
|                  |              | make           |                  |
|                  |              |                | Spending still   |
|                  |              | Campaigns less | skyrocketing     |
|                  |              | expensive      |                  |
+------------------+--------------+----------------+------------------+
| **5.Spending     | Control      | Full           | Largely Ignored  |
| Limits           | of\          | accounting of  |                  |
| In-Kind:**       | "freebies\", | costs          |                  |
|                  |              |                |                  |
|                  | Loans,       |                |                  |
|                  | borrowed     |                |                  |
|                  | equip.       |                |                  |
+------------------+--------------+----------------+------------------+
| **6.Timing       | Shorter      | Less \$        | Underground      |
| Limits:**        | campaigns    | required       | Campaigns        |
|                  |              |                |                  |
|                  |              |                | And              |
|                  |              |                | \'off-season\'   |
|                  |              |                | campaigns        |
+------------------+--------------+----------------+------------------+
| **7.Public       | Fin.         | Honest         | Dishonest        |
| Exposure:**      | Reporting    | reporting and  | reporting        |
|                  | made         |                |                  |
|                  |              | Public         | Or disregard for |
|                  | Accessible   | accountability | laws, plus       |
|                  | by public in |                |                  |
|                  |              |                | Information so   |
|                  | Timely       |                | old is useless   |
|                  | fashion      |                |                  |
+------------------+--------------+----------------+------------------+
| **               | Audit of     | Compliance     | Non-disclosure   |
| 8.Enforcement:** | Reports,     | with laws,     | and ignoring of  |
|                  |              |                |                  |
|                  | In           | Accountability | The law          |
|                  | vestigations | of politicians |                  |
|                  | conducted    |                |                  |
+------------------+--------------+----------------+------------------+
| **"Carrots"      |              |                |                  |
| (Incentives)**   |              |                |                  |
+------------------+--------------+----------------+------------------+
| **9. Public      | \% of seats  | Decrease       | Little effect on |
| Financing**      | won          | corruption and | private          |
|                  |              |                |                  |
|                  |              | costs of       | Fundraising &    |
|                  |              | elections      | reliance big     |
|                  |              |                | donor            |
+------------------+--------------+----------------+------------------+
| **10. Tax        | Taxpayer     | Attract small  | Little Interest  |
| Incentives**:    | deductions   | donors         | by Public        |
+------------------+--------------+----------------+------------------+
| **11. Free       | Gov\'t       | Equal Air Time | Incumbent        |
| Media:**         | provides TV, |                | advantage        |
|                  | Radio        |                |                  |
+------------------+--------------+----------------+------------------+
| **12. Tax        | Donor        | Encourage more | Not too          |
| Credit:**        | Incentives   | donors         | attractive       |
+------------------+--------------+----------------+------------------+

> **Annex 2**

**Basic Disclosure Rules in Selected Latin America Countries**

ANY BY PARTY BY CANDIDATE BY DONOR THRESHOLD DISCLOSURE

DISCL- \_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_\_\_\_\_ FOR INDEX

OSURE I[ncome]{.underline} [List]{.underline} [Presid-]{.underline}
[Parl-]{.underline} DISCLOSURE

RULES [and/or]{.underline} [of]{.underline} [ential]{.underline}
[iament-]{.underline} OF

[Expend]{.underline}- [donors]{.underline} [ary]{.underline} DONATIONS

[iture]{.underline} (by parties,

[Accounts]{.underline} candidates, or

by donors, in

US Dollars)

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

COLUMN

NUMBER 1 2 3 4 5 6 7 8

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Antigua

and Barbuda no no no n.a. no no n.a. 1

Argentina YES YES YES no no no none 3

Bahamas no no no n.a. no no n.a. 1

Barbados YES no no n.a. YES no n.a. 2

Belize no no no n.a. no no n.a. 1

Bolivia YES YES no no no YES none 3

Brazil YES YES YES YES YES YES 581 4

Chile YES YES no no no no n.a. 2

Colombia YES YES YES no no YES none 3

Costa Rica YES Subm YES no no no none 2

Dominica no no no n.a. no no n.a. 1

Dominican

Republic no Subm no no no no n.a. 1

Ecuador YES YES Subm. no no no n.a. 2

El Salvador no no no no no no n.a. 1

Grenada no no no n.a. no no n.a. 1

Guatemala no Subm no no no no n.a. 1

Guyana no Subm no n.a. no no n.a. 1

Honduras no Subm no no no no n.a. 1

Jamaica YES no no n.a. YES no n.a. 2

Mexico YES YES Subm. no no no n.a. 2

Nicaragua YES Subm YES no no no n.a. 2

Panama no Subm. no no no no n.a. 1

Paraguay no Subm Subm no no no n.a. 1

Peru YES YES no no no no n.a. 2

St Kitts and Nevis no no no n.a. no no n.a. 1

St Lucia no no no n.a. no no n.a. 1

St Vincent &

the Grenadines no no no n.a. no no n.a. 1

Trinidad

and Tobago YES no no n.a. YES no n.a. 2

Uruguay no no no no no no n.a. 1

Venezuela no Subm no no no no n.a. 1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

**NOTES:** The information has been prepared by Michael
Pinto-Duschinsky, a member of the board of directors of the
International Foundation for Election Systems, with the assistance of
Violaine Autheman and Jeffrey Carlson. Daniel Zovatto of IDEA also
contributed to the data collection phase of this matrix. The Matrix
records laws and regulations in force in some countries as of 1 January
2000 and for others on 1 September 2001. Laws are not always clear and
the assignment of categories is some cases a matter of judgement. While
care has been taken in the preparation of the Matrix, there is always
the possibility of error. Corrections and comments on interpretations of
categories will be gratefully received at \[info@ifes.org\].

**Col. 1**. Measures the present or absence of campaign or party finance
law(s) on disclosure.

**Col. 2**. \'YES\' means that income AND/OR expenditure accounts must
be submitted to a public authority and made available for public
scrutiny. \'Submit\' means that income AND/OR expenditure accounts must
be submitted to a public authority but need not be made available for
public scrutiny

**Col. 3**. YES\' means party must disclose identities of donors. Where
donations need be disclosed only if they exceed a certain threshold,
this is recorded in Column 7..

**Col. 4**. \'YES\' means the income AND/OR expenditure accounts of the
candidate must be disclosed as distinct from those of the candidate\'s
party. \'N.a.\' (not applicable) means that there is no election for the
position of chief executive in the country concerned. **Panama**: except
for independent candidates.

**Col. 5**. \'YES\' means the income AND/OR expenditure accounts of the
candidate must be disclosed as distinct from those of the candidate\'s
party. **Brazil**: senators only; **Colombia, Panama**: except for
independent candidates.

**Col. 6**. \'YES\' means donors themselves must disclose their
donations. Where donations need be disclosed only if they exceed a
certain threshold, this is recorded in Column 7. **Bolivia, Colombia:**
by corporations.

**Col. 7**. \'None\' means that there is no threshold for disclosure and
that all relevant donations must be disclosed or submitted. **Bolivia**:
all donations from private companies must be disclosed;

**Col. 8**. This column is a Disclosure Index which indicates how many
types of disclosure laws are on the books in a country. The three types
of laws are: disclosure by political parties of income and/or
expenditure accounts; disclosure by candidates for presidential or
legislative office; and disclosure of the identity of specific donors.
Coding is as follows: 4=countries with three types of disclosure laws;
3=countries with two types of disclosure laws; 2=countries with one type
of disclosure law.; 1=countries with no disclosure laws.

[^1]: ^1^ United Nations Human Development Report 2002, *Foreword* by
    UNDP Administrator, Mark Malloch Brown.

[^2]: ^2^ World Development Report, 1997

[^3]: ^3^ Zovatto, Daniel, \"Internal Democratic Processes and Financing
    of Political Parties,\" in [Democracies in Development]{.underline},
    Inter-American Development Bank, 2002.

[^4]: ^4^ \"Money & Politics Handbook: A Guide to Increasing
    Transparency in Emerging Democracies.\" USAID draft publication,
    Washington,DC. October 2002. Though 118 countries is a large sample
    to demonstrate disclosure laws, it is not a scientifically drawn
    random sample of the 193 official nations in the world, hence any
    generalizations drawn must be tentative. The number of Latin
    American countries in the 118-nation survey was 30. See Annex 2 for
    details.

[^5]: ^4^