EUROPEAN COMMISSION Brussels, 25.11.2021 COM(2021) 717 final REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

Evaluation report pursuant to Article 38 of Regulation 1141/2014 on the statute and funding of European political parties and European political foundations



LIST OF ACRONYMS USED AFCO European Parliament Committee on Constitutional Affairs APPF Authority for European political parties and foundations EPRS European Parliament Research Service EU European Union EUPFs European political foundations EUPPs European political parties EUPP/Fs European political parties and foundations IAS International Accounting Standards NGO Non-governmental organisation ODIHR Office for Democratic Institutions and Human Rights OSCE Organisation for Security and Cooperation in Europe TEU Treaty on the European Union TFEU Treaty on the Functioning of the European Union



I.Introduction Regulation 1141/2014 (the ‘Regulation’) governs the statute and funding of European political parties (EUPPs) and European political foundations (EUPFs). It established a European legal personality for both European political parties and foundations (EUPP/Fs), defined the criteria for their registration and set out rules for their governance. The Regulation also created an independent oversight body, the Authority for European political parties and foundations (APPFs), and strengthened the control mechanisms over EUPP/Fs. The Regulation was adopted under the ordinary legislative procedure, in accordance with Article 224 of the Treaty on the Functioning of the European Union (TFEU). It entered into force on 24 November 2014 and became applicable on 1 January 2017. The provisions on the funding of EUPP/Fs entered into effect as of financial year 2018. Simultaneously, the Financial Regulation was amended to introduce specific provisions on contributions from the EU budget to EUPPs. These provisions are now found in Articles 221 to 232 of the Financial Regulation. In the run-up to the 2019 elections to the European Parliament, the Regulation was amended twice with a limited number of targeted amendments to address its most critical loopholes: ·The first of these amendments, requested by the European Parliament, was to make the links between European and national political parties more transparent by making access to funding from the EU’s budget conditional on the EU member parties’ publishing, in a clearly visible and user-friendly manner, the political programme and logo of the European political party concerned. In addition, the amending Regulation tightened the conditions for registration as an EUPP, rendering it contingent upon the applicant being supported by seven national political parties from seven different Member States. Therefore, unlike in the past, individual parliamentarians could no longer support an application for registration. As a result, in 2018 the APPF deregistered two EUPPs, and one affiliated EUPF for failing to provide proof that they satisfied the tightened minimum representation requirements. The verification mechanism for compliance with EU values was also amended so the European Parliament may request the Authority to launch the mechanism not only acting on its own initiative, but also following a reasoned request from a group of citizens. Finally, Article 27 on sanctions was amended to ensure that, if an EUPP/F no longer fulfils one or more of the conditions for registration, it is removed from the Register. ·The second amendment was adopted as part of the Commission’s 2018 European elections package, comprising of a set of provisions which aimed at securing free and fair elections and was triggered by the ‘Facebook/Cambridge Analytica’ scandal. The amendment introduced a verification procedure, imposing sanctions on EUPP/Fs that deliberately influence, or attempt to influence, the outcome of elections to the European Parliament by taking advantage of breaches in data protection. This amendment also granted the APPF additional resources and gave it more independence. According to the Regulation’s evaluation clause in Article 38, the European Parliament has to publish a report on the Regulation’s application by the end of 2021. The Commission has to present its own follow-up report within 6 months of the adoption of the European Parliament’s report, accompanied, if relevant, by a legislative proposal to amend the Regulation. The European Parliament adopted its report on 11 November 2021. The present report fulfils the Commission’s legal obligation pursuant to Article 38 of the Regulation. The present evaluation report covers the period between the Regulation’s entry into application on 1 January 2017 and the publication of this report. The overall assessment of the Regulation’s practical application is positive, especially regarding its relevance and EU added value, and there are no calls for a major overhaul of the current system. However, the Commission has identified a number of shortcomings in the system that undermine the Regulation’s effectiveness, efficiency and coherence with other EU policies. These shortcomings have to do with: (i) the funding of EUPP/Fs, (ii) democratic values , visibility and gender balance (iii) the enforcement and sanctioning mechanisms and (iv) administrative burden. II.Methodology The evidence supporting this evaluation was collected through the informal consultation of main stakeholders who were interviewed and were asked open questions. These included EUPP/Fs, the APPF, the services of the European Parliament’s Authorising Officer, Member States, Members of the European Parliament and non-governmental organisations (NGOs). The evaluation report also takes into account the European Parliament’s report on the application of the EUPP/F Regulation adopted on 11 November 2021 pursuant to Article 38 of the Regulation. The Commission conducted a 12-week long open public consultation between 30 March and 22 June 2021. This evidence was complemented by desk-based research by Commission staff, two external expert studies and the existing academic research on the subject in the areas of law and political sciences. The financial data used was publicly available on the European Parliament website and the APPF website but also came from the European Parliament’s ex post evaluation study on the Regulation’s application.

III.Relevance The objective of the Regulation is to establish a regulatory framework enabling EUPP/Fs to fulfil their mission under Article 10(4) TEU, namely to ‘contribute to forming European political awareness and to expressing the will of citizens of the Union’ while ensuring their sound financial management and safeguarding against foreign interference. From all the consultations conducted by the Commission, a wide consensus emerged on the Regulation’s relevance, confirming that its objective remained valid, that it established the appropriate regulatory framework for the operation of EUPP/Fs and that it needed limited targeted improvements. The report by the European Parliament Committee on Constitutional Affairs (AFCO) on the application of the Regulation also confirmed these findings, acknowledging the improvements the Regulation has brought about and proposing targeted amendments for addressing existing loopholes. IV.Effectiveness The mission of EUPP/Fs is to help shape a truly European political space and promote democratic values within and beyond the EU’s borders. Some provisions in the current Regulation, however, do not allow EUPP/Fs to completely fulfil this mission, thus diminishing the Regulation’s effectiveness. 1.Funding provisions a)Income structure The total amount of EU funding for EUPP/Fs has significantly increased over time, with EUR 46 million being earmarked for EUPPs and EUR 23 million for EUPFs in 2021. Figure 1 – Level of EU funding for European political parties and foundations Source: European Parliament Research Service Due to the co-financing obligation introduced in Article 17(4) of the Regulation, if EUPP/Fs fail to collect the matching own resources, their EU funding is lowered until it corresponds to 90% and 95% of the total expenditure, respectively. This means that if EUPP/Fs want to benefit from the increased budgetary resources, they have to secure more own resources over the years, in absolute terms. This, however, has proven problematic not only for smaller EUPP/Fs but for the larger ones as well (see Figure 2 below). Figure 2 – Maximum eligible contribution and final contribution to EUPPs from the EU budget per year Source: W. Wolfs, based on the reports of the Secretary-General of the European Parliament and Financial Overviews of the European Parliament’s DG FINS There are two reasons why EUPP/Fs find it difficult to raise own resources. On the one hand, the Regulation currently provides for only two categories of resources: contributions and donations. Stakeholders argue that this categorisation is too simplistic and rules out the possibility of raising own resources from other sources such as sponsorship, publication fees, participation fees, sales, etc. On the other hand, the Regulation can currently be interpreted to mean that it does not allow for contributions from member parties located outside the EU. This interpretation was confirmed by ruling T-107/19 of the General Court (EUCJ) of 25 November 2020 that found that a party outside the EU did not fall under the definition of a ‘political party’ under Regulation 2004/2003, as it was not ‘recognised by, or established in accordance with, the legal order of at least one Member State’. Consequently, the EUCJ ruled that payments from member parties located outside the EU could not be considered contributions, only donations. This is particularly relevant following the UK’s withdrawal from the EU. In addition to this affecting their own resources, EUPP/Fs argue that the prohibition hampers their meaningful relations with longstanding partners and previous members and, consequently, they feel limited in fulfilling their mission to promote democratic values beyond the EU’s borders. The European Parliament also identified the restrictive interpretation of the EUPP/F Regulation regarding contributions from members outside the EU as being problematic. These difficulties lead to less income for EUPP/Fs which, as a consequence, means they can organise fewer activities to raise awareness on the European political debate. Therefore, the current structure of own resources, coupled with the co-financing obligation, diminishes the Regulation’s effectiveness.

b)Transparency of donations Article 20 of the Regulation prohibits certain types of donations; namely, donations from non-EU countries, anonymous donations and donations exceeding EUR 18 000. However, due to loopholes in the Regulation, foreign actors may be able to circumvent the current provisions through intermediaries based in EU Member States, using funds originating from non-EU Member States. Furthermore, these prohibitions are not accompanied by corresponding enforcement powers for the APPF, which currently cannot request additional information from donors. In addition, some NGOs and the OSCE/ODIHR voiced their concern over the delays in publishing information related to donations. They are calling for real-time publication of such information, especially during electoral periods, in order to avoid foreign interference in elections so that voters can cast their ballot in an informed manner. The European Parliament, in its report pursuant to Article 38 of the EUPP/F Regulation, also identified room to improve the transparency of funding and donations, in particular in the Regulation. The current system of transparency is therefore deemed not sufficiently effective in preventing, detecting and/or fighting foreign interference. 2.Democratic values, visibility and gender balance a)Obstacles for European political parties and foundations to fulfil their mission under Article 10(4) TEU Throughout the consultation process, EUPP/Fs highlighted the obstacles they face to increase their visibility at national level. Those obstacles prevent them from fulfilling their mission to ‘contribute to forming European political awareness and express the will of citizens in the Union’ and therefore diminish the Regulation’s effectiveness. The European Parliament also identified these obstacles in its report pursuant to Article 38 of the EUPP/F Regulation. One of these obstacles could be associated with the current prohibition to fund, directly or indirectly, elections, political parties, candidates or foundations at national level. To address the ambiguity of what is meant by ‘indirect funding’, in the run-up to the 2019 elections to the European Parliament, the APPF and the European Parliament’s Authorising Officer devised five principles applicable to European Parliament election campaigns that, if adhered to, would mean eligibility for EU funding. While this has improved legal certainty to a certain extent, it has not allowed for the increased direct involvement of EUPP/Fs in campaigns in Member States. In addition, the EUPP/F Regulation currently prohibits the use of EU funds in national referendum campaigns, even on issues related to the European Union; this prevents EUPP/Fs from fostering the European dimension of such debates. The European Court of Justice also refers to this prohibition in its ruling T-107/19 of the General Court (EUCJ) of 25 November 2020. Another obstacle to the visibility of EUPPs at national level is the lack of clarity and insufficient related sanctions regarding the obligation for national affiliate parties to display the logo of the EUPP of which they are a member. Despite the obligation set out in Article 18(2a) of the Regulation, European Democracy Consulting found that all EUPPs, with the sole exception of the European Democratic Party, have national member parties who do not display their logo on their webpage. Moreover, 85% of national member parties do not display the logo of the EUPP to which they are affiliated in a ‘clear and user-friendly’ manner, if we define this as the top screen of national parties’ webpages. EUPP logos are overrepresented in the bottom screen, with close to 58% of logos found there. An overwhelming majority of logos are clearly ‘not visible’ (60%, and over 69%, if we include websites not displaying any logo). Focusing only on logos ‘clearly visible’ or ‘moderately visible’, 71% logos fail the test, and up to 78%, if we include websites not displaying any logo. b)Gender balance Currently, the Regulation does not contain any transparency obligation on gender parity. When the Regulation was amended in 2019, co-legislators only agreed to mention a voluntary measure in Recital (5). The World Economic Forum’s Global Gender Gap Report found that the gender gap in political empowerment remains globally the largest of the four gaps tracked, with only 22% closed to date. While there has been a positive trend towards greater gender balance in the European Parliament over the years, voluntary measures have proven insufficient to ensure gender parity. As of January 2021, the percentage of female Members of the European Parliament was 38.9% compared to 16.6% in the first directly elected legislature in 1979. This is above the world average for national parliaments and above the European average for national parliaments, which is 30.5%. However, the European Parliament’s Research Service points to large differences between Member States and identifies the low share of women among candidates as an underlying cause in countries with a low proportion of female Members elected to the European Parliament. This, in turn, may be due to internal political party processes. It appears that EUPPs missed an opportunity to encourage their national member parties to promote gender balance on party lists. In addition, gender parity in EUPP/F governing bodies has not been achieved either. The Regulation therefore fails to effectively promote gender balance. c)Compliance with EU values Article 3(1) and (2) of the Regulation obliges EUPP/Fs, but not their member parties, to respect the EU’s fundamental values as defined in Article 2 TEU. To increase the protection of fundamental values, member parties in the Union should also respect those values and that EUPP/Fs have to ensure that their members outside the Union comply with equivalent values. The European Parliament’s evaluation report pursuant to Article 38 of the Regulation recommends amending Article 3 in order to clarify that the respect for EU fundamental values should apply to both the EUPP itself and to its member parties. 3.Enforcement a)Empowerment of the Authority for European political parties and foundations The Regulation established, for the first time, an independent supervisory body, the APPF, in order to ensure an impartial oversight over the activities of EUPP/Fs. However, some loopholes in the current provisions restrict the APPF’s ability to carry out effective controls. The Regulation does not provide the APPF with sufficient investigative powers in case of donations. Donors in the European Union (both natural and legal persons), who may act as strawmen to channel funds to EUPP/Fs, currently have no legal obligation to cooperate with the APPF. In addition, the Regulation does not set out minimum documentation standards or internal control mechanisms for accepting donations. So the APPF may easily lack the necessary evidence to effectively verify donations and the means to obtain it. Secondly, the APPF has warned that its limited resources may undermine its effectiveness in ‘extraordinary or non-recurrent work streams such as formal investigations, litigation before the Union courts and, potentially, verification procedures of matters related to European elections or matters affecting the respect for the values on which the Union is founded on the part of European political parties or European political foundations’.

b)System of sanctions To date, the sanctions system has never been used. In the view of some, this could be due to the system’s rigidity, in that it does not allow the APPF to either prioritise the breaches of the Regulation that should be pursued as a matter of priority or to modulate the level and nature of sanctions to make it proportionate to the nature of the breach, including in cases of neglect. Moreover, some EUPFs claim that the current system of undifferentiated sanctions may negatively affect the smaller among them, because for a relatively small irregularity, the sanction may cause bankruptcy. This, in turn, has a negative impact on political plurality. c)Unclear rules on eligibility for EU funding in a specific period During the informal consultations conducted by the Commission, both the APPF and the European Parliament’s Authorising Officer indicated that the EU’s financial interests were not sufficiently protected in case of the deregistration of an EUPP or EUPF. The Regulation is currently unclear on the eligibility of their expenditure during the three-month period that the Regulation stipulates it takes for a deregistration decision to enter into force. In addition, the Regulation may benefit from further alignment with Article 297 TFEU that stipulates that ‘(...) decisions which specify to whom they are addressed, shall be notified to those to whom they are addressed and shall take effect upon such notification’. V.Efficiency The Regulation inflicts substantial levels of administrative burden on EUPP/Fs. This is linked, on the one hand, to the double accounting requirement (i.e., the obligation to keep accounts according to both the legislation of the Member State where the EUPP/Fs have their seat and the International Accounting Standards (IAS)) and, on the other hand, to the triple verification procedure involving the external auditor, the APPF and the Authorising Officer of the European Parliament. The obligation for EUPP/Fs to present their accounts following IAS was introduced in the 2018 revision of the Regulation. All stakeholders, including the European Parliament, agree that the administrative costs resulting from this obligation for such small organisations outweigh the benefits. While significant variations exist across EUPP/Fs, they spend around 1,260 h (approximately 0.78 full time equivalent) on an annual basis on administrative tasks, with an additional EUR 20 000 spent on tasks that are outsourced. Of these EUR 20 000, EUPP/Fs spend on average more than EUR 8 000 to prepare the annual financial statements in accordance with the international accounting standards, which is usually an outsourced task. This puts a particular strain on the functioning of the smaller EUPP/Fs which have more limited resources. At the same time, 8 out of 10 EUPPs are based in Belgium, so the comparability of accounts is largely ensured. In addition, in its 2020 Annual Activity Report, the APPF concluded that the use of templates prepared by the APPF has significantly increased the comparability of the submissions of the different EUPPs and EUPFs and has also helped to harmonise the APPF’s checks of the different files. The use of IAS can therefore be considered an inefficient and unnecessary measure. Also, the triple verification process applied to the accounts, which entails examination of the financial reports by both the APPF and the Authorising Officer of the European Parliament and the assessment by the external auditor, results in a double-spending of EU taxpayers’ money. In addition to this inefficiency, the APPF and the European Parliament’s Authorising Officer have sometimes applied diverging interpretations of the rules, leading to an increased workload and legal uncertainty for the EUPP/Fs. Throughout the Commission’s consultation process, some stakeholders proposed to streamline the division of tasks and responsibilities between the APPF and the European Parliament’s Authorising Officer, in order to eliminate overlaps, reduce the regulatory burden on the EUPP/Fs and increase legal certainty for them. VI.Coherence with EU policies 1.European Democracy action plan Currently, the Regulation does not provide for full coherence with the European Democracy action plan, which identified the need to clarify the rules governing the financing of EUPP/Fs and to launch a new initiative to ensure greater transparency in paid political advertising. The Regulation may therefore need to be amended to close current loopholes in the Regulation and determine the obligations of EUPP/Fs when making use of political advertising. A possible amendment in this regard would also meet the request from the European Parliament, which, in its report pursuant to Article 38 of the Regulation, stressed the need to address the risk of foreign interference. 2.Gender equality strategy for 2020-2025 By not containing binding provisions to promote gender equality in European politics, the EUPP/F Regulation is not fully consistent with the Commission’s gender equality strategy for 2020-2025 that states that ‘the Commission will promote the participation of women as voters and candidates in the 2024 European Parliament elections, in collaboration with the European Parliament, national parliaments, Member States and civil society, including through funding and promoting best practices. European political parties asking for EU funding are encouraged to be transparent about the gender balance of their political party members’. VII.EU added value The TFEU provides for the establishment of the rules governing EUPP at EU level in Article 224, stating that ‘the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall lay down the regulations governing political parties at European level referred to in Article 10(4) of the Treaty on European Union and in particular the rules regarding their funding’. EU intervention in this field is therefore necessary, as withdrawing the Regulation would create a legal vacuum for EUPP/Fs.