Tackle illegal political funding for sustainable growth

First published in The Korea Herald.

With the general election in Korea just a couple months away, a recent report by the Organization for Economic Cooperation and Development appears to be timely.

The report, “Financing Democracy,” takes a comparative approach to examining how the funding of political parties and election campaigns has evolved, and how regulations across OECD member and partner countries have been established.

From an economic standpoint, this is important because it shows how the politician-business nexus can hamper economic growth. As long as it continues to exist, vested interests will rule supreme, rather than national interests.

In particular, the report assesses the risks of policy capture through the funding of political parties and electoral campaigns, identifies regulatory loopholes and implementation gaps in existing policies, and suggests a comprehensive approach to integrity, including issues such as lobbying and conflicts of interest.

Korean policymakers, in particular the National Election Commission, could do well to heed the recommendations the report makes. They should particularly focus on the cross-country comparison, as it features detailed country case studies of Canada, Chile, Estonia, France, Korea, Mexico, the United Kingdom, Brazil and India -- providing in-depth analyses of their political finance mechanisms and challenges in different institutional settings.

As the report notes, money in politics is a double-edged sword. It is a necessary component of the democratic process, enabling the expression of political support as well as competition in elections.

“Yet, the increasing concentration of economic resources in the hands of fewer people presents a significant threat to political and economic systems. If the financing of political parties and election campaigns is not adequately regulated, money may also be a means for powerful special interests to exercise undue influence, and ‘capture’ the policy process,” it notes.

For example, access to public procurement has been used by elected officials to “return the favor” to corporations that have made significant contributions to their campaigns or to exclude those that supported their opponents. While high-spending areas such as infrastructure and urban planning are particularly vulnerable to the risk of policy capture, any policymaking process can be a target of powerful special interests.

This sort of leverage has always been used in Korean elections, and to a larger extent in presidential elections. That the Four Rivers Restoration Project and energy diplomacy bulldozed through by former President Lee Myung-bak were mired in corruption immediately comes to mind.

The OECD report points out that countries’ experiences have revealed that several shortcomings still exist and are vulnerable to exploitation by powerful special interests.

Many countries struggle to define and regulate third-party campaigning in particular, to prevent the rechanneling of election spending through supposedly independent committees and interest groups.

At the moment, only a few countries, such as Canada, Ireland, the Slovak Republic, the United Kingdom and the United States have regulations for third-party campaigning. Significantly, Korea is missing from the list.

While Korea bans all anonymous donations to political parties, the information disclosed needs to be organized in an intelligible and user-friendly way to facilitate effective public scrutiny. Civil society organizations and the media can only be effective watchdogs if substantive political finance information is publicly available for their analysis. That is not the case here.

It is essential to tighten lobbying standards for sustainable and broad-based economic growth. While disclosure of private interests by decision makers is widely adopted by countries to manage conflict-of-interest situations and identify suspicious financial flows in public decision-making, verification and auditing of disclosure forms are not strictly practiced, more so in Korea.

As the report notes, since being enacted in 1965, the Political Fund Act in Korea has undergone 24 revisions for the purpose of guaranteeing the fair provision, and transparency, of political funds. The term “political funds” is defined as money, securities or goods provided to persons engaged in political activities, including political parties, in addition to expenses that they need to undertake political activities, including elections.

With the aim to guarantee the proper provision of political funds, secure the transparency of political funds and contribute to the sound development of democratic politics by preventing illegal political funding, the act lays out many basic principles.

In August 2005, the National Assembly revised the act so that all corporations and groups were fundamentally prohibited from making political contributions with the aim of initiating political reforms and addressing problems with illegal political funds.

However, is it strictly followed? It appears not, going by the regular news of slush funds by corporate honchos and raids by prosecutors.

Under the act, any political party may collect party membership fees. However, it does not set an upper limit on the fees that may be paid by an individual political party member.

When an association that raises political funds for a National Assembly member or a candidate to run in an election for public office submits a financial report, it is required to disclose the personal information of donors who make contributions exceeding a set amount. This rule is often flouted in Korea.

According to financial reports submitted by political parties in 2015, the total membership fees collected was $52 million, 25.8 percent of their total income of $201.3 million. South Korea’s ruling Saenuri Party collected $26.4 million in membership fees, which made up 27 percent of its total $97.6 million income. The main opposition New Politics Alliance for Democracy party, now renamed The Minjoo Party of Korea, collected $21.2 million, making up 23.1 percent of its $91.7 million total income.

Since it was not an election year, the external funding for campaigning has obviously not been included. However, elections are due in April this year, and there will obviously be more funding details available at the end of the year.

Unlike Western political parties, party membership fees in Korea are too insignificant to be of importance for political party financing. It is no secret that the candidates receive massive funding from outside sources and under the table.

In the current context of economic crisis, there is a need for more transparency in public life. Particular attention should be paid to risks to the independence of political actors and public office holders as well as risks of conflicts of interest, even undue influence and corruption, related to money in the political sphere.

Political finance disclosure combined with adequate enforcement capacities has been recognized by international standards as a key policy instrument for promoting effective transparency and integrity in party and campaign financing. It is time the authorities in Korea started enforcing existing rules, and if necessary tightened the rules with regard to corporate funding of political parties.

The lack of transparency in political funding in Korea poses alarming risks of corruption. This is because private contributions effortlessly turn into a conduit for buying favors.

The current law punishes violators of political funding more severely, but the president’s special amnesty powers have long been abused. Many politicians and businessmen convicted of political funding fraud have been pardoned by whichever president is in power.

More transparent, competitive and realistic election campaign funding management is a must for the development of democracy. It will go a long way in ensuring the sustainable and broad-based economic development of Korea, which will propel it to an advanced-nation status.