Snap Shot Chile: Political finance at a crossroads for change

Photo of Santiago, Chile from above

Issues about transparency in campaign financing in Chile have taken on a higher profile recently, due to a predominance of large, secret donations as well as a major scandal. First, it was reported that reserved donations in the 2013 elections represented almost 97 percent of total financing. Some elected deputies and senators received more than 90 percent of their electoral incomes from reserved donations, money that is given directly from the donor to the Electoral Service, which then transfers them to the candidate. By law, the donor is not revealed to the candidate or general public, and is only supposed to be known by a few civil servants from the Electoral Service. The rationale, in theory though not always in practice, is that the donor can’t demand political favors and the candidate can’t extort a citizen to donate money.

Additionally, documents received by the U.S. Securities and Exchange Commission from CorpBanca, a major bank in Chile, revealed that the company donated — in secret — almost $170 million USD to politicians. Other investigations show that almost all big companies in Chile donate great amounts of money to campaigns and politicians, but, because they are reserved donations, donor information is not public. Although candidates are not supposed to know who finances them, there are suspicions that most of them do, since donations are so few and in very high amounts. This puts Chilean politicians at risk of political capture by big donors, especially if the public doesn’t know who is financing them to compare this information with the way they vote or the issues they promote.

But what really unleashed the debate was the Pentagate Case, a new scandal related to money and politics revealed the last weeks of September. Allegedly, several candidates for Parliament in past elections received illegal financing from Penta, a large corporation based in Chile. Although law allows companies to finance campaigns, it establishes limits to their donations and also a limit to the amount of a tax credit donor companies are entitled to receive. However, to evade those limits, Penta allegedly gave money to candidates or to people who work for them, for services they never performed.

Some voices from civil society, the media and a few politicians have in the past asked for amendments of the current regulation on this matter, mainly for more transparency of donations to politicians and awareness about the irregular influence or political capture that the lack of publicity can cause. Ciudadano Inteligente carried out a campaign asking candidates to declare who was financing them. Four of nine candidates answered. The two candidates who passed to the run-off election did not.

Photo of Chilean Congress Building

Currently, with the Pentagate scandal in the eye of the storm, Ciudadano Inteligente launched a new campaign asking parliamentarians to amend current legislation to make financing of campaigns more transparent, approve public financing to political parties and to strengthen the Electoral Service, the oversight mechanism. This campaign is supported by more than 25 organizations from Chile, Latin America and the U.S.

In the last years, Chile has passed several bills on transparency including the Freedom of Information Act (2008) and the Lobby Act (2014). In international rankings, Chile has been in the top positions in Transparency International’s Corruption Perception Index — 22 out of 175, and second in Latin America — as well as 36 out of 89 in the Global Right to Information Rating. Nevertheless, the transparency wave has not fully reached money in politics.

Past proposals from various parliamentarians and from President Michelle Bachelet (in 2006) to amend political finance legislation failed to gain traction. Recently, two deputies introduced two amendments to the law — mainly to forbid donations from companies and to eliminate reserved donations — during the discussion of the Electoral System bill. They passed by a significant number of deputies and now the discussion should be held at the Senate. However, rumors suggest that senators will declare those amendments inadmissible because they don’t have a relation with the Electoral System bill, again losing a chance to finally discuss the financing system and making the system of money in politics more transparent.

Origin of regulation in Chile

In 2003, an agreement between the former Government and the opposition resulted in the approval of Law 19.884, on Transparency, limits and oversight of electoral expenses. The origin of this agreement was a sadly well-known case, called “The Bribery Case.”

Before this bill, the few rules about political financing were found mainly in the Constitution, which guarantees the right of association and forbids financing of political parties from money, donations, properties or loans with an foreign origin. There was no regulation of contribution limits, public financing of campaigns or transparency of political finance information.

The aim of the new bill was to establish rules about private money in politics, in order to prevent inappropriate influence over political and parties activities. As the draft bill said:

We are convinced that only with transparent mechanisms of private financing and with an adequate regulation upon limits and oversight of that financing, it will be possible to avoid that money distorts citizens’ political representation, and appearance of figures of political corruption virtually nonexistent in our country, like extortion and bribery, widely known in other latitudes.

The main purposes of this bill are:

  • Set maximum amounts of expenses in electoral campaigns to guarantee equal opportunities to candidates and political parties;
  • Set rules for private financing of electoral campaigns, with the aim of knowing the origin of those resources and guaranteeing independence of elected officials;
  • Require parties and candidates to designate “electoral administrators,” agents who can be sanctioned if they fail to ensure compliance  with the law.
  • Create a complete system of external oversight of the origin of resources used in electoral campaigns and of expenditures used in political advertising, to avoid risks of corruption.
  • Establish a mechanism to make contributions and expenses public.

Regulation in Chile

Currently, political finance law in Chile features a number of provisions that are need of reform. Chilean law contains party and candidate spending limits for defined expenditures that take place during the electoral campaign period (about three months before the date of the election).

Candidates and parties may receive donations from individuals and corporations subject to limits. Companies are entitled to tax credit for contributions. Contributions are prohibited from foreign-owned companies or individuals persons — unless the individual is legally qualified to exercise the right to vote in Chile. Contributions are also prohibited from public bodies or public companies; from any legal entity receiving state grants or contributions over a specific amount; from legal entities that, during the campaign, are seeking public or private tenders over a specific amount; and from public or private nonprofit organizations (other than political parties).

In addition to private funding, the state reimburses the electoral expenses of candidates and parties during campaigns. The amount is based on the number of votes obtained in the last election. New parties have a right to receive the same amount as the parties with the least number of votes in the previous election. Independent candidates have to share the same amount as new parties.

Finally, whether a contribution is transparent depends on the type of contribution.

  • Anonymous: Private contributions can be made anonymously if they don’t exceed 20 UF (about $817 USD). These contributions are anonymous to the public, but not to the candidate or party. No candidate or political party may receive, by way of anonymous contributions, more than 20 percent of the election expenses limit.
  • Reserved: Reserved contributions are contributions individuals or corporations make directly to the Electoral Service which then provides them to candidates and parties using a formula defined in law. The donations are supposed to be known only by some officials of the Electoral Service as disclosing of this information is banned.
  • Public: Contributions that are not anonymous or reserved will be public.

All this information is made public (in case of anonymous and reserved donations, only the amounts), almost six months after the elections on the website of the Electoral Service, in a spreadsheet form with the type of income and the amount.

Conclusions and proposals

When they were adopted, regulations governing money and politics were a breakthrough, preventing electoral corruption and increasing transparency. However, at Ciudadano Inteligente, we believe that in many ways these objectives currently are not met and modernization of current legislation is required.

Chilean voters are not used to donating to their candidates or political parties. Because of this, most of the donations are for large amounts and made by a few people or companies (in the past two elections for president, regional councillors, parliamentarians and parties, only 297 companies and 12 persons gave reserved donations). This fact makes it easier for candidates to know or suspect who the donor is, which can lead to political capture.

To address this issue, among others, we would like to see major changes made to our current legislation, mainly in the following issues:

  • Ban anonymous donations and reformulate reserved donations. Reserved donations should be encouraged and the maximum amount allowed, be reduced. This way, a lot of small donations will be received by candidates, reducing the risk of political capture.
  • Make public all donations (other than reserved) and ensure they are registered and published on the Internet by the Electoral Service. During the campaign season, this information should be updated almost immediately and, at least, weekly, so citizens can take this information into account while casting their vote.
  • Ban donations from companies. Since they do not vote and their right to freedom of expression can not be associated with their ability to make donations, we consider this possibility needs to be eliminated in our regulation. There will always exist a possibility for individuals that are part of companies to donate, whether reserved or public. There is also evidence that the amounts they donate are quite high which then allows them to influence the decision making of elected officials according to their particular interests.
  • Establish a permanent system of public financing for political parties activities, not only in campaigns periods.
  • Reduce the limit of electoral spending. The high limit implies that the candidates/parties have a greater incentive to seek higher private donations and also makes it more difficult for challenging candidates to compete.
  • Redefine the concept of campaign or political advertising and increase the period of control of actual expenses. Currently, candidates start campaigns long before the period that law establishes, because the concept of campaign or political advertising is not broad enough.
  • Create a unique software for accountability by the Electoral Service and ensure this information is deployed to the public in open data formats.
  • Revise the Electoral Service authority and powers to enable it to monitor actual expenditures, and provide financial and human resources to carry out its oversight functions.
  • Redesign sanctions for non-compliance of the rules. Currently, sanctions are only fines to the electoral administrator. Elevate the cost of violating rules, by providing for more severe criminal penalties, including the loss of office in case of more serious offenses.