Party money talks, but in the Czech Republic, to whom?

Money has always been inseparable from politics and in a democratic framework unregulated spending can potentially corrupt the whole system. The Czech Republic’s current political monetary oversight has largely been ineffective in tracking fund flows within the political system.

Photo: Václav Synáček


Are Czech voters truly getting all the data they need about national party finances, in order to make informed decisions before elections? Are voters able to identify all party donors, sponsors, and political beneficiaries? These important questions regarding transparency directly influence the quality of democracy.

Because Czech voters must choose representatives in local, regional, parliamentary, European, and presidential elections over a four-year span, they should not only be fully informed about possible contenders, but also about the candidates’ material resources, financial backgrounds and sponsors, who may later exert influence, demanding “rewards” for financial support.

Czech voters’ knowledge about their national political party system’s financial channels is very limited. 1 Some parties, including the large left-wing, Czech Social Democratic Party, 2 the formerly strong right-wing, Civic Democratic Party, 3 or the current ANO 2011 movement, led and owned by the billionaire Andrej Babiš, 4 voluntarily publish their financial data summaries online. These summaries typically include an overview of day-to-day expenses, such as rents and office supplies, campaign expenses, e.g., billboards or online advertising, and a list of donors. On the Internet, voters can also learn about all state subsidies political parties have received. 5

However, the information provided by the majority of Czech political parties is not detailed or reliable enough to reveal how parties are run and who finances their activities. For instance, most parties avoid giving out personal information on their donors and identify them only by their names or list them as fully anonymous. There is little to no information on the providers of parties’ campaign ads and the prices of various campaign tools. At the moment, there is also no tool that verifies whether the information on parties’ websites is true. Only when parties are required to conduct all their financial affairs via transparent bank accounts, will all items in their accounts be traceable and identifiable.

Throughout central Europe the regulation of party systems via formal means has become a modern trend as more and more countries adopt legislation meant to supervise political party operations; however the Czech Republic boasts one of the most liberal campaign finance regulatory frameworks. 6 A democratic state must exercise sufficient and effective monetary oversight within its political system – especially when the system is in danger of being captured by a small subset of larger, richer parties, or oligarchs, as in the Andrej Babiš case. 7

Babiš, the owner of the Agrofert Group, 8 entered Czech politics in 2012 with his ANO 2011 movement, which finished second in the 2013 early parliamentary elections. With his simple campaign slogan, “We’re not like politicians, we work,” he presented the Czech voters with a tempting vision of, “a state run like a [successful] company.” Funding the ANO movement from his own vast personal resources, Babiš presents a challenge to the balance of Czech party competition, because now the party may easily become so financially dominant that it will drown out other parties’ promotions and campaigns.

Is the Czech Republic ready for this challenge? At the moment, unfortunately, it is not.

Poor parties? Not in the Czech Republic

On average 50% of all revenue in the Czech, Slovak, and Polish party systems comes from state subsidies. From 2003 to 2013, the Czech Republic, Poland and Slovakia, together, subsidized the running of their respective national party systems with €662.3 million. Together with private revenues, the incomes of the political parties in the three countries during this period totalled €1.230 billion. 9 In 2009 and 2010 and again in 2012 and 2013, the Czech party system led the three with the strongest financial backing. Between 2003 and 2013, Czech parties’ average annual state subsidy revenues equalled €30.8 per voter, while Slovak and Polish parties equalled €21 and €10.4 per voter, respectively. The annual incomes, including private revenues per citizen (i.e., both voters and younger population) were €4.7 in the Czech Republic, €2.1 in Slovakia and €1.3 in Poland.

Chart 1: Party systems‘ incomes in the CZE, POL, and SVK (mil €)

2003-2013 Total income (mil) Total Donations (mil) Total Subsidy (mil) Average No. of Subs. Parties Share of Donations (percent) Share of Subsidies (percent)
CZ 546.8 88.4 255.3 20.4 15.1 48.0
POL 559.9 125.2 316.8 7.6 18.2 61.7
SVK 123.3 8.4 90.2 8.3 6.6 68.6
AGG 1230 222 662.3 36.3 17.5 (AVG) 53.6 (AVG)

Source: author 10

Even though the overall level of state subsidization is relatively high, 11 the number of political parties that actually partake in the subsidy system is small. While the number of active (i.e., registered and solvent) political parties in the Czech Republic, Poland and Slovakia in 2013 was 257, only 43 of them were entitled to state subsidies under one of the electoral laws or laws on political parties. 12 In other words, only 16.7% of the region’s active political parties received state financial support.

Party financial documents also show, maybe surprisingly, that private donations do not even account for 20% of the parties’ (officially declared) budgets in the region. This number flies in the face of one piece of folk wisdom that says modern politics is a game for oligarchs and business tycoons. The data does not confirm that, but instead implies that if private money is driving the existing political system, then it is not being funnelled into it via political parties’ direct sponsorship. Research carried out by media monitoring agencies regularly shows that the extent of political advertising produced in the post-communist Central European countries vastly exceeds the officially disclosed incomes of political parties. 13

The state subsidization system is significantly skewed towards the largest parties, who receive a lion’s share of public funding. The two largest Czech parties, electorally during this period – The Civic Democrats (ODS) and The Social Democrats (ČSSD) – absorbed 58% of all the subsidies distributed in the national party system. 14 This further perpetuates the notion that the post-communist states in the region are “captives” of a small set of political parties that have established dominion over public administration. “Parties politicize [..] the privatization and distribution of state assets for their own benefit and skim […] directly, as part of a larger system of an unregulated and unrestricted party funding.” 15

Regulation inconstant, fragmented, ineffective

Historically political party financial regulations around the world have generally followed the same path – from a liberal, free-market model, with minimal rules in number and scope towards a more stringent model, with more detailed regulations. Today, a transparent, formally regulated system of political finances has afforded voters the knowledge of election campaign financing and the financial links between various interest groups.

While Poland and Slovakia recently adopted comprehensive laws that serve as integrated electoral acts, elections in the Czech Republic are still conducted under five separate laws, each only covering one type of election; thus campaign finance in the Czech Republic is regulated by a number of laws and subordinate regulations. 16

Table 1: Major political finance regulations in CZE, POL, SVK

Current Laws on Political Parties Nr of Amendments
CZE Act 424/1991 Coll., on Assembly in Political Parties and Movements 23
POL Act 1997 Nr. 98 Poz. 604, on Political Parties 14
SVK Act 85/2005 Coll., on Political Parties and Movements 5
(Act 333/2004 Coll, on Elections to the National Council of the Slovak Republic)* 8
Other Laws Regulating Political Finances
CZE Act 247/1995 Coll., on Elections to the Parliament of the Czech Republic 22
Act491/2001 Coll., on Elections to Local Councils 7
Act 130/2000 Coll., on Elections to Regional Councils 8
Act 62/2003, on Elections to the European Parliament 3
Act 275/2012 Coll., on the Election of the President of the Republic 3
POL Act 2011 Nr. 21 Poz 113, Electoral Code 5
SVK (Act 180/2014 Coll., on Conditions for the Execution of the Electoral Right)** 1
Act 181/2014 Coll., on Election Campaign**

* in force until 1 July 2015

** first part in force from 1 July 2014, other parts from 1 July 2015 and 1 January 2016

Source: Compiled by author.

The Czech framework is far from rigid and has undergone substantial changes over the years. However, it has not been subjected to major transparency reforms since 2010, when The Group of States Against Corruption, or GRECO, made the first of three visits to assess campaign finance transparency. 17 In all three reports, issued between April 2013 and February 2015, GRECO evaluated the situation in the Czech Republic as “globally unsatisfactory,” however none of 2010’s original nine recommendations have since been implemented. Some of those include taking measures to ensure that party members’ donations are adequately reflected in political parties and movements’ financial reports or ensuring that political parties and movements’ financial reports are published in a way that provides for the public’s easy access. GRECO’s criticism has not focused on the absence of a certain rule, but rather the real-world effect of numerous laws that lack sufficient details.

The presidential election: The right direction

The Czechs vote for representatives to local councils, regional councils, the National Parliament, the European Parliament, and the presidential office. New regulations were in fact only introduced for the last one, the presidential run-off election, with a €1.5 million cap on first round campaign spending for one candidate and an additional €0.4 million for the second round.

All presidential candidate campaign revenues and expenses are by law channelled through specific campaign accounts that regularly report financial operations. In 2013, many (but not all) candidates made use of a special, so-called “transparent” bank account, where all real time operations were visible to the public via the Internet. This is a relatively unique concept that has not yet been applied to major elections in other European countries.

In addition, the identification of the suppliers and providers of all political advertising is compulsory and all presidential election campaigns must close with a final financial report submitted to the Senate and made accessible on their official websites. Although the Senate formally examines the accuracy of each financial report, they only look at the sums presented in the final reports and do not inspect the accounts themselves. They also do not have any sanctioning privileges. In cases of report irregularities other presidential candidates may file a claim before the court, but this procedure was not tested after the first election in 2013.

Transparent bank accounts are a big step forward, as is post-campaign reporting; however both measures need to be accompanied with other transparency tools. All campaign materials should visibly show the logos, brands, or names of the beneficiaries. Both financial as well as non-financial donations, loans and discounts should be specifically reported, and their providers and creditors made identifiable. Finally, the sanctioning mechanism should punish offenders before elections are final, if it is to have any positive effect on outcomes.

Public oversight too formal…

The current Czech model also falls short in its oversight of election campaigns and party financing. The supervision of political finance does formally exist, but the system places very few requirements that encourage political parties and candidates to keep their financial activities transparent. Political party oversight, which is virtually non-existent, is the responsibility of the 15 MPs and three administrative assistants on the parliament’s Oversight Committee of the Chamber of Deputies.

The committee has not been able to absorb the ongoing increases in the party system’s size, and their political party oversight is severely lacking. On April 1st of each year the committee solely supervises the examination of every registered political party’s annual financial report submissions, approving those that are complete and accompanied by a private auditor’s positive opinion. 18

If a political party does not submit an annual financial report or if the report is found incomplete, the Chamber of Deputies withdraws state subsidies from the party. This procedure is only rarely used and if it is, only for a short time period of one or two months, during which all irregularities are to be corrected. If the party does not submit a report the next year as well, or does not remedy the previous report’s incompleteness, a procedure for disbanding the party is to commence.

The shortcomings of the current oversight system can be corrected with a new supervisory body who has the legal tools and material resources to guarantee proactive monitoring of all candidates and year-round oversight of all political parties, their financial dealings and election campaigns.  19

Because newer parties first typically aim to influence local levels of state administration, contesting seats in local and regional councils, the supervisory model should be shifted from its strict national election focus towards a more multi-level focus. So sufficient funding and personnel is needed so that a new body that equally supervises all elections, from local to national levels, can be created.

In addition to the supervision overhaul, political party reporting requirements need to be expanded. Reforms should specifically target private companies and other legal entities partly or fully owned by political parties, requiring them to submit annual financial reports, similar to those from the parties. These entities shall be subject to the same auditing rules political parties face; and the supervisory body will have the legal tools enabling it to ascertain all entities’ financial assets and knowledge of the operations they perform.

… and private audit not so credible

Apart from the public oversight, performed both electronically and non-electronically, auditors also monitor political party and candidate accounts. However private auditors’ role in campaign finance supervision is limited to the political parties’ annual financial statements audits, for which they only give advice – there are no audits of post-campaign financial reports.

The credibility of Czech political parties’ private audits are questionable. Since there is no specifications or guidelines, parties are free to choose their auditor themselves. The common practice therefore is for political parties to choose a relatively cheap option for an auditing company and keep their auditors for several years in a row. Some auditors are known to audit political parties as a form of premium service for politicians’ private businesses.  20

If the reform is to be successful, political parties all need to be audited by one auditing company, for only a limited number of consecutive years. The auditing company’s selection should not be based on any one party’s preferences, but should be supervised and performed by a different body.

The need for a comprehensive reform

At the moment, political parties’ annual financial reports distinguish between public and private income sources. 21 On the expenditure side, reports distinguish between day-to-day activities – further divided into salaries and office operations – educational activities and election campaign activities. This classification has largely been driven by an accounting logic, with no relevance for the analysis of the real costs of print media and television advertisements, outdoor promotions, etc.

Changing the classification of reported expenses from accounting terms to real-world items is another step towards more transparency. Annual and post-election campaign reports should list expenses in a way that enables the identification of services, campaign tools and items and their costs; and should be accessible on both the political parties and the main oversight body’s websites.

Moreover, the new supervisory body should issue reporting guidelines to avoid the errors found in current party reports. For instance, party treasurers and accountants, lacking supervision, divide reported election and non-election expenses quite arbitrarily. Because there are no rules covering reporting, events, party raffles, exhibitions and workshops’ classifications and campaign-relations are determined at a party’s whim.

At the moment, under the existing system, only political parties submit financial reports. The finances of independent candidates running for seats in local or regional councils or the Senate are not monitored, and if the Czech Republic is to adopt a truly comprehensive and successful political finance reform, the rules must be equal and fair for everyone.

The situation may improve soon

Democracy is a costly business and money in the party system directly influences national politics. In a truly democratic political system, the public has the right to know who pays for the activities of political parties, who spends funds on electoral campaigns, and who directly or indirectly benefits from parties’ wins or losses. But the existing Czech framework regulating political party finance is weak, fragmented and largely ineffective in checking the various money flows within the national political system. It is not up to the standards set by other European countries that already implemented all GRECO’s recommendations.

But the situation may improve. At the beginning of 2015, the Czech government was already discussing election laws and new draft bills, amending the Act on Political Parties and the bills were forwarded to parliamentary floor discussions in July 2015. The draft bills include a majority of the recommendations proposed above. These recommendations are included in the pre-election pledge made by 163 MPs to the coalition of Czech NGOs known as the “Reconstruction of the State.”

The currently formulated reform’s three weak points, are missing regulations for companies and other legal entities owned by political parties, the exclusion of parties’ day-to-day financial operations via transparent bank accounts and insufficient sanctions with a minimal deterring effect. Hopefully, these points will be improved upon in the upcoming discussions on the parliamentary floor, and the Czech Republic will attain the party financing reforms it needs and deserves.

Notes:

  1. The article is a summary of the report “The Funding and Oversight of Political Parties and Election Campaigns in East Central Europe” published by Frank Bold in Prague, May 2015, accessed August 10, 2015, http://www.rekonstrukcestatu.cz/publikace/the-funding-and-oversight-of-political-parties-and-election-campaigns-in-east-central-europe.pdf.
  2. „Česká strana sociálně demokratická, Výroční zpráva politické strany za rok 2013/Czech Social Democratic Party Annual Report 2013,“ accessed August 10, 2015, http://www.cssd.cz/data/files/vyrocni-financni-zprava-2013-1.pdf.
  3. „Občanská demokratická strana, Výroční zpráva politické strany za rok 2013/Civic Democratic Party Annual Report 2013,“ accessed August 10, 2015, http://www.ods.cz/media/reading/vyrocni-financni-zprava-2013.pdf.
  4. „Transparentní financování/Transparent financing,“ accessed August 10, 2015, http://www.anobudelip.cz/cs/o-nas/financovani-ano/transparentni-financovani/.
  5. Financování politických stran/Political parties´ financing, accessed August 10, 2015, http://www.mfcr.cz/cs/verejny-sektor/monitoring/financovani-politickych-stran.
  6. For a comparison of European standards (in Czech), see Magdaléna Klimešová (ed.), Kontrola financovaní stran. Porovnání dohledových institucí ve vybraných evropských státech (Prague: Frank Bold, 2015).
  7. For scholarly discussion, see, e.g., Richard Katz and Peter Mair, “Changing Models of Party Organization and Party Democracy: The Emergence of the Cartel Party,” Party Politics 1(1) (1995): 5–28.
    Aleks Szczerbiak, “Cartelisation in Post-Communist Politics: State Party Funding in Post-1989 Poland,” Perspective on European Politics and Society 2(3) (2001): 431–451.
    Conor O’Dwyer, Runaway State Building: Patronage Politics and Democratic Development (Baltimore, MD: The Johns Hopkins University Press, 2006);
    Anna Grzymala-Busse, Rebuilding Leviathan: Party Competition and State Exploitation in Post-Communist Democracies (Cambridge: Cambridge University Press, 2007).
    Anna Grzymala-Busse, “Beyond Clientelism: Incumbent State Capture and State Formation,” Comparative Political Studies 41(4/5) (2008): 638–673.
    Ingrid van Biezen, “State Intervention in Party Politics: The Public Funding and Regulation of Political Parties,” European Review 16(3) (2008): 337–353.
  8. „Agrofert Group,“ accessed September 7, 2015, http://www.agrofert.cz/?2324/agrofert-group.
  9. Chart 1: Party Systems‘ Incomes in the CZE, POL, and SVK (mil €).
  10. Simral, Vit, The Cost of Partitocracy: Party Funding in East Central Europe. PhD Thesis defended at IMT Institute for Advanced Studies, Lucca. December 2014.
  11. For comparison, the average share of state subsidies in German parties’ incomes is 35 per cent, in the UK, it is 20 per cent. See, e.g., International Idea, Funding of Political Parties and Election Campaigns: A Handbook on Political Finance (IDEA, Stockholm), 224.
  12. State subsidies are often awarded based on various legal provisions. For instance, in the Czech system, political parties may be entitled for subsidies under the Law on Political Parties, Law on the Election to the Parliament, or the Law on the Election to the European Parliament.
  13. See, .e.g., Martina Machová, „Počty ČSSD: 500 milionů za inzerci, 200 za celou kampaň/Czech Social Democratic Party´s numbers: 500 mil CZK for advertising, 200 mil CZK for the complete campaign,“ 31. 7. 2010, accessed September 07, 2015, http://zpravy.aktualne.cz/domaci/politika/pocty-cssd-500-milionu-za-inzerci-200-za-celou-kampan/r~i:article:673621/.
  14. Vit Simral, The Cost of Partitocracy: Party Funding in East Central Europe (PhD Thesis defended at IMT Institute for Advanced Studies, Lucca, December 2014).
  15. Ann Grzymala-Busse, Rebuilding Leviathan: Party Competition and State Exploitation in Post-Communist Democracies, (Cambridge University Press, 2007), 3. See also Connor O’Dwyer, Runaway State-Building Patronage Politics and Democratic Developmen (Johns Hopkins University Press, 2006).
  16. The keystone of the regulatory framework, Act 424/1991 Coll., on Assembly in Political Parties and Movements, has been amended 23 times since 1991, but still applies. Table 1: Major Political Finance Regulations in CZE, POL, SVK.
  17. The Group of States Against Corruption, or GRECO for short, is a subsidiary organization of the Council of Europe, which focuses on issues related to good governance and anti-corruption in its signatory countries. Between 2007 and 2010 the GRECO evaluation team visited the Czech Republic, Poland and Slovakia in October 2010, June 2008, and June 2007 respectively.
  18. If a report mentions a donation that breaches the rules of donations to political parties, it is to be returned to the original donor; if it is not returned, the Czech Financial Administration is to impose a fine on the offending party amounting to twice the sum of the donation. Since 2003—the beginning of existing archival records for this procedure—no fine has ever been imposed. Magdaléna Klimešová (ed.), Kontrola financovaní stran. Porovnání dohledových institucí ve vybraných evropských státech (Prague: Frank Bold, 2015), 19.
  19. The body’s budgets and personnel shall be independent of any other state authority, its management shall be decentralized and its majority non-partisan. It should have access to an effective sanctioning mechanism, based primarily on fines, but also including the option to suspend, in cooperation with the judiciary, the activities of any political party that seriously breaches the legal regulations surrounding campaign finance and campaigning. An appellate procedure against the decisions of this supervisory body needs to be established. The main supervisory body shall also accept information requests and motions for investigation from the public (e.g. whistleblowers) and expert groups from civil society.
  20. See, e.g., Jana Klímová, „Babákovi“ auditoři získali velké klienty: zkrachovalou Setuzu nebo Via Chem/The „Babák´s“ auditors got big clients: Setuza in bancruptcy and ViaChem,“ 28.4. 2011, idnes.cz, accessed September 07, 2015, http://zpravy.idnes.cz/babakovi-auditori-ziskali-velke-klienty-zkrachovalou-setuzu-nebo-via-chem-1uk-/domaci.aspx?c=A110427_212951_domaci_abr.
  21. More specifically between various state subsidies (per-vote subsidy, the permanent subsidy for political parties’ activities) and donations, membership fees, loans, and other revenues, such as business activities or bank interests
Vít Šimral

Vít Šimral

got an MA of Historical Sociology at Charles University’s Faculty of Humanities in Prague, an MA of Political Science at Masaryk University‘s Faculty of Social Studies in Brno and PhD of Political Systems and Institutional Change at the Institute for Advanced Studies in Lucca. He is now a post-doc at the Institute for Government Studies at the University of Vienna.