Why opaque campaign money is a risk to EU Elections

News of an illicit influence operation targeting the EU elections has prompted questions on how well protected the elections are from foreign opaque money.

The financing of this operation allegedly included both cash and cryptocurrency funnelled from Russian interests to the pockets of politicians from Germany, France, Poland, Belgium, the Netherlands, and Hungary. At least one of the allegedly involved is a candidate for the European Parliament.

German and Czech media named the two top EU candidates of Alternative for Germany (AfD, for its German initials) as connected to this network. This is not the first time an AfD politician gets entangled in covert finance schemes. Previous Correctiv investigations revealed that during the November 2023 Potsdam secretive meeting to discuss a ‘remigration’ plan to force mass deportation of German citizens, an AfD state-level leader requested donations to garner public support for the plan. He cautioned against donating directly to his party, suggesting instead other “absolutely legal ways to make donations” through “agencies” and “third parties”. In other words, off-the-book funding.

Between 2016 and 2017, investigations into AfD funding revealed that the party had received advertising services worth millions disguised through payments from an informal proxy association to an advertising agency. The scheme cost the party heavy fines.

German party finance law goes silent on third-party campaign spending. This major loophole was only closed on 5 March 2024. In the 2021 federal elections, experts from the Office for Democratic Institutions and Human Rights (ODIHR) echoed concerns by the President of the Bundestag over “several cases of large-scale” spending by third parties that lacked transparency.

Ahead of June’s EU elections, campaigning is picking up pace. Opaque third-party spending means you can’t know whose money is paying for an unmarked billboard or website asking for your vote. Like in Germany, that legal loophole exists in more than half the Union.

Yet third-party spending is not the only loophole that allows opaque money in the campaign. For everything other than European political parties and online political advertising, each EU country applies its own political finance rules. This means some uneven transparency of campaign finance across the EU. 

These are six prominent risks that loom over the transparency of campaign finance in the upcoming 2024 EU elections.

Publicly disclosing donors’ identities is not a straightforward obligation in about seven countries in the EU. Without fully disclosing donors’ identities, voters cannot assess to whom candidates and representatives are ultimately accountable. This loophole is the widest in countries like Cyprus, Malta and Hungary, where parties and candidates have no legal obligation to reveal their income sources.

The Daphne Caruana Galizia Foundation took a closer look at how this is done in Malta. It found that parties bundle contributions before submitting their financial reports, effectively anonymising over 99 per cent of them. Donations worth over €13 million (US$14 million) made between 2016 and 2019 are untraceable.

Although Denmark introduced bans on anonymous donations to parties and lists of candidates, a review by the Group of States against Corruption (GRECO) in 2022, confirmed by ODIHR experts in the last elections, reported that “anonymous donations to individual candidates remain not banned” and authorities have no plans to change this.

Donor identification can be withheld because the law defines high thresholds for disclosure (Transparency International Germany has asked to immediately disclose donations over €2,000, down from the current €50,000). It could also be because agencies receiving reports do not disclose the information, as seen in Greece, Spain, France or Luxembourg.

In Greece, even if parties and candidates must disclose donors in their campaign financial reports to the Audit Committee, details are not public. The 2023 ODIHR Election Assessment Mission revealed that the last time annual reports were published was in 2020. Similarly, in Spain, the high threshold means that the Court of Accounts can identify donors or amounts donated only in a few cases. In France, the Global Data Barometer (GDB) found that data privacy concerns render donor identification publicly unavailable for both parties and the campaign. Further, a 2023 report from the International Institute for Democracy and Electoral Assistance (International IDEA) found that while the parliament of Luxembourg publishes party financial reports, “lists of donations have not been published since 2013”.

In 14 EU countries, using legal entities to conceal donors’ identities or bypass caps on donations from a single donor is possible because corporate donations don’t need to be tied to physical persons or beneficial owners. This lack of beneficial ownership requirements raises several risks.

In Czechia, corporate donations are permitted, but foreign donations are not. In 2023, Transparency International Czechia detected 91 cases of corporations with foreign ownership making donations to political parties and movements that won at least 3 per cent of the vote in parliamentary elections since 2017.  In Denmark, ODIHR experts were told of the use of several “companies owned by the same owner” or “various associations" to circumvent donation caps in 2022.

User-friendly political finance data, particularly information on donations, allows watchdogs and journalists to investigate the links between vested interests and politics. However, this remains uncommon across the EU.

According to data from the 2021 GDB survey, only one-third of EU countries offer political finance data in machine-readable formats. Most Nordic and Baltic EU members have searchable databases with donor disclosure. Conversely, countries like Portugal, France, Belgium, Luxembourg, Poland, and Hungary face challenges due to non-existent or ambiguous legislation regarding this disclosure. Other countries such as Denmark, Ireland and even Italy publish the information in limited formats, making scrutiny extremely difficult.

Delays in reporting can obscure donor identification. While Slovakia implemented “open campaign bank accounts” to enhance citizen oversight, parties often use regular bank accounts to receive donations, keeping donor identities hidden. Transparency International Slovakia found that up to 85 per cent of all income’s donor identities remained unknown during the 2023 election campaign.

Annual reporting by political parties lacking campaign details is untimely and inadequate. Countries such as Denmark, Germany and Sweden mandate annual reporting, often with reports due late the following year. In election years in these countries, the reporting fails to clearly distinguish between campaign and non-campaign’s income and expenditures. Germany partially addresses this by requiring immediate disclosure of very large donations, over €50,000 (US$ 54,000). However, countries like Sweden do not request reporting on expenditure, which further prevents accountability.  

Prompt disclosure like those in Lithuania or dedicated open bank accounts in the Czech Republic and Slovakia, could improve transparency of political finance if well-implemented.

Lack of proper scrutiny remains an issue across the EU. Most alarming is the absence of independent oversight agencies in countries such as Germany and Denmark. Assessing recent elections, experts from ODIHR in both countries raised concerns about their capacities. In Germany, the president of the parliament, tasked with political finance oversight, has never commissioned independent audits despite having the authority to do so. Likewise, no law requires Denmark’s parliament to verify parties’ financial reports, nor has the Auditor General audited them in recent years.

Overall, oversight bodies can carry out investigations only in 16 EU countries, and only in half of them can such investigations result in criminal liability for offenders.

In 17 EU countries, unregulated third parties pose a risk. Italy, which reformed its political finance law in 2019 to address this issue, serves as a cautionary tale. The amendments extended transparency requirements to include political associations, foundations, and committees affiliated with political parties, which are major sources of funding to political parties since Italy eliminated public funding. Despite these new legal obligations, Transparency International Italy found that only 17 of such groups reported on their finances in the three years since the amendment came into force, including the 2022 election year. The law did not include the obligation to other non-affiliated third parties.

Effective laws should target groups with the potential to influence election outcomes or voting behaviour, regardless of their formal affiliation. The recently adopted EU regulation on the transparency and targeting of political advertising addresses this issue. However, it must avoid replicating Ireland’s past mistakes, where the regulation on ‘third parties’ failed to distinguish between advocacy NGOs and campaigns. This effectively resulted in preventing donations (foreign and domestic above €1000) to NGOs engaged in anti-corruption and other general advocacy during election campaign periods. 

As watchdog organisations across Europe take a closer look at electoral financial flows, we will gain insights into the necessary improvements across 27 national laws. It would be a big step forward if the European Parliament and Council agreed on the new Anti-Corruption Directive. This directive would set some minimum standards – like mandatory reporting, audits, and stronger sanctions for transparency breaches- thereby increasing transparency of money in elections.