November 30, 2023

Why Malaysia Need Political Party Financial Reform?

Pippa Norris and Andrea Abel van Es in the Elections Checkbook? Political Finance in Comparative Perspective (2017) defines political fund as all cash flows to and from political parties and candidates, including formal and informal revenue, both during and outside campaign stage. This term is certainly broader than campaign fund, which was interpreted by Didik Supriyanto and Lia Wulandari (2013) as money to finance election campaign activities during the election period. From this definition it is clear, that political fund has included campaign fund.

In the Southeast Asian region, Malaysia is the only country that is undergoing electoral reform. Although in 2020, the discourse sounding in Indonesia is about to compile an omnibus election law that will incorporate changes in the electoral system qs an evaluation of the Concurrent Local Election (Pilkada) and 2019 Concurrent Election that had been carried out. In Indonesia, even civil society is urging the Government to reform political parties, because political parties are seen as undemocratic instrument in democracy. Simply put, reform in elections are believed to be not produce good results if political party institutions are not addressed.

In Malaysia, electoral reform was carried out to fundamentally change the system, one of which was political funds. The Election Reform Committee (ERC) was formed by Prime Minister Mahathir Mohamad to fulfill the promise of the Pakatan Harapan Coalition in their election manifesto, that the Coalition will introduce a Political Financial Control Act which will introduce principles of accountability and transparency in political funds, including financial assistance from the state, sources identifiable funding, audited political funds account, ban on parties to not having assets above RM 1 billion, and prohibition on state-owned enterprises to make political contributions (Yeoh, July 30th 2019).

Why need reform?

Demands to reform the regulation of political funds began in the Malaysian Elections in 2008. At that time, the opposition parties were surprised of Barisan Nasional (BN) winning in the two richest provinces. BN’s campaign funds are suspected, because political parties’finances are not handled transparently. Civil society called on the Government to reform political fund, but the opposition party, in the end, followed the signs of the BN, reluctant to carry out reforms (Gomez & Tong 2017: 1).

The reform of political fund found a momentum when 1MDB or 1 Malaysia Development Bhd⸻ development company operated under the authority of the Minister of Finance of the Federal Government⸻was proven to receive millions of dollars from the Middle East. From the information received and reported by Bersih, a total of RM 2.6 billion was deposited into the personal account of Prime Minister Najib Razak, who is also the President of UMNO. Bersih suspect the money was used to fund UMNO’s political consolidation in Malaysian politics (Bersih: 2016).

Gomez and Tongo wrote that UMNO is not a clean institution. UMNO is well known for its political patron image, where party patrons give a sum of money to pay the loyalty of party members. UMNO is also commonly known to carry out nepotism by placing party officials as directors in companies owned by the federal and state governments. Also, no doubt UMNO conducted money politics to voters.

“In UMNO factions are determined primarily by which political leaders have the most funds to distribute to the grassroots. This money-based factionalism has persistently threatened the existence of UMNO, with break-away parties formed by ex-leaders on three occasions since the late 1980s,” (p.2).

In Malaysia, political party finance relies on the flow of funds from businesses run by parties, including the mass media businesses. Large parties such as UMNO have television station and newspaper businesses (p.4). This media dominated by the ruling party was later criticized by independent alternative media like (Malaysiakini senior journalist presentation, Zikri Kamarulzaman, in a regional meeting held by the Regional Support for Elections and Political Transitions or Respect in Jakarta, July 16th 2019). Freedom of the media has even become one of the demands for electoral reform to fulfill election’s princples elections: free and fair.

Political fund regulation in Malaysia

In 1954 Election Violation Act, the law does not limit campaign donation from individual, company and other third party. It also does not require disclosure of donor identity, and does not require political parties to report the amount of revenue and expenditure of election winning funds beyond the stage of determining candidates until the day voting. The party was not even required to return the excess received from campaign funds. In fact, according to Gomez and Tong (p.5), political parties in Malaysia usually distribute money after they winning the election.

Maximal expenses for federal parliament candidate is RM 200.000, and for state parliament candidate is RM 100.000 (Gomez &Tong: 2017, p.10).

Not only regulation on campaign funds, civil society also calls for reforms to the regulation of political funds. Gomez and Tong allude the Societies Act which regulates political parties as a regulation that also must be revised. That Act stipulates political parties to submit party account to the Registrar of Societies⸻a body under the authority of the Ministry of the Interior⸻but does not require parties to disclose sources of party funding, and does not set limits on party contributions and party expenditures. In short, the Societies Act is not able to force political parties to be transparent in their party finances, which have links to campaign funding in elections.

The regulatory conditions⸻that have led to corruption and the co-opting of state resources by political parties⸻are felt enough by a coalition of civil societies who are members of Bersih. That background blatantly made the issue of campaign funds and political funds become one of the reforms agenda.

What kind of reform?

Referring to documents published by Bersih 2.0 in 2017, Bersih recommends at least eleven things in political funds reform. One, prohibit donations which are given in secret. Two, prohibit donations from foreign funds. Three, regulate party member contributions. Four, set limits on political spending, including campaign funds. Five, regulating political funding from the private sector. Six, regulate party-own business. Seven, open political parties access to public funds. Eight, establish a mechanism for monitoring internal party elections which in practice is often driven by factionalism based on money, rent politics, and patronage culture. Nine, strengthen political funds report, including campaign funds. Ten, form a supervisory institution that have adequate autonomy to monitor and enforce political funds rules. Eleven, set guidelines for the provisional government in the election period.

What Bersih 2.0 recommend is almost the same as that encouraged by Transparency International Malaysia (TI-M). But in detail, the TI-M proposes that political funds⸻including campaign funds⸻be independently audited by certified auditor before being submitted to the Election Commission, build the capacity of the Election Commission to verify campaign funds report, set limits on campaign expenditures based on the geographic area of ​​the constituency and the number of voters, and expand the range of periods for which funding is required to be reported.

In fact, more than Bersih 2.0’s recommendations, the TI-M also recommends that the registration of political parties be delegated to the Election Commission, prohibit organizations connected with political parties from being used as channel of political funds, ban parties who have position in government to directly or indirectly own or engage in business, and forbid political parties from owning the media (TIM Document: p. 4).

The ERC had gather input from various groups during the process of compiling recommendation report. This report was submitted to the Prime Minister Mahathir Mohamad on January 13th 2020 (, January 13th, 2020). From the Bersih 2.0 release, the interim report contained 49 reform proposals. Unfortunately, the contents could not be published unless the Government published. The proposal will be discussed by the Government, and the process is expected to be open and involve the public. The final report is scheduled to be submitted in August 2020 (Bersih 2.0 press release, January 14th, 2020).

Thomas Fann, Chair of Bersih 2.0 who are delegation of Bersih for ERC, said that most of the Bersih recommendations that had been proposed since 2017 were successfully included in the ERC provisional proposal. One of them is state funding for political parties (Thomas Fann’s statement to, February 5th, 2020).

Regulation in other countries

In Southeast Asian region, Malaysia is the only country that does not prohibit foreign donation, whether it company, country, individual, or institution. Indonesia, Cambodia, Myanmar,  Philippines, Singapore, Thailand and Timor Leste set the ban (Data International IDEA).

In terms of funding from anonymous donation, Malaysia along with Cambodia and Myanmar do not apply any restrictions at all. Singapore and Thailand allow anonymous contribution in limited amounts. Meanwhile, Indonesia, Philippines and Timor Leste regulate that each individual and company who contributes to political parties in an election to be identified and reported. Although in Indonesia, in practice, the General Election Commission (KPU) does not publish the identity of each donator, and the arrangements for political parties to disclose the donor’s identity are not sufficiently relevant to Indonesia candidate lists proportional system , because most campaign fund collects by the candidates (International Data IDEA).

Turning to the issue of oversight of political funds, in this region, only Indonesia who has the institution to oversight the misuse of state resources by the ruling political parties. Moreover, not all countries require political parties to submit campaign finance reports. Only Indonesia, Cambodia, Philippines and Thailand obliged, although all countries except Indonesia required candidates to submit campaign finance reports.

Outside the Southeast Asia region, for example Germany, it does not impose restriction on political donation from company. Anonymous funds are permitted if they do not exceed € 500, and only donor whose contributions exceed € 10,000 per year need to be mentioned in the party’s annual financial report. Exceptions for individual who contribute more than € 50,000 must be immediately disclosed, no need to wait for the annual reporting period (TI-M, p.14).

However, all political parties in Germany must report their assets, receipts and disbursements of political funds, regardless of whether they are entitled to receive state direct funding. The financial report will be audited and assessed by an independent party, then submitted to the President of the Bundestag, and then published for public knowledge. Intentional violations aimed at concealing the receipt or use of funds can be punished with imprisonment of up to 3 years or fine (TI-M, p.15).

In South Korea, subsidies from state must only used by political parties to pay personnel, administrative needs and consumables, office maintenance, public education, policy development, party member training, organizational activities, advertising, and election costs. All political parties must openly account for assets, funding sources, and use of funds, regardless of whether the party is entitled to receive subsidies from the state. The report is audited by an independent party and submitted to the National Election Commission for public review (TI-M, p. 17).

There are a lot of formulations in the regulation of political funds that can be applied. There are four elements in the regulation of political funds, namely funding sources, expenditures, reporting mechanisms, and audit mechanisms. The four elements can be adjusted to the goals that country want to be achieved. Usually, the regulation of political funds, including campaign funds, is aimed at preventing political corruption, avoiding conflicts of interest, eliminating oligarchy and elitism within the party, creating equal competition in elections, and creating transparent and accountable governance.

At the congress held by the International IDEA and the Netherlands Institute for Multiparty Democracy (NIMD) in 2012, 41 recommendations were made regarding the regulation of political funds. 13 of them are as follows.

One, public financing for political parties must provide structural funding for the daily operational functions of political parties and for campaign financing. Second, the state does not only provide direct financing or cash, but also indirect financing such as tax exemptions, media access, and use of public places.

Three, not only political party who report campaign funds, but also candidate. Four, there are restrictions on spending campaign funds. Five, disclosure the identity of donator to political funds and campaign funds. Six, shorten the campaign period. Seven, contribution from party official are categorized as individual donation, not membership contribution. Eight, clearly regulate the sources of public funds and when the party can access public funds.

Nine, there is a legal framework regarding disclosure of funding sources that considers the balance between disclosure of information needed with the privacy of political parties and private institutions. The absence of clear rules about what must be disclosed, how much to disclose, how to disclose, and to whom disclosing can cause intimidation by parties who feel their privacy rights have been violated. Ten, the requirements to get public funding should not too high, so new parties can grow.

Eleven, qualifications in providing subsidies to political parties must be able to stimulate the representation of special interest groups, such as women, youth, and disability. Twelve, there are independent institution that are able to oversight the use of money in politics. Thirteen, the existence of state fundingor state subsidies must be accompanied by a strong financial reporting mechanism to prevent misuse of funds (Magolowondo et al 2012, pp. 27-29).

Those recommendations can be applied by Malaysia, and also country who still have problem in political funds transparency. Malaysia wants to give political parties a state funding, they need to make sure that the new regulation have an impact in accountable manner on political party and in eliminating political corruption.



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