MONITORING

Report on Monitoring of Political Party Financing

Voters Education Center

Open Society Forum

REPORT ON MONITORING OF POLITICAL PARTY FINANCING

Ulaanbaatar, 2007

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Report on Monitoring of Political Party Financing

If you wish to publish this report selectively or entirely you should contact and obtain permission from the Voters Education Center and if you quote it you must refer to the name of the institution and title of the report. Prepared by: S. Oyuntuya Edited by: R. Burmaa Please contact us at the following address for comments. Voters Education Center Rooms 205 and 208, Democratic Union Building, Erkhuu Street Khoroo/Sub-District 7, Sukhbaatar District

TABLE OF CONTENTS
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Acknowledgements Acronyms Executive Summary 1. Project Profile 1.1. Goal and Objectives of the Project 1.2. Duration and Scope of the Project 1.3. Project Organization 1.4. Challenges Faced in Implementing the Monitoring Project 2. Monitoring Methodology 2.1. Monitoring Issue/What Was Monitored? 2.2. Sources of Information and Methods of Collecting Information 3. Outline of the Political, Economic, and Social Situation 4. Legal Framework 4.1. Legal Regulation of Political Party Financing 4.2. Liability for Violators of Political Party Laws and Regulations 4.3. Corresponding Legal Provisions Abided by in the Monitoring 5. Results of the Monitoring 5.1. Results of the Monitoring 5.2.Enforcement of the Law 6. Conclusion and Recommendations of the Monitoring 6.1.Conclusion 6.2.Recommendations 7. Appendix 8. Bibliography

ACKNOWLEDGEMENTS

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We emphasize the contributions made by the Open Society Forum to providing financial and methodological support in implementing this monitoring project aimed to ensure transparency in political party financing and minimize the role of money in politics by promoting openness thus, preventing corruption. On behalf of the Voters Education Center we express our sincere thanks and appreciation to the members of the team, who organized this monitoring survey, all political parties, their leadership, and members, and other organizations and individuals participated in the survey, and all people who collaborated assisting in preparation and development of this report. We hope that this monitoring report developed, based on objective information and facts about the current situation of political party financing in Mongolia, and status of legal regulation and implementation, will make an important contribution to augmenting transparency and openness. ACRONYMS SGH SSC GEC OSF VEC SPWM NGO MPRP DP RP MP CWP GDP NAA State Great Hural State Supreme Court General Election Committee Open Society Forum Voters Education Center Social Progress and Women Movement Non-Governmental Organization Mongolian Peoples Revolutionary Party Democratic Party Republican Party Motherland Party Civil Will Party Gross Domestic Product National Audit Authority

EXECUTIVE SUMMARY

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Report on Monitoring of Political Party Financing

Corresponding provisions of the Law on Political Parties related to financing were monitored by the Voters Education Center with financial support of the Open Society Forum. The monitoring covered political parties that have representation in the Parliament and function actively such as the Mongolian Peoples Revolutionary Party, Democratic Party, Civil Will Party, Motherland Party, and Republican Party. One of the primary principles of government affairs is the rule of law enshrined in the Constitution and as per Article 16.10 of the Constitution parties and all other mass organizations shall respect and abide by laws. However, political parties obliged to abide by laws and function within the bounds of laws have violated the Law on Political Parties and Constitution of Mongolia ignoring enforcement and strict adherence to the laws. We conclude that as political party financing is neither open and transparent nor subject to inspection, malpractice such as political parties falling into contributors clutches, making contributions to parties with a view to purchasing positions of power or under coercion but not voluntarily or having conviction, and misuse of government sources for election campaigns, emerges and becomes one of the major causes for increased corruption. As reported by the Ministry of Finance Tg 2,024,600.000 (two billion twenty four million six hundred thousand) have been allocated by the national budget for political parties since 2000. Basically, this financial support is financing provided by citizens from their pockets for political parties through taxation. However, at date political parties havent reported disbursement of national budget-funded monetary assets valued at billions of Mongolian togrogs at all. Despite many provisions in the Law on Political Parties that promote transparency under which financial activities must be audited and reported publicly, legal enforcement is absolutely inadequate. This is because an appropriate mechanism to inspect enforcement of the Law on Political Parties is inadequate and legal liability system is weak. A partys inspection organization must inspect its financial activities according to the Law on Political Parties and this makes parties financing inspection just a formality and provides an extensive opportunity for parties to act arbitrarily and take advantage of vagueness in the law. Common breaches of the Law on Political Parties are as follows.

The Ministry of Finance directly provides national budget-funded financial support to political parties without the general budget administrators inspection. No disbursement reports have been submitted to the Ministry of Finance yet; As disbursement of budget-funded finding for SGH members electoral districts wasnt regulated yet, parties had to disburse Tg 356.2 million for electoral districts under the law in 2006 and however, about 54 percent of the funding was disbursed as designated and rest of it was disbursed for financing political party activities; No political parties have reported contributions publicly ignoring the law provisions to report such contributions publicly and it is handled in a circle of a few people in political party leadership;
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Though a party must have its financial activities audited and report its results publicly on an annual basis, most parties have neither arranged audit nor reported results publicly. Conversely, the DP had its financial activities audited and posted its results in its website and the CWP had audit but didnt report its results publicly.

We believe that it is essential to make a major legal reform in political party financing based on the information collected, facts founds, and conclusion drawn in the framework of the monitoring, and best international monitoring practices and make the following recommendations.1 1. To establish a permanent institute that will inspect the enforcement of the Law on Political Parties; 2. To improve the liability system in the Law on Political Parties; 3. To ensure better transparency and openness of information aimed to make public inspection and participation in enforcing the Law on Political Parties realistic. 1. PROJECT PROFILE 1.1.Goal and Objectives of the Project Major goal of the Project on Monitoring of Political Party Financing:

To ensure transparency in political party financing and minimize the role of money in politics by promoting transparency thus, making a contribution to preventing corruption; To monitor the enforcement of the provisions related to financing, assess transparency of political party financing, and make recommendations on further enforcement and improvement.

Objectives of the Project To collect facts and information as to determine the current situation of political party financing; To examine the Law on Political Parties and other corresponding laws and provisions and assess the law enforcement; To evaluate the decree of inspection and participation in political party financing; To make recommendations on issues for further consideration and actions based on findings and results of the monitoring; To expose and distribute results, comments, and recommendations of the monitoring to policymakers, public, and civil society organizations.

1.2.Duration and Scope of the Project

1

Please see the details in section Conclusion and Recommendations of the report 6

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The monitoring project was implemented for an 8-month period. The monitoring was conducted covering 5 political parties that have parliamentary representation and function actively. The enforcement of the specific provisions of the Law on Political Parties related to financing was monitored. The monitoring survey was considered in the following framework.

Corresponding laws and regulations (Constitution, Law on Political Parties, Law on SGH Elections, SSC commentary, etc); Political party charters and regulations (party charters, financing regulations, other regulations and instructions, and minutes of party sessions, etc); Figures of budget-funded financial support for political parties in 2006-2007, figures in cost statements submitted to the GEC, contributors names, and contribution amounts; News and articles and other sources related to political party financing; Discussions held by participants and interested parties on political party financing and other cases and facts etc.

1.3.Project Organization VEC Director Ms. S. Oyuntuya acted as Project Manager and Coordinator. The project team consisted of 5 members and voluntary staff and was spilt into research and survey, analysis, and lobbying task forces. SPWM and VEC President Ms. P. Burmaa and member of the VEC Board of Directors Mr. B. Lamjav, worked as advisers, and Ms. Kh. Narantsatsral and SPWM Manager Ms. P. Enkhtuya as researchers. Subsequent meetings and discussions aimed to exchange experience and promote cooperation were held among NGOs included in the monitoring grant program in the course of the project. 1.4.Challenges Faced in Implementing the Monitoring Project Challenges were faced in collecting information pertaining to monitoring issues. Though we approached to political parties to collect information, those other than the CWP and DP made no official reply. Information was also incomplete for the political parties that made response. The project team had a limited opportunity to meet and interview political party leaders and financial officers and officials we had meetings with didnt provide specific information thereon. Most of the parties took the position that they cant provide financial information. Since the project team sent official letters to government institutions it received sufficient information on political party financing and this helped prepare a survey report. We tried to consider the law enforcement by each provision and however, as information on some provisions was neither sufficient nor accessible, a sketchy evaluation was carried out. For instance, Articles 17 and 18 of the Law on Political Parties.

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We note that almost half of the monitoring facts and information was based on secondary sources in preparing this monitoring report. 2. MONITORING METHODOLOGY The VEC, organization conducting the monitoring, implemented projects Monitoring of Election Campaign Financing in 2004 and Monitoring of Interest and Fine Income Generation of for Budget in 2005-2006 with OSF support. Methodology for monitoring political party financing was developed based on the monitoring methodology, universal methodology for monitoring policy and law enforcement and with assistance of the financing institution and training held by them and participation of all members of the team.
2.1.

Monitoring Issue/What Was Monitored?

In the framework of the monitoring, the enforcement of the provisions of the Law on Political Parties related to financing passed on January 28, 2005, was monitored. The following provisions of the law concern the issue of financing.2 Article 16. Party Assets and Incomes Article 17. Party Income Disbursement Article 18. Membership Fee and Contribution for the Party Article 19. Financial Support from the State Article 20. Partys Financial Inspection

The following issues were considered in light of these provisions of the law. Status of party assets and incomes and types, restrictions, and performance; Status of party income generation and disbursement and restrictions; Enforcement of the provisions on openness and transparency of information on contributions; Enforcement of the provisions on contribution limits, maximum amount, and restrictions; Enforcement of the provisions on financial statement audit and certification and public reporting; Forms of public reporting of information on financial statements and contributions; Government-funded financial support and its amount and designation; Enforcement of the provisions on a partys financial inspection and restrictions.

Five parties that have parliamentary representation and function actively were selected to take into account of the enforcement of the provisions of the Law on Political Parties related to financing. They include the MPRP, DP, CWP, MP, and RP. 2.2.Sources of Information and Methods of Collecting Information
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Please see the details in Appendix 1 of the report 8

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Sources of information include laws, legal acts, official statements, data, similar survey reports, interviews, minutes of discussions, cases, facts, and evidence in writing that have something to do with the monitoring. Methods of collecting, evaluation, and documentation were used in the monitoring. 1) Methods of Collecting Information Interview This method was used for collecting primary information for the monitoring. We carried out interviews with about 30 key information providers such as political party members, supporters, political party leaders, local party representatives, contributors, citizens, officials from corresponding government institutions, and analysts. Some interviews were conducted individually and some were held as a group. Focus Group Interview 3 focus group interviews were carried out covering 25 people. The first interview was conducted with financial officers of political parties, second one with civil society researchers, and third one with political party members and contributors. This method was instrumental in determining the current situation and trends and enforcement of laws and regulations on political party financing. Case Study Many cases were found in the course of the monitoring. Facts for cases were collected during interviews and analysis of the mass media and court decisions and used for doing situational and legal analysis, coming up with monitoring results, drawing a conclusion, and making recommendations. A total of 50 cases associated with the monitoring were assessed. Use of Internet Sources The political parties covered by the monitoring had their websites and the project team exposed itself to the website in each case in the course of the survey. Questionnaire Method This method was used for carrying out a survey of 600 respondents and voting-age citizens were equally involved in terms of gender and education. This method was selected and used for surveying public opinion concerning political party financing and evaluating the current situation and trends. Observation Method This method was used by the project team for determining the current situation of political party financing and synthesizing the position of political parties and corresponding government institutions on this issue and enforcement of the law by political parties in the course of the monitoring project. Content Analysis Method This method was used for analyzing charters and regulations and other 16 documents of political parties covered by the monitoring and 8 documents and articles and news pertaining to political party financing published in the press such as political party-related work reports, registration, and minutes of corresponding government institutions.

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Use of Statistics This method was used for evaluating the volume of government-funded financing for political parties and comparing it by years. This statistics was acquired as a result of official requests made to government institutions. 2) Documentation Methods Evidence for the monitoring was documented in acceptable forms and database was set up. Documents and facts that had no sources werent used for coming up with results, drawing a conclusion, and making recommendations and each issue referred to in this report was based on documented evidence. Making copies Copies of written documents for the monitoring were made. Taking minutes of interviews This method was extensively used and some minutes of interviews were recorded with tape recorders.
3. Outline of the Political, Economic, and Social Situation

Mongolia is bordered with the Russian Federation and China and located in the center of Central Asian landscape. As of 2006 it had a population of 2.6 million. It has a territory of 1.5 million sq. km and severe continental climate. In terms of administration it is split into 21 aimags/provinces and capital. 60.9 percent of the population inhabits urban areas and 40 percent rural areas and capital of Ulaanbaatar covers 0.3 percent of the land but about 1 million people live there. The SGH elected by the 2004 elections is currently in place. Given 2006 performance, GDP per capita in Mongolia reached over US$1,000 and it was included in low-income countries. A human development index for Mongolia is 0.6913 in 2006 and it has a rank of 116 or falls into a category of medium human development compared with other countries in the world. 32.2 percent of the population is poor. It obtained 3.164 out of 7 scores in total in Competitiveness Index Assessment and had a rank of 96 among the countries listed in 2005-2006. All-embracing political, economic, and social reforms were launched in the 1990s. As a result of a new democratic Constitution passed in 1992 a legal government system with distribution of government power and guarantee of human rights was adopted. Political Situation Since 1992 there have been 4 presidential and local elections. SGH elections were held in 1992, 1996, 200, and 2004 respectively and the MPRP gained 71 out of 76 seats in the 1992 elections and Democratic Coalition gained 50 seats and MPRP 25 seats in 1996. Whereas the MPRP gained 72 seats no single political party or coalition had an opportunity to come to power for the first time or the MPRP gained 38 seats, Motherland-Democracy Coalition5 35 seats, and independents remaining 3 seats in 2004.
3 4

Human Development Report, UN, 2006 Global Competitiveness Report, USAID, 2005-2006 5 This coalition broke up following the elections. 10

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In terms of election system our country has a majority system. In 1992 the country was split into 26 electoral districts and SGH members were elected from 2-4-mandate electoral districts but the election was held with distribution of seats based on votes of one-mandate majority or absolute majority in 76 electoral districts in 1996, 2000, and 2004. Criticism is that the Parliament is elected with a low percentage of voters under this election system. However, a new SGH election law was passed and re-application of extended multiple-mandate electoral districts or 1992 system was allowed. Government sources are extensively used for election campaigns. For instance, given results of the 2004 SGH election campaign monitoring it was found that the organizations of the ruling parties extensively used for government assets and transportation, in particular, gasoline and media for advertisement of candidates during the election campaigns and many civil servants were mobilized for such campaigns.6 The total budget sources misused for the elections were estimated at approximately Tg 1.393 billion.7 At present, 16 political function in Mongolia.8 24 out of over 40 parties registered with the SSC were removed from the registration due to merger, amalgamation, and dissolution. At present, there are 5 parties that hold seats9 and representation in the Parliament. Legal status of political parties is regulated by the Law on Political Parties passed in 2004. Though political parties function on a self-financing basis they also received budget-funded funding. Corruption increasingly grows in Mongolia. Corruption Transparency International Corruption continues to rise in Mongolia. Whereas our country had a rank of 35 with 3.5 indexes in 1998 in terms of corruption sensitivity indexes it had a rank of 99 with 3.0 among 145 countries in 2006 and fell into category almost inadequate. A corruption control score (scale +2.5- -2.5) declined from 0.11 to 0.5 in 2002-2004 as stated in the World Bank Assessment. In recent years political party and election campaign financing-related corruption has been discussed much. This was extensively referred to in documents of both foreign and domestic researchers and institutions. For instance, The report on corruption assessment in Mongolia conducted in June and July 2005 by USAID in cooperation with the Asia Foundation stated They are then replaced , including those who worked or contributed to the campaigns, regardless of whether or not they possess the capabilities or skills required by the jobs to which they are assigned. The illegal turnover results in an unprofessional bureaucracy whose loyalty responds not to the needs of the institution or the citizens but to the political and economic interests that provided the job.10
6 7

Report on SGH Election Campaign Financing Assessment, R. Burmaa, p. 5 Report on SGH Election Campaign Financing Monitoring, 2004 8 According to the SSC 9 Where a candidate nominated by a party or coalition for a regular SGH election or by-election is elected as a SGH member political party that holds a seat/seats includes 10 Casals and Associates, Inc conducted a corruption assessment with funding from the US Agency for International Development (USAID) Mission to Mongolia in collaboration with USAID Washington and Asia Foundation (TAF) 11

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An assessment mad by the Follow-Up to International Conference of New or Restored Democracies 5 Project concluded: A tendency among politicians receiving contributions and among business circles feeling obliged to make contributions to any candidate or party has become an institutionalized mentality. Today, the political party holding state power has made a common practice of appointing its contributors and their representatives to high and medium positions of power in the executive branch. A monitoring on Enforcement of the National Anti-Corruption Program conducted by the Zorig Foundation concluded that corruption predominates in political and business circles in Mongolia.

However, in recent years there have been many effective anti-corruption changes. Our country signed and acceded to the UN Anti-Corruption Convention on 29 April 2005. In addition, the SGH passed the National Anti-Corruption Program and composition of the National Council11 and revised the Anti-Corruption Law in August 2008 and set up an anti-corruption agency. Economic Situation In recent years economic growth has increased relatively fast and average growth in GDP has been 7.3 percent in the past 5 years. GDP was Tg 3,725.0 billion in 2006, made up Tg 3,017.3 billion at the parallel value of 2005, and increased by 8.6 percent compared with that of 2005. Agriculture produced 1.6 percent of economic growth, industry 2 percent, and service sector 5 percent. GDP per capita reached Tg 1,440.0 thousand and increased by Tg. 348.7 thousand compared that of 2005. The key sector of Mongolias economy is animal husbandry and factories raw material of animal origin processing industry and services predominate. Mining, electrical sector, energy sector, and food and sewing industries predominate in the industrial sector. GDP growth varies from sector to sector and however, mining has grown in the past 3 years. In recent years the physical sizes and prices of gold and copper have risen and mining of new type minerals has been launched and this led to a 31-percent growth in the weight of mining in GDP. The weight of processing industries declined slightly in 2003-2005 but it was restored and constituted 6 percent of the total. The agricultural sector has increased in the past 3 years and made up 19 percent of GDP in 2006.12 The inflation rate relatively stabilized and was 6 percent in late 2006 but the average annual inflation rate was 4.6 percent. This was lower by 4.3 points compared with that of 2005. In terms of the budget it has been positive in the past 2 years. Corporate entity and organization income tax and VAT constituted most income of Mongolias budget. The national budget revenue equaled 36.6 percent of GDP in 2006 and increased by 6.5 points and national budget expenditure by 5.8 percent compared with those of 2005. The sector of culture and science represented 23.4
in June and July 2005. 11 2002 SGH Resolution No. 41 12 According to the National Statistics Office 12

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percent of the national budget expenditure, social welfare and labor sector 27.9 percent, health sector 12.3 percent, and social sector 12.3 percent or 63.6 percent of the social sector. Social Situation Despite a growth in the population the pace of an annual population growth slows down. 48.8 percent of the population makes up men and 51.2 percent women. As of 2006 1,009.0 thousand people engaged in labor in Mongolia. 124.6 thousand of them were employed for government and budgetary institutions and 2.6 percent of them constituted political staff, 9.5 percent staff of public administration, 22.7 percent special staff of civil service, and 85.8 percent support staff of civil service. An average salary of staff reached Tg 127.7 thousand and grew by 26.2 percent compared with the previous year. 552.8 thousand people were covered by insurance policies in 2006 and 69.4 percent of them were from business entities and organizations and 30.6 percent from budgetary institutions. Income from social welfare increased by 73 percent in 2006 compared with the previous year, percentage of a retirement pension in social welfare expenses declined and that of benefits grew. Social welfare benefits were received by 1,047.6 thousand people. Under a SGH resolution social welfare benefits were raised by 22.8 percent as of July 2006. Major programs such as Child Money, Newborn, First-Marriage Couple, and Lunchtime Tea are being implemented. 4. LEGAL FRAMEWORK 4.1.Legal Regulation of Political Party Financing The legal framework of political party financing is regulated by the Law on Political Parties, Law on SGH Elections, and other corresponding laws and regulations. The Law on Political Parties newly passed on January 28, 2005 regulates issues such as establishment, structure, and financing of parties, and legal status of political parties in the SGH. Under this law, party assets include both fixed assets and current assets and they consist of a membership fee, contribution, governmentfunded financial support, souvenir with the partys symbol, partys items, incomes from the party media and advertisement and purchase or lease of its assets, and interest from the partys cash assets that are kept in a bank. Payment of fees payable to parties is regulated by party charters and party members and supporters may make contributions. As per Article 18 of the Law on Political Parties a maximum amount of a contribution to be made for a party should not exceed ten million togrogs for a legal entity and one million togrogs for a citizen and one contributor is prohibited from making contributions to one party organization more than twice per year. What is legalized is that a party shall have its financial activities audited annually and report audits and contributions publicly. Contributions for election campaigns are regulated by election laws. In addition to self-financing, parties obtain financing from the national budget as per Article 20 of the Law on Political Parties. Financing must be provided by the national budget for parties holding seats in the State Great Hural where one seat of a State Great Hural member is valued at Tg 10
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million as well as based on results of SGH elections and principle 13 that total votes earned by the party are compared with all valid ones where one vote is valued at Tg 1,000.
4.2.

Liability for Violators of Political Party Laws and Regulations

Article 24 of the Law on Political Parties concerns liability for law and regulation violators. If a violation of laws and regulations on parties is of criminal nature it shall be subject to liability under the Criminal Law and unless it is subject to criminal liability it shall be subject to administrative liability and if laws and regulations on state registration of parties it shall be subject to liability under corresponding laws14 as well as related provisions of the law.15 Given the Law on Political Parties a judge must impose administrative liability and a fine of Tg 40,000-60,000 should be imposed on an official and that of Tg 20,000-25,000 on a party for the following violations. They are subject to the above liability. 1. Making a profit in forms prohibited by the law; 2. Allocating dividends from a partys incomes and make a citizen, business entity, or organizations payments. 3. Receiving a contribution outside the account and a higher amount of it than that set under the law; 4. Receiving a contribution from entities prohibited from making it; 5. Avoiding audit for parties financial activities and failing to report it publicly despite audit carried out.
4.3.

Corresponding Legal Provisions Abided by in the Monitoring

Government-funded financial support for political parties is basically provided by citizens from their pockets for political parties via taxation. Conversely, an important feature of democratic and good governance is state power vested in the people. We, people, who hold state power, exercise it by casting our votes having confidence in political parties. Thus, it is essential that the issue of political party financing is transparent and open and parties must have liability for this financing before the people. The following provisions are considered in connection with the goal and content of the monitoring being conducted in light of these needs. One of the primary principles of government affairs is rule of law enshrined in the Constitution and under Article 16.10 of the Constitution parties and all other mass organizations shall respect and abide by laws and as per Article 16.17 state and its authorities shall be entitled to seek and receive information on issues that dont fall into secrets must be legally and separately guarded. This right also applies to non-governmental organizations. Under Article 70.1 of the Constitution, political party activities shall be conducted within the bounds of the Constitution.
13 14

This principle will enter into force with the 2008 elections. For instance, the Law on State Registration of Legal Entity 15 Article 24.2 of the Law on Political Parties 14

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As per Article 5 of the Law on Political Parties, universal principles of party activities shall be democracy, justice, liberty, equality, rule of law,16 and transparency.17 There is also a provision under that a party must publicly report contributions and results of audit carried out for its financial activities.
5. RESULTS OF THE MONITORING 5.1.

Results of the Monitoring

Given an outline of questionnaire results, interviews conducted among party members and supporters, and political party leaders, and media analyses carried out in the framework of the monitoring of political party financing it was observed that political party financing is highly closed, enforcement of the law is absolutely inadequate, and political parties dont operate within the bounds of the law. From questionnaire results: 39.3 percent of all questionnaire respondents that they havent heard about it and 42 percent they dont notice it much, and 18.7 percent they know about it a bit when they were asked a question how much do you know about political party financing. When political party members and supporters were interviewed they stated that they dont know about financing of their parties at all and this issue is closed and most of them dont know about any occasion on which the partys financial statement was reported. From an interview with a party member: Information on the partys financing is closed. When I wanted to expose myself to audit results of the partys financial activities I was told we cant show them but we can show you a couple of pages from among them. We make payments for seats, pay fees as members holding elective positions, and make many other contributions annually but we have no information thereon. Basically, according to the partys charter they should have audit annually and report its results publicly but it has never been enforced. Lets look at the enforcement of Articles 16, 17, 18, 19, and 20 of the Law on Political Parties by provisions. One. Article 16. Party Assets and Incomes 16.1. Party assets Party assets include both fixed assets and current assets and the comparison of status of political party assets as of 200618 is indicated in the following table.
16 17

Article 5.1.1 of the Law on Political Parties, January 28, 2005 Article 5.1.2 of the Law on Political Parties, January 28, 2005 18 Data from the SSC 15

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Name of Party Monetary assets Tangible assets Assets in total

MPRP 10.019.300 636.628.400 646.647.700 -

DP

CWP 5.021.811 9.068.425 14.090.236

MP 8.000.000 160.000.000 168.000.000

RP 5.000.000 95.000.000 100.000.000

Nissan Patrol vehicle -

16.2. Types of party assets Given the charters of political parties covered by the monitoring, party assets are included in types established by law and at present, circumstances political party financing mostly consists of contributions, national budget-funded financial support, and fees from party members and supporters. For instance, as provided in Article 1.3.3 of the MPRP Financial Regulations major part of party financing shall consist of state and party community support and membership fee is a primary source of assets necessary for daily activities of primary party organizations. Whereas only one party now has its own building and obtains income from its lease, other political parties operate in lease facilities. Political parties other than the DP didnt provide specific information on assets and incomes. In view of the total value delivered by the DP to the project team, its 2006 incomes were generated in the following fashion. The total income is Tg 489.5 million and it consisted of the following (in Mongolian togrogs). Money for State Great Hural members seat Contribution Membership fee 222.5 million 39.0 million 228.0 million

16.3. Restrictions on party activities Political parties are prohibited from conducting profitmaking business operations in forms other than those set forth in the law. Violations associated with it werent observed in the course of the monitoring. Two. Article 17. Party Income Disbursement 17.1. Party income disbursement Party incomes are disbursed for activities set forth in the partys charter and platform. Political parties other than the DP didnt provide information income disbursement in the framework of the monitoring and given interviews conducted with party members and staff of party organizations, political party income disbursement mainly includes the following types of costs. Current expenses Salaries Lease (office) Per diem allowances Training and workshop expenses

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Local party financing Holiday and celebration expenses Awards and incentives Media expenses Fuel and transportation expenses

The structure of political party expenses is indicated based on total expenses incurred by the DP in 2006. Total financing is Tg 489.5 million and includes:
1. Current expenses (office lease, heat, water, electricity, communications, internet, fuel, etc)

Tg 150.0 million 2. Salaries Tg 72 million 3. Per diem allowances Tg 14.6 million 4. Training and workshop expenses Tg 124.2 million 5. Local party financing Tg 44.3 million 6. Holiday and celebration expenses Tg 13.8 million 7. Procurement expenses Tg 4.1 million 8. Maintenance Tg 12.0 million 9. Awards and incentives Tg 11.9 million 10. By-election expenses Tg 72.0 million 11. Media Tg 55.6 million 12. Others Tg 50.0 million 17.2. Restrictions on party activities Disbursing party incomes for activities other than those set forth in the partys charter and platform and allocating them as dividends for its members are prohibited. Information and facts enough to assess this provision werent found in the framework of the monitoring. Three. Article 18. Membership Fee and Contribution for the Party 18.1. Membership fee Members pay fees as provided in the Law on Political Parties and parties charters. Given charters and regulations of 5 parties, amount of a fee is established according to charters and its amount and its collection and disbursement regulation are specified. For instance, a CWP member pays a monthly fee of Tg 300, MPRP member that equal to 1 percent of his/her salary and similar income, and MP member that of Tg 100. In addition, each party member holding an elective position pays a high fee to the party. A member of the MPRP Small Hural pay a minimum fee of Tg 200,000 per quarter and member of the CWP Political Council a fee of Tg 668,000 per quarter, and member of the DP National Advisory Committee that of Tg 250,000 per quarter. 18.2. Contribution Members and supporters may make contributions voluntarily or based on their views and conviction. In addition to the above-mentioned fees established according to party charters what was observed in the course of the monitoring was that members arranged contributions and contribution collection for parties and financed activities conducted by parties.

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We believe that a standard practice of giving millions of Mongolian togrogs to the party as contributions to acquire a mandate to be nominated by the party as a candidate for SGH and local elections is institutionalized. For instance, earnest deposit of Tg 20 million is currently put down to be nominated by the DP and MPRP as a candidate and in view of the MPRP about 100 people have contributed the above amount to the party and according to unofficial sources, almost Tg 3 billion have been allocated and delivered to rural areas for salaries of heads of party cells primary party organizations, and political staff. Though as provided in the law contributions are received only through the account of the party, given the monitoring parties receive and disburse them in cash. 18.3. Amount of a contribution An amount of a contribution to be made for a party shouldnt exceed ten million togrogs for a legal entity and one million togrogs for a citizen and making contributions more than twice per year is prohibited. Information related to this wasnt found in the course of the monitoring. Parties did keep names of contributors, amounts of contributions, and other information related to such contributions confidential. 18.4. Information on contributions The party must report contributions publicly under the law. However, to date there havent been any occasions on political parties reported contributions publicly. Conversely, the GEC reports contributions made for election campaigns but the public cant look at it. The DP financial regulation provides Generation, allocation, and inspection of registration of sources of party financing shall be transparent to members holding elective positions19 and it is justification for keeping it closed for ordinary party members, supporters, and public. Article 1.3.1 of the MPRP financial regulation provides that principles of financing shall be open and transparent to the public and its members within the bounds of Mongolian laws and regulations. Nevertheless, the issue of financing is closed for party members and supporters and the above principles arent in force. From minutes of a session: In the course of the 24th Congress of the MPRP there was a storm of criticism that the issue of financing cant be open and transparent. A SGH member stated at the Congress Inspection of cash needs improving A considerable amount of cash was collected for the elections. I requested Chairman D. I to draw up a total amount of cash collected for the 2004 SGH but he hasnt done so yet. Given the MPRP financial regulation a consolidated contribution statement should be issued by contributors names, amounts and disbursement of contributions, and activities contributions were collected for and however, it is regulated like only the higher party organization will submit it to a meeting of the Leadership Board and deliver it to the Partys General Inspection Committee when it reports it. There is also similar regulation in other political parties charters and regulations. Nonetheless, its enforcement is inadequate.

19

As provided in Article 3.2.5 of the DP Charter a member holding an elective position refers to a member who is nominated and elected for an elective position. 18

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When we had meetings with political parties they took the position that they couldnt report contributions publicly. They said that this is because as to business entities and organizations if they publish the names of contributors a hunting policy is pursued through inspection agencies like the specialized inspection agency and tax administration but as to individuals it leads to them losing their jobs. Conversely, contributors request parties to keep their names and amount of contributions they make confidential. From questionnaire results: 85 percent of all the participants answered that political parties dont report financial activities in a transparent and open fashion. In addition, whereas only 4 percent or 1 out of 25 people answered yes to question have you seen financial and other statements of any party in the mass media? remaining 96 percent responded that they have heard nothing about it or dont know. From contribution-related monitoring cases:
Court decision No. 27 made by Songinokhairkhan District Court on January 11, 2007,

stated that the MPRP made a Tg 6-million contribution to establish a capital garden.

Former Chairman of the General Customs Administration Kh. B was collecting

contributions to finance the party when holding an elective position in the MPRP Small Hural. It is disclosed and he has become the highest-ranking official so far who has been published. However, incumbent Chairman of the General Customs Administration is also a member of the MPRP Small Hural.20

18.5. Membership fees and contributions shall be deposited in one checking account however, it was impossible to find information on accounts of parties in the course of the monitoring. 18.6. Contribution for elections This issue is regulated by election laws and regulations and thus, the issue of contributions for elections isnt included in the monitoring. 18.7. Restrictions on contributors As it was impossible to find information on contributors from parties we couldnt assess enforcement of this provision. Four. Article 19. Financial Support from the State Most political party financing is generated by national budget funding or taxpayers funding. 19.1. Financing to be allocated based on election results A type of national budget-funded financial support is financial support to be allocated by the budget based on election results and monetary support is provided based on the principle that votes obtained by the party in a State Great Hural election are compared with all valid ones valuing one vote at one thousand Mongolian togrogs. Though allocation of such financing is scheduled following the 2008 SGH election we look at the following example to compare funding disbursed by political parties for the election
20

Daily Paper No. 269, November 12, 2007, p. 5. 19

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with national budget financing. The comparison of cost statements21 of parties gained seats in the 2004 SGH election with financial support for compensation of election expenses is as follows. MPRP Total expenses reported to the GEC Financial support to be provided by the government after elections Percentage of total expenses 1.187.493.800 523.679.000 44.1 percent MotherlandDemocracy Coalition 241.887.900 483.637.000 200 percent RP 12.474.000 14.829.000 119 percent

As you can see from the above total if political parties running for SGH elections obtained a specific percentage of support from voters they can get back funding disbursed for such elections from the budget and maximize and multiply funding in some cases. 19.2. Financing for SGH seats A type of national budget financing is financing provided based on the number of seats held by parties in the SGH. Tg 1.7 billion were disbursed for financial support for political parties holding seats in the SGH in the period 2000-2006 according to the Law on Political Parties and Tg 760 million were approved in 2007 and in the first 5 months financing of Tg 325.000 million has been provided. As indicated in table (in million togrogs) Year 2000 2001 2002 2003 2004 2005 2006 Approved Budget 76.0 190.0 190.0 190.0 190.0 190.0 760.0 Total Financing Allocated For Parties 70.8 190.0 190.0 190.0 183.8 177.5 697.5 Total Cash for One Member 1.0 2.5 2.5 2.5 2.5 2.5 10.0

As indicated in graph by years

21

Official cost statements submitted to the GEC 20

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800 700 600 500 400 300 200 100 0 2000 2002 2004 2006

ApprovedT l ota Alloca T l ted ota

Cash was allocated for a MPs seat valuing it at one million Mongolian togrogs according to the old Law on Political Parties22 but it was changed in 2001 valuing one seat at Tg 2.5 million. However, a report of the National Audit Authority23 it was illegal as the amount was maximized where there were no legal acts applying to it, i.e. amendment wasnt made to the above law. Political parties received financing of Tg 1.8 billion in the period 2000-2006 through illegal allocation of budget funding for themselves, unjustifiable maximization of financial support funded by the budget, and on the pretext of paying for seats of representatives of hurals of citizens representatives despite the fact that no legal provisions allowing allocation of local budget financing for parties exist. Local budget financing allocated for political parties by parties is as follow.24 1% 1% MPRP DP MP CWP

13%

To date political parties have never reported financing allocated by the national budget and its disbursement. When we inquired this of the Ministry of Finance they responded that once its designation isnt provided it is not necessary to give a report on it. However, in conformity with the Law on Political Parties 50 percent of finding for seats shall be disbursed for activities to be conducted in State Great Hural members electoral districts and serious violations of this provision are disclosed in the course of the monitoring and certified by the Report of the National Audit Authority on Results of Budget-Funded Monetary Support and Financing for Political Parties.

22 23

Law on Political Parties, 1990 Results of Budget-Funded Monetary Support and Financing for Political Parties. Report of the National Audit Authority, 2007 24 Ibid., p. 9 21

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Disbursement of political party budget-funded financing in 2006 is indicated in the following table25 (in thousand togrogs). No 1 2 3 4 5 6 Name of Party MPRP DP CWP RP MP Independent Total Financing to be Allocated for Electoral District 188.750.0 111.250.0 10.000.0 5.000.0 26.200.0 15.000.0 356.200.0 Financing Allocated 76.860.0 69.002.8 29.800.0 15.000.0 190.662.8 Difference -111.890.0 -42.247.2 -10.000.0 -5.000.0 3.600.0 -165.537.2

As indicated in graph
200,000 150,000 100,000 50,000 0 MPR P R P F ncingto be ina Alloca for ted E lectora Dis l tricts F ncingAlloca ina ted

Five. Article 20. Partys Financial Inspection 20.1. Partys financial inspection The partys inspection organization inspects its financial activities in compliance with the Law on Political Parties. Given charters of political parties the General Inspection Committees inspect general financial and logistical operations by higher party organizations in the MPRP and DP, General Inspection Council in the CWP, and Inspection Council in the MP. Parties also set up and operate separate financial inspection units as part of their general inspection organizations. For instance, the Financial Inspection Sub-Committee operates in the DP and Financing Council in the CWP. 20.3. Party financial audit Legal regulation obliges political parties to get their financial activities audited and certified on an annual basis and report it publicly. Given information collected through the monitoring the CWP got its financial activities audited in 2005 and 2006 but it hasnt exposed audit results publicly yet and they informed the project team that they wait for the MPRP and DP to expose such results publicly. The DP got its financial statements in 2006 and first half of 2007 audited and reported audit conclusions publicly through its website. Whereas the MPRP informed that they havent had its financial activities audited in recent years the RP declined providing specific information in this respect.
25

Ibid., p. 12 22

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Inspection regulated by other laws The following mechanisms exist in addition to the above inspection provided in the Law on Political Parties.
1. The NAA audits results of national budget-funded financial support. The NAA audited

national budget-funded financial support on August 27-October 24, 2007. It questioned about legality of national budget-funded financing for political parties and disbursement of such financing. The audit conclusion stated there is no justification for providing financing for political parties from local budgets and political parties didnt disburse budget-funded finding legally;
2. Inspection of election campaign financing is regulated by laws and regulations on central

election institution and SGH elections. Elections werent covered by the monitoring as it wasnt an undertaking aimed at elections. 20.4. The party leadership, head of the partys financial division, general manager, and similar officials shall be prohibited from holding a job and position of power related to finance of any political foundation, society, business entity, or organization. 20.5. The party chairman shall be prohibited from taking part in the partys financial and budget activities with right to control and dispose of. 20.6. Relations pertaining to preparation of cost statements of elections and by-elections of the President of Mongolia, State Great Hural, and aimag/province, capital, soum/sub-province, district hurals/assemblies of citizens representatives shall be regulated by election laws and regulations. 5.2.Enforcement of the Law Given the corresponding monitored provisions of the Law on Political Parties the enforcement of the law is absolutely inadequate. Despite specific provisions on transparency, openness, and inspection of political party financing they arent applicable and political parties themselves dont abide by them. In case legal provisions are violated a degree of punishment for violations is vague, punishment is weak, and its degree is too low. Therefore, the punishment mechanism for officials and institutions that have violated the Law on Political Parties cant serve as an effective means of fully following and enforcing the law. From questionnaire results: The publics evaluation of abidance of the law by political parties is as follows. 38 percent responded that they dont abide by it at all 25.3 percent they abide by it at times 3.3 percent they conduct activities within the bounds of the law 33.4 percent they dont have any information about this.

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Though political parties must conduct activities within the bounds of laws under the Constitution they tend to conduct activities arbitrarily going beyond the bounds of laws. Inspection of party inspection organization for party activities is legalized by the Law on Political Parties and it represents challenges to the enforcement of the law. For instance, the Ministry of Finance responded to a recommendation made by the NAA to the Ministry of Finance to approve and enforce regulations on political party disbursement of budget-funded financing and reporting of its performance26 that there is no justification for approving and enforcing regulations on political party disbursement of budget-funded financing and reporting of its performance as Article 20.1 of the Law on Political Parties states The partys inspection organization shall inspect its financial activities. There are no cases of any punishment for violations of laws related to budget-funded finding and other financial regulations by political parties.
6. CONCLUSION AND RECOMMENDATIONS OF THE MONITORING

6.1.Conclusion The Law on Political Parties contained many important elements aimed to make the party financing system transparent, open, and regulated was approved the SGH in 2005 and since then it has been in force. However, when the enforcement of the corresponding provisions of the above law was monitored the law enforcement is absolutely inadequate and some political parties, for instance, the MPRP, CWP, RP, and MP holding seats and representation in the SGH and covered by the monitoring dont abide by the Law on Political Parties as well as party charters and financial regulations and thus, violations of laws become a commonplace. Therefore, we draw a conclusion that it upsets the rule of law set forth in the Constitution and concept and principle that activities of all institutions and citizens should fully comply with the Constitution. We believe that an appropriate mechanism to inspect the enforcement of the Law on Political Parties is inadequate and legal liability system is weak and thus, it cant serve as an effective lever to ensure the enforcement of laws. The issue of political party financing is not subject to public inspection and participation and it is also closed for party members and supporters and limited to only a circle of a few people in the partys leadership. Keeping issues pertaining to political party financing strictly confidential leads to suspicion that there may be bribery and corruption and illegal acts behind it. The partys inspection organization shall inspect its financial activities in conformity with the Law on Political Parties and this makes parties financing inspection just a formality and provides an extensive opportunity for parties to act arbitrarily and take advantage of vagueness in the law. Common breaches of the Law on Political Parties are as follows.

26

Results of Monetary Support and Financing Allocated by the Budget for Political Parties. Report of the National Audit Authority, 2007. Deputy Minister of Finances letter No. 7-9/5124 dated November 1, 2007 24

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The Ministry of Finance directly provides national budget-funded financial support to political parties without the general budget administrators inspection. No disbursement reports have been submitted to the Ministry of Finance yet; As disbursement of budget-funded finding for SGH members electoral districts wasnt regulated yet parties had to disburse Tg 356.2 million for electoral districts under the law in 2006 and however, about 54 percent of the funding was disbursed as designated and rest of it was disbursed for financing political party activities; No political parties have reported contributions publicly ignoring the provision of the law to report such contributions publicly and it is handled in a circle of a few people in political party leadership; Though a party should get its financial activities audited and report its results publicly on an annual basis most parties neither arranged audit nor reported results publicly. Conversely, the DP had its financial activities audited and posted its results in its website and the CWP had audit but didnt report its results publicly.

6.2.Recommendations We believe that it is essential to make a major legal reform in political party financing based on information collected, facts founds, and conclusion drawn in the framework of the monitoring and best international monitoring practices. The project team makes the following recommendations.
4. To establish a permanent institute that will inspect the enforcement of the Law on Political

Parties

To set up a special committee that will inspect political party financing or include this function in obligations of institutions such as the GEC and Anti-Corruption Authority (ACA) (however, it would be effective provided that regulation of keeping institutions like the GEC specialized, independent, and separate from political party influence is put in place); To conduct regular institutionalized inspection for transactions in party accounts (the GEC could conduct regular inspection and in the event a violation is found it could submit it to the ACA and as a follow-up the latter could inspect movement in accounts);

5. To improve the liability system in the Law on Political Parties

To tighten and make liability clear and convert it into an effective means of enforcing the law (for instance, to take subsequent punishments ranging from first, warning if financial rules and regulations are violated and then suspending national budget-funded financing, to terminating its mandate to run for elections and dissolving a political party unless the violation is rectified);

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6. To ensure better transparency and openness of information aimed to make public inspection and participation in enforcing the Law on Political Parties realistic

To ensure that income and cost statements of political parties are issued on quarterly, semiannual, and annual bases and posted in the internet and copies delivered to the GEC, NAA, SSC, and tax administrations and regularly published in gazette Government Information; To approve and enforce instructions on and sample forms for preparation of any financial statement (to that end, to make it clear when, where, and whom any statement and information is prepared in a sample standard form and how and who will deliver it the public); To make mandatory for parties to post their annual statements and information on contributions in the internet in a publicly accessible form.

7. APPENDIX

Appendix 1 Law on Political Parties (extracts) Party Financing Article 16. Party Assets and Incomes 16.1. Party assets shall include both fixed assets and current assets. 16.2. Party assets shall include the following. 16.2.1. Membership fee; 16.2.2. Contribution made by its member, supporter-citizen, or legal entity; 16.2.3. Government-funded financial support; 16.2.4. Souvenir with the partys symbol and the partys items; 16.2.5. Income from the party media and advertisement; 16.2.6. Income from purchase or lease of its assets; 16.2.7. Interest from the partys cash assets that are kept in a bank. 16.3. Making profits in forms other than those set forth in Article 16 of this Law and conducting business operations shall be prohibited. Article 17. Party Income Disbursement 17.1. Party incomes shall be disbursed for activities set forth in the partys platform and charter only.

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17.2. Disbursing party incomes for other activities and allocating them as dividends for its members shall be prohibited. Article 18. Membership Fee and Contribution for the Party 18.1. A member of the party may pay a fee at the rate regulated the party charter. 18.2. Members and supporters may make contributions based on their views and conviction. Contributions shall be received only through the account of the party organization at that level. 18.3. A maximum amount of a contribution to be made for the party at a time shall not exceed ten million Mongolian togrogs for a legal entity and one million Mongolian togrogs for a citizen and one contributor shall be prohibited from making contributions to one party organization more than twice per year. Seeking positions of power and private interests or exerting pressure for ones contribution made to the party shall be prohibited. 18.4. The party shall report contributions publicly. 18.5. Membership fees and contributions shall be deposited in one checking account. 18.6. The issue of contributions made to parties for election campaigns shall be regulated by election laws and regulations. 18.7. Receiving contributions from the following entities shall be prohibited. 18.7.1. Under eighteen-year-old citizen of Mongolia; 18.7.2. State and state-owned business entity and organization; 18.7.3. Religious organization; 18.7.4. International organization, foreign citizen, legal entity, or stateless person; 18.7.5. Less than one-year-old legal entity; 18.7.6. Entity without a specific name and address; 18.7.7. Legal entity that is bankrupt or has overdue bank loan debts; 18.7.8. Other entities prohibited by law. 18.8. Financing of actions and projects to be implemented in collaboration with international organizations and foreign organizations and foundations that conduct political activities shall not concern Article 18.7.4 of this Law. Article 19. Government-Funded Financial Support 19.1. The government shall provide monetary support for a party once that holds seats in the State Great Hural within three months after election results are issued based on the principle that votes obtained by the party in State Great Hural elections are compared with all valid ones valuing one vote at one thousand Mongolian togrogs.

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19.2. Financing shall be provided by the national budget on a quarterly basis during the State Great Hural term in office for parties holding seats in the State Great Hural based on the number of seats gained valuing one seat of a State Great Hural member at ten million Mongolian togrogs per year. 50 percent of this financing shall be disbursed for activities to be conducted in State Great Hural members electoral districts. 19.3. The total value specified in Articles 19.1 and 19.2 of this Law may be re-established considering changes in currency exchange rates. Article 20. Partys Financial Inspection 20.1. The partys inspection organization shall inspect its financial activities. 20.2. The partys central organization shall issue a consolidated statement after financial statements of its subordinate organizations are issued. 20.3. The party shall get its financial activities audited and certified on an annual basis and report it publicly. 20.4. The party leadership, head of the partys financial division, general manager, and similar officials shall be prohibited from holding a job and position of power related to finance of any political foundation, society, business entity, or organization. 20.5. The party chairman shall be prohibited from taking part in the partys financial and budget activities with right to control and dispose of. 20.6. Relations pertaining to preparation of cost statements of elections and by-elections of the President of Mongolia, State Great Hural, and aimag/province, capital, soum/sub-province, district hurals/assemblies of citizens representatives shall be regulated by election laws and regulations. 8. BIBLIOGRAPHY Laws of Mongolia 1. Constitution, 1992 2. Law on Political Parties, 2005 3. Law on SGH Election, 2005 4. SGH Resolution No. 41, 2002 5. Commentary on the Law on Political Parties, SSC Survey Reports and Policy Documents 1. Report on Assessment of SGH Election Campaign Financing 2. Human Development Report, UN, 2006 3. Global Competitiveness Report, USAID, 2005-2006
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4. Report on Monitoring of SGH Election Campaign Financing, VEC, 2004 5. Assessment of Corruption in Mongolia, Asia Foundation, 2005

Books and Textbooks

1. Monitoring the EU Accession Process, OECD, 2003

Other Sources
1. Effects of National Budget-Funded Monetary Support and Financing for Political Parties,

2007, Report of National Audit Authority, 2007 2. Websites

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