Time is ripe for laws on political funding – Rajan Navaratnam

We have a system that allows us to manage a free and fair election, free of fraud, free of intimidation, and that’s what we delivered on election day, and we’re very very proud of it. – Kenneth Blackwell

THE recent announcement by the honourable prime minister to initiate parliamentary and governance reforms would unequivocally be embraced by all Malaysians and will meliorate the political landscape in the country. Undoubtedly, the reforms proposed by the prime minister would lay the foundation for Malaysia to embark on an avant-garde and improvement of party politics.

However, one particular reform that needs to be addressed expeditiously and implemented urgently is for the introduction of a specific law for political funding and donations. At present, political donations and contributions are legal and there are no rules or laws that regulate such political donations, and neither politicians nor political parties are obliged to disclose the amount of funding or their source of funding. This includes contributions from anonymous donors and foreign parties.

It is of paramount importance that laws to govern political funding be implemented in Malaysia to preserve the integrity of the principles of democracy to prevent corruption and the laundering of illicit funds to negatively influence politics and governance, which would inevitably lead to diminished development initiatives and erosion of public administration effectiveness.

From a money-laundering perspective, it creates the ideal environment in the absence of an effective law for political funding as presently, politicians are not restricted from receiving monies into their personal account or to disclose adequately political donations to the tax authorities or other agencies, while political parties are not required under any law to disclose to any government agency the source, the amounts, and the use of such donations.

On the other hand, corporations, professionals and financial institutions such as banks, accountants and lawyers are regarded as reporting institutions under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds from Unlawful Activities Act 2001 (AMLATPUAA) and are therefore statutorily required to keep records of all transactions on domestic and foreign currency transactions, identity of persons and accounts details and further to conduct due diligence for every transaction, failing which they could be charged under the act – which upon conviction may result in very severe penal consequences.

Because there is no law that requires for politicians or political parties to disclose the source of funding and details of persons who provide such political donations, a simple mechanism on how political donations could be exploited for the purpose of money laundering can be illustrated hypothetically as follows.

Party A (a company or an individual) donates illicit funds derived from unlawful activities to Party B (an individual or a political party). This is known as the placement stage where illicit funds are diverted back into the financial system through Party B’s bank account. Party B then engages Party A purportedly for some form of service, which is paid for partly from the illicit funds previously received. This is known as the layering stage. Party A then deposits the payment received from Party B into its own bank account, which is classified as income derived from lawful business activities. This final stage is known as the integration stage where illicit funds previously donated by Party A are returned to Party A through the financial system, legally.

The government, therefore, in drafting a legal framework and in implementing a law on political funding, must ensure that political donations are transparent and that there are limits imposed on the types and the amount of contributions that politicians and political parties may receive. Some of the essential ingredients that this new law must possess, and which I believe should contain, are as follows.

This new law on political funding must prohibit anonymous direct or indirect contributions as their source of funding is unknown, unregulated and could be from unlawful activities. Additionally, government contractors and individuals with businesses involving government agencies must be prohibited from making any contribution as it constitutes a conflict of interest and is detrimental to the principle of impartiality. Foreign contributions should also be prohibited to prevent elements of foreign interest interfering in the nation’s political landscape and policies to be introduced and implemented.

There should also be a limit on the contributions given by individuals and corporations to political parties to ensure a balanced and fair electoral process and to ensure that there is no disproportionate financial ability between political parties during elections. One way to ensure limits on contributions is to limit campaign expenditures by political parties.

There should also be a legislative measure imposed on politicians and political parties to file a mandatory financial report periodically on all political contributions and the said report must contain sufficient information amongst others being, donor information, amount of contribution, due diligence undertaken to ascertain the source of contributions, maintenance of a single designated bank account for purposes of political contributions and whether there is any commercial relationship with the donor concerned.

Additionally, political parties should be included in the First Schedule of AMLATPUAA as a reporting institution. This financial report must not only be made available for public scrutiny but must also be submitted periodically to a dedicated independent agency which, at present, would ideally be the National Anti-Financial Crime Centre (NAFCC), whose functions includes coordination of other enforcement agencies such as Bank Negara, the Malaysian Anti-Corruption Commission and the police in integrated operations, maintaining a centralised data system and preventing unlawful financial activities as provided for under the National Anti-Financial Crime Act 2019.

The law on political funding must include and provide sanctions and penalties to be meted out by a competent agency such as the NAFCC or the Election Commission on the recommendation of the NAFCC in the event of any non-compliance or breaches committed by either politicians or political parties, such as barring candidates from contesting in any elections and preferring of charges under AMLATPUAA.

It is imperative that in order to have a free, fair and unbiased electoral process, this law on political funding cannot be disregarded under any circumstances and lawmakers must act now in introducing its framework and its implementation without delay. – The Vibes, September 17, 2021

Prominent lawyer Datuk Seri Rajan Navaratnam is legal adviser to The Vibes