Carter Center Commends Indonesia's Progress in Campaign Finance Regulations, Encourages Stronger Reporting and Disclosure Requirements

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Post-Election Report Number 1 - Campaign Finance Procedures

Limited Election Observation Mission

Contacts: Sophie Khan, Jakarta: +62 813 102 06 100

Deborah Hakes, Atlanta: +1-404-420-5124

The Carter Center commends the parties, candidates, and National Elections Commission (KPU) of Indonesia for the important progress made in campaign finance laws and practices since the 2004 elections. However, there remain critical steps that must be taken to ensure robust and meaningful campaign finance reporting and disclosure mechanisms that are more than a formality for political parties. The Carter Center encourages the KPU, political parties, and candidates to continue to monitor campaign income and expenditure, as well as the use of public resources, throughout the 2009 electoral process and to consider additional reforms to strengthen campaign finance regulations for future elections.

Forty-four political parties, including six local Acehnese parties, contested the April 9 legislative elections in Indonesia. The participation of political parties is a vital component of democratic politics and funding is essential to ensure parties are able to engage in competitive campaigns. However, corruption scandals and improper use of campaign funds remain serious impediments to the consolidation of democracy in many countries. Rigorous campaign finance rules, such as those included in the 2008 Elections Law that Indonesia has begun to implement for the 2009 elections, are one way to both decrease opportunities for corrupt practices in the conduct of electoral campaigns and to meet international commitments regarding transparency in campaign funding.[i]

In summary, the findings of the Carter Center's limited election observation mission to Indonesia with regard to campaign finance in the 2009 legislative election include the following:

• Campaign finance reporting requirements for political parties and Regional Representative Council (DPD) candidates have become more stringent since the 2004 elections. However, compliance with the law requires only that reports be submitted before legal deadlines. The law does not foresee a discretionary or investigative audit role for the KPU beyond analysis of the information that is provided solely by the parties and candidates. The electoral law does not make available to the KPU legal sanctions should campaign finance reports contain false, inaccurate or incomplete information.
• Recent changes in the methods of seat allocation (based on a December 2008 Constitutional Court judgment) are not sufficiently reflected in those articles of the General Elections Law related to campaign finance reporting. Unlike political parties, individual candidates running for seats in the People's Representative Council (DPR) and Regional People's Representative Council (DPRD) are not currently required to submit financial reports regarding their campaign income and expenditure.
• Many political parties, NGOs, and other stakeholders believe that the bulk of income and expenditures related to campaign finance goes unreported. This is in part due to the exclusion of candidates from reporting requirements outlined above, but also because non-formal campaign teams fall outside of the campaign finance regulatory framework.
• Based on these preliminary findings, The Carter Center offers a number of recommendations for the continued consolidation of campaign finance in the Indonesian electoral process. These include amendments to the Elections Law that would provide greater clarity regarding the reporting requirements for individual candidates and non-formal campaign teams as well as formal campaign teams and political parties; and granting the KPU additional powers to conduct investigative audits and request additional information from contestants. In addition, the Center encourages the KPU to make public the full financial reports of the political parties.

The following full report, 'Carter Center Assessment of Current Campaign Finance Requirements and Recommendations for Future Improvement,' includes a more detailed discussion of the issues summarized above.

Carter Center Assessment of Current Campaign Finance Requirements and Recommendations for Future Improvement

As part of its limited observation mission for the April 2009 legislative elections in Indonesia, The Carter Center has focused on key campaign finance issues. This report provides the Center's main findings and recommendations. In a spirit of cooperation with the people of Indonesia, the report focuses on an assessment of the regulatory framework currently in place, as well as recommendations for its improvement in advance of the next legislative elections.

Reporting Requirements

In many ways, the campaign finance reporting regulations for the 2009 legislative elections improve those that governed the 2004 elections. The 2003 General Elections Law[i] contained less stringent financial reporting requirements than those included in the 2008 General Elections Law[ii]. For example, during the 2004 legislative elections an initial campaign finance report was not required and the 2003 law did not specify sanctions for noncompliance with reporting requirements.

The 2008 General Elections Law, on the other hand, requires that political parties and candidates for the DPD must provide financial information in both the pre- and post-election periods. Seven days before the initiation of the campaign (the first campaign rally) parties and Regional Representative Council (DPD) contestants were required to provide an initial financial report consisting of a bank account number and the opening balance[iii]. On the national level, all parties submitted their reports, but at the provincial level three parties failed to do so[iv]. According to the KPU, these were small and new parties, which were not yet sufficiently organized to meet the reporting deadline. As a consequence, some of their candidates were disqualified based on Article 138 of the 2008 law which allows the KPU to prevent the participation of parties in the election if they do not submit the pre-campaign financial information.

In addition to pre-election reports, parties are also required to submit an income and expenditure report within 15 days of election day - a marked change from the 60 day window scheduled for preparation of reports by parties in 2004 which raises questions about the ability of the parties to complete and submit their reports on time. Article 138 of the 2008 law states that parties and DPD candidates will not be seated in national, provincial and district legislatures if these reports are not submitted to KPU appointed auditors by the April 24, 2009 deadline[v].

As of April 27, the KPU reported that 30 of the 38 national parties had submitted their reports on time. The number of candidates for the DPD who submitted their reports on time is not clear as this information is still be gathered by the KPU. Several regional KPU offices and public accountants have noted to the Center that parties and DPD candidates who believe they have won seats have largely submitted financial reports but that often those contestants who did not win seats did not submit reports. Though no official announcement has been made by the KPU, the Election Supervisory Body (Bawaslu) has called for the disqualification of 27 parties at the provincial level for not submitting their reports on time.

While campaign finance reports which are submitted to public accountants provide details on the income and expenditures controlled by formal party campaign teams, many political party representatives and other stakeholders have told the Center that much campaign income and spending is done through "non-formal" campaign teams. These "non-formal" teams are not required to provide campaign income and expenditure reports as part of the financial reporting process.

Campaign finance reporting regulations for the general elections were also impacted by recent changes in the method of seat allocation for the DPR, and DPRD. In December 2008, the Constitutional Court found Article 214 of the 2008 General Elections Law unconstitutional[vi]. Based on this ruling, seats won by a party are now allocated to those of its candidates who win the most votes. Though this new system has resulted in a substantial change in the nature of the campaign from being party oriented to candidate oriented, the law does not yet sufficiently reflect this development because it does not require individual DPR and DPRD candidates to submit their own campaign reports. With the exception of candidates for the DPD, there is currently no legal requirement for individual legislative candidates to report their campaign funds.

Auditing and Oversight of the Income and Expenditure Reports

The KPU at central and provincial levels selected public accounting firms to receive and audit the income and expenditure reports of political parties and candidates for the regional representative councils. The firms are required to state in writing that they are not affiliated directly or indirectly with any of the contesting political parties or DPD candidates and that they are not members or officers of a political party. The public accountants have 30 days from receipt of the financial reports (until May 23) to examine the reports and submit the results of their audits to the KPU. [vii]The KPU then has seven days (until May 30) to notify the contesting parties of the audit results[viii] and 10 days (until June 2) to announce the auditing results to the public[ix].

According to the Elections law, the role of the KPU with regard to the audit procedures is limited as it has no legal basis to do more than appoint public auditors based on a competitive bidding process, collect audit reports prepared by these firms, and then make the results of the audits public. Criminal penalties including imprisonment and fines are to be laid against parties or candidates who intentionally provide false information as part of financial reports. However, as it is written now, the General Elections Law does not provide, in cases of false reporting, for the necessary range of administrative and electoral sanctions (such as the loss of seats) to be levied[x]. Such variety of sanctions must be available to ensure the proportionality of a remedy to its particular violation. Additionally, in cases where financial reports are incomplete, late, or inaccurately filed, electoral sanctions may be overly burdensome (dependent on the severity of the violation) and appropriate administrative measures are absent from the law[xi].

On April 15, the KPU Web site listed the public accountant firms which had been selected through a competitive bidding process to conduct audits of political party finances at the central level. However, many memoranda of understanding were not signed with these firms until April 24 – the deadline for the submission of reports by parties. During the week prior to the reporting deadline, The Carter Center contacted several of the firms listed on the Commission's website but the accounting firms could not confirm whether they had been selected by the KPU to fulfill the auditing function, leading to questions about their capacity to complete the audits in a timely manner. The Carter Center will continue to monitor the implementation of campaign finance reporting regulations.

Use of Money to Influence Voters

Both the 2004 and 2008 electoral laws contain provisions regarding the use of money and material goods to influence voters. While the 2004 General Elections Law stipulated that the punishment for improper allocation of money to potential voters during the campaign would lead to 'disqualification' of candidates, Articles 87 and 88 of the 2008 law further elaborate this point, stating that, if found guilty ahead of the election, candidates will be removed from the candidates' list or, if already elected, will not be permitted to take office.

In practice, The Carter Center received numerous reports of the use of money to influence voters in areas observed, including in Aceh. Media reports and reports from Carter Center observers include stories of so-called 'dawn attacks' in Aceh and elsewhere where candidates or their campaign teams allegedly distributed envelopes containing sums of cash between Rp. 5,000 and 500,000 (between USD $0.46 and USD $47) along with the name card of the legislative candidate. Carter Center observers also noted cases in which gifts were promised should a certain number of votes be obtained for a party in a particular location and others in which non-cash items such as rice, women's headscarves, or staple goods were distributed at village level.

In the lead-up to the election, a number of party representatives at district level complained to Center observers that voters were expecting payment when approached by candidates as part of their campaigning. Some parties interviewed reported that money politics increased during the three-day "cooling off period" before the election. The extent to which such attempts to influence voters are successful is difficult to verify.

By April 22, Bawaslu had officially recorded 36 cases of "politik uang" (money politics) in their register of criminal cases. In Aceh, many of those interviewed suggested that cases of money politics went unreported because the provincial electoral supervisory body, or Panwaslu, only opened in February 2009[xii].

Prosecution of these cases is difficult because witnesses are said to be reluctant to testify, fearing the loss of the money or items received. Carter Center observers will continue to track a number of cases in which money has allegedly been used to influence voters in observation areas.

Late dissemination of campaign finance rules and regulations and awareness of procedures

The 2003 elections law established limits on contributions to political parties by individuals of Rp. 100 million (USD $9,350) and Rp. 750 million (USD $70,125) for contributions from groups or companies. The 2008 law significantly increases allowable contributions from individuals (Rp. 1 billion or approximately USD $93,000) and groups or companies (Rp. 5 billion or approximately USD $467,000)[xiii]. On March 25 and 27, ten days after the beginning of the official campaign period, the KPU released campaign finance audit guidelines that stipulated that the new limits on contributions from individuals and companies to both political parties and DPD candidates were to apply to the amount of a single transaction and not the total from an individual or company. This interpretation did not appear consistent with the law and several civil society groups protested. Close to one month later the KPU officially reversed this interpretation of the law with a regulation stating that individual and corporate contributions could not exceed the amounts listed in the elections law. [xiv]The effectiveness of campaign finance regulations and instructions is often dependent on their predictability; late changes and mixed messages can cause confusion and in this case may have had an effect on how contestants reported income received between the initial release of the guidelines and their subsequent amendment.

In general, Carter Center observers note that the parties felt a level of comfort with the campaign finance reporting format and were generally confident that they would be able to submit their reports on time. However, several party representatives said that KPU representatives in areas of Carter Center observation were not able to provide additional guidance on the reporting formats as the KPU representatives did not seem to understand the procedures very well.

Next Steps in the Reporting Process

As noted, public accountants are required to submit audit reports to the KPU by May 23. The KPU is then required to notify political parties and DPD candidates within seven days of the audit results. According to the law, the KPU must announce the results of the audits to the public within ten days of the audit results (June 2). The Carter Center will continue to monitor the progress of the campaign finance disclosure process over the coming weeks.

Recommendations

The credibility of the KPU rests on it being entirely independent from government, nonpartisan, and equipped with sufficient human and financial resources and authority to enforce the country's election laws. While The Carter Center commends the improvement of legal norms made in Indonesia to regulate the control and reporting of funds used during the campaign period, particularly the public disclosure of contestant financial reports, it notes some important steps that could be taken to ensure a more meaningful reporting process:

1. The Constitutional Court's decision regarding Article 214 of the 2008 General Elections Law has extended those contesting the elections beyond the 'election contestants' currently recognized by the Elections law and because of this a careful revision of electoral legislation before the next legislative elections is required.[xv]. As part of this review, limits on campaign contributions, campaign finance reporting requirements, and related sanctions, need to be defined in the law in relation to individual candidates for the DPR and DPRDs, as does the relationship between DPR or DPRD candidate campaign finances, and party campaign finances.
2. The current elections law only requires that the financial reports of the formal campaign teams of political parties be submitted for audit, despite the role of informal campaign teams that also raise and spend funds for candidates and parties. The law should be amended to require that "non-formal" campaign teams report their income and expenditure, or, alternatively, be amended so that the finances of "non-formal" teams fall within the reporting framework that regulates formal campaign finance. This would potentially decrease the amount of campaign spending that goes unreported.
3. The KPU should have a more robust legal mandate, as well as human and budgetary resources, to conduct discretionary or investigative audits of financial reports submitted by parties through public accountants. The power to request additional information based on the financial reports provided by the contestants would improve the KPUs ability to have a meaningful role in monitoring campaign fund use and sanctioning parties who do not comply with rules as provided for in the Elections law.
4. In order to ensure that all campaign funds raised and spent by political parties and candidates are accurately and completely recorded in their campaign finance reports, the electoral law should include consequences for inaccurate, false or incomplete reporting of campaign contributions and expenditure. In addition to the current criminal penalty for intentionally giving false information, a range of electoral and administrative penalties should be available as sanctions for improper filing of reports. Such a variety of sanctions can ensure remedies are appropriate and proportionate to the severity of the violation. For sufficiently serious offences these penalties could include exclusion from participating in the election or prevention from taking up office similar to the penalties for failing to lodge a campaign finance report.
5. Political parties with whom Carter Center observers have spoken at central and provincial levels said that the financial reporting guidelines provided by the KPU are simple enough to allow parties and candidates to complete them with little difficulty[xvi]. However, some parties noted that the KPU should have requested that more detailed information and supporting documentation be provided to the appointed public accountants so that they could conduct more in-depth audits. The Carter Center encourages the KPU to consider these suggestions and also urges the Commission to make public not only the results of the audits as they plan to do, but also the content of the income and expenditure reports themselves.
6. Although the 2008 General Elections Law provided greater clarity than the 2003 law about the period that is to be the subject of income and expenditure reports, confusion remains about whether the three day "cooling off period" ahead of election day should be included in the parties' reports. Carter Center observers were told by parties that, because campaigning is prohibited during this time, they are not expected to include income and expenditures incurred during these days in their financial reports. The law should be made clearer in this regard in advance of future elections.
7. The practice of donating money, rice, and other gifts to potential voters during campaigns has highlighted the need for further discussion in Indonesia about how these practices can be regulated. The practice of candidates and parties providing food for attendees at political rallies is very common and is not prohibited by the Elections law. While Indonesians vote by secret ballot, concerns remain that recipients of campaign gifts may feel obliged to vote for the candidates and parties supplying the gifts.
8. In advance of the next legislative elections, the government of Indonesia could consider amending the elections law to include provision of public funding to candidates. Not only could public funding help to level the playing field among candidates, but it could also increase compliance with reporting requirements if the disbursement of public funds was reliant on timely submission of accurate and complete campaign finance reports.

The Center has deployed a limited observation mission to Indonesia since early-March 2009. Six Carter Center observers monitored the pre-election period in various parts of Indonesia, including Aceh, and were joined by nine additional observers on election day. The Center will remain in Indonesia for several weeks and will release periodic reports detailing its findings on dispute resolution processes and other key issues. Because of the small size and limited scope of its presence, The Carter Center will not draw conclusions about the overall electoral process. The Carter Center will issue a final report on the limited observation mission to the April 9, 2009, legislative elections in Indonesia in the coming months.

The Carter Center conducts election observation in accordance with the Declaration of Principles of International Election Observation and Code of Conduct for International Election Observation adopted at the United Nations in 2005.

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The Carter Center was founded in 1982 by former U.S. President Jimmy Carter and his wife, Rosalynn, in partnership with Emory University, to advance peace and health worldwide. A not-for-profit, nongovernmental organization, the Center has helped to improve life for people in more than 70 countries by resolving conflicts; advancing democracy, human rights, and economic opportunity; preventing diseases; improving mental health care; and teaching farmers to increase crop production. Visit: www.cartercenter.org to learn more about The Carter Center.

[i] Indonesia ratified the United Nations Convention Against Corruption (UNCAC) on September 19, 2006. UNCAC entered into force on December 15, 2005. Art 7 (3) of UNCAC states that "Each State Party shall also consider taking appropriate legislative and administrative measures, consistent with the objectives of this Convention and in accordance with the fundamental principles in its domestic law, to enhance transparency in the funding of candidatures for elected public office and, where applicable, the funding of political parties."

[i] Law 12/2003 "Concerning General Elections for the Member's of the People's Representative Council, the Regional Representative Council, and the Regional People's Representative Council" February 18, 2003.

[ii] Law 10/2008 "Concerning General Election for Member's or People's Representative Council, Regional Representatives Council, and Regional People's Representative Council" March 3, 2008.

[iii] Article 134 of 10/2008

[iv] The three parties which were disqualified in this case were the Partai Persatuan Daerah (Regional Unity Party) in Riau, and two parties in East Kalimantan, Partai Indonesia Sejahtera (Prosperous Indonesia Party) and Partai Perjuangan Indonesia Baru (New Party of Struggle for Indonesia). According to Bawaslu data, 52 party chapters in 33 sub-districts across 9 were disqualified for not submitting early financial reports, including some of the larger national parties like PDI-P and PAN.

[v] Except in those cases where the polls were held later.

[vi] Constitutional Court Decision No. 22/PUU-VI/2008. December 23, 2008

[vii] Article 135 III of 10/2008

[viii] Article 135 IV of 10/2008

[ix] Article 135 V of 10/2008

[x]Article 281 XXI of 10/2008

[xi]Article 138 III-IV of 10/2008

[xii] The provincial Panwaslu were opened in a phased manner with the first group of eight to be opened on 29 August 2008. Aceh, though meant to be part of this first phase, did not open until the end of December 2008. District level Panwaslus did not open until mid-February. Delays in the establishment of the Panwaslu in Aceh were due to a debate about who would select Panwaslu members.

[xiii]Contributions to DPD candidates can be made by individuals up to Rp. 250 million (approximately USD $23,350) and company contributions Rp. 500 million (USD $46,750).

[xiv] KPU Regulation number 38 of 2009

[xv]However, in order for the KPU to be able to review the financial reports of all candidates a significant, and potentially unrealistic, increase in resources would be required and whether there would be sufficient numbers of public accountants across the country is questionable. Future legislation could consider giving the KPU authority to conduct random audits of candidate income and spending in cases where complaints arise or alternatively, political parties could be held accountable for the reports of their candidates.

[xvi] Parties and DPD candidates are required to provide the following as part of their campaign finances report: a list of sources of campaign contributions, a list of campaign fund expenditures, the closing balance of the campaign fund account, a declaration of responsibility, and evidence of all transactions.

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