Parliamentary briefing: Political finance rules

• It is crucial that UK voters trust the financing of our political system and feel it is transparent. They need to see how parties and campaigners are financed and how they spend that money at elections.  
• The political finance regime in the UK is one of the most transparent in the world, with a wealth of financial data available for anyone to look. The Electoral Commission publishes key financial data on a regular basis, and permissibility checks on donations are a legally requirement. These measures are designed to provide voters with transparency over the money spent and received by campaigners and parties.  
• However public trust in the transparency of political finance remains low. Our research shows that only 15% of people agree there is transparency over the money spent and received by parties and campaigners, down from 37% in 2011.  While data is made available to voters, there remain potential loopholes for impermissible money to enter the system, including from foreign sources. The political finance system needs strengthening and there is more that can be done to build confidence in the regime.
• Addressing the gaps in the system – and ensuring it protects against foreign interference as Parliament intended – would improve coverage of the donation controls and ensure voters can have confidence in the political finance system.  

• There is nothing to stop people overseas from campaigning in support of, or against, candidates or parties in the UK. However, the legal framework for the political finance system that Parliament introduced 25 years ago was explicitly intended to ban foreign donations to UK political parties.  
• The Commission takes all possible steps within the current regulatory framework to prevent unlawful foreign money from entering UK politics – however, limitations of these laws mean that it remains possible for money from foreign sources to enter the UK electoral system.  
• For example, at present, a UK registered company is permitted to make donations using money raised overseas, even if the UK company has not generated sufficient funds to support the donation. This means that foreign actors could legitimately use a UK company as a conduit to channel money into UK politics.
• Similarly, unincorporated associations could legitimately make donations using funding from otherwise impermissible sources, including from overseas. Unincorporated associations are not required to ensure that those who donate to them are permissible donors. 

• We have been calling for the following changes to the law since 2013, to strengthen and simplify the political finance system, and increase transparency for voters.  
  • Legally require parties to conduct know-your-donor checks on donations to assess and manage their risks.  
  • Prevent companies from donating more than they have made in the UK  
  • Ensure those who donate to unincorporated associations are permissible donors.  
• We are currently considering with the Government how the law could be updated to ensure it increases transparency and strengthens controls around donations, and simplifies and strengthens enforcement. It is important that any changes are workable and do not restrict legitimate political activity.

Requiring parties to carry out ‘know your donor’ checks  

• Existing requirements for permissibility checks are not sufficient to safeguard against the risk of impermissible money entering the UK political system.  
• We have recommended that parties be required to carry out enhanced ‘know your donor’ checks on higher-risk donations. This would require parties to take additional steps to ensure donations are permissible, and allow them to make more informed decisions about whether to accept a donation. Similar checks are required in the charity sector.
• We have also recommended the UK Government update and commence provisions in law that require donors to make a declaration of the source of their donation.

Tightening company donation controls

• At present, a UK registered company is permitted to make donations using money raised overseas. This means that foreign actors could legitimately use a UK company as a conduit to channel money into UK elections.  
• Permissibility checks on companies provide only a limited safeguard, just requiring a company to be UK-registered and incorporated and “carrying on business” in the UK. Almost all UK-registered companies will be permissible donors, regardless of how limited their UK activities may be.
• To safeguard against foreign money entering the UK political system, we have recommended company donations only be permissible if funded from money made in the UK.  

Strengthening controls around unincorporated associations

• An unincorporated association (UA) is an association made up of more than two people who have come together to carry out a shared purpose. There are currently several weaknesses in the transparency requirements for political donations made by UAs:  
  • UAs are not required to check that those who donate to them are permissible. This means that they could legitimately make donations using funding from otherwise impermissible sources, including from overseas.  
  • Permissibility checks on donations from UAs themselves are extremely limited. To be a permissible donor, a UA must have at least two members, a main office address in the UK, and be carrying on business or other activities in the UK.  
  • Voters have very limited information about UAs making donations, even those registered with the Commission, as UAs are only required to provide the name of the organisation and their address.  
  • There are no transparency requirements in law for UAs that donate to candidates, rather than to political parties or campaigners.  
• We are considering potential reform options to help inform the UK Government’s work in this area. This includes lowering the thresholds for registration and for reporting donations made by UAs, requiring public identification of a UA’s responsible person, and requiring UAs to check the permissibility of political gifts.  
• Addressing these gaps would help to improve the coverage of donation controls and ensure voters can have confidence in the political finance system. It is important the law is updated to improve the integrity and transparency of the regime.