Centre Ignored EC Concerns Too While Pushing for Bearer Electoral Bonds

The DEA Secretary’s record note reveals how the EC was concerned about electoral bonds being used by shell companies, and how it wanted a full disclosure of the details of both donors and recipients.

New Delhi: While the electoral bond scheme announced by the Centre in it budget speech for 2017-18 concerned the Election Commission closely, the latter was not consulted properly in the matter.

More so, some of its serious concerns regarding the anonymity associated with the bonds and their possible misuse by shell companies were largely ignored. Ultimately this led the matter to reach the Supreme Court, which had earlier this year ruled that there would be no ban on electoral bonds.

However, documents accessed by RTI activist Anjali Bharadwaj from the finance ministry have revealed that the issued would probably not have reached the apex court had the government addressed the concerns of the Election Commission right away.

A ‘record’ note points to serious discord

One of the documents that has been provided by the ministry pertains to a “record note” dated September 22, 2017, in which the Secretary of the Department of Economic Affairs, Subhash Chandra Garg recorded the discussion when he met Chief Election Commissioner (CEC) Achal Kumar Joti and the two Election Commissioners, Om Prakash Rawat and Sunil Arora, to brief them about the electoral bonds issue.

He said, “The CEC was quite keen to get a briefing and explanation for addressing their concern to ensure that the new electoral bonds do not reduce the transparency in the matter of making and receiving political donations.”

Also read: How Finance Ministry Decided RBI’s Dissent on Electoral Bonds Meant ‘Indirect’ Approval

In the note, Garg wrote about how during the meeting he “explained the features of electoral bonds which ensure that there is complete transparency with respect to 1) buying the bonds in terms of KYC compliance of the companies and other interested donors; and 2) accounting entries in their books which ensure complete transparency regarding source of funds used for buying the bonds”.

Secretary spoke about benefits of electoral bonds over cash donations, not electronic donations

Garg recorded that he “compared and contrasted the electoral bonds with the donations made in cash presently and explained and emphasised how the electoral bonds ensure far greater transparency, KYC (know your customer) compliance and audit trail in comparison to cash donations.”

The secretary wrote that he also explained the provisions of and justification for the key features of the electoral bonds for ensuring anonymity of the donations made to any particular political party. He insisted that this “ensures greater degree of freedom to the donors and provides a level playing field to the political parties for receiving political donation”.

Also read: India’s Shadow Lobbies: How Business Captured the Government

EC cautioned that electoral bonds could be misused by shell companies

At one point of time, Garg wrote, Election Commissioner Rawat expressed his doubts about how electoral bonds could be misused by shell companies.

Though similar concerns were later expressed by the EC in its affidavit too, Garg then explained how the features of the KYC compliance by any company require including source of funds to buy bonds and accounting thereof in the book of accounts. This, he recorded, would ensure that any company cannot use electoral bonds to launder black money.

CEC had three concerns

The secretary of DEA also wrote that the CEC had three concerns of his own regarding electoral bonds. “First, he was concerned that the facility of electoral bonds for receiving political donations would not be available to individual candidates and new political parties.”

To this, Garg wrote that he explained that the inclusion of electoral bonds as a means of political donations has been made only with respect to existing provisions relating to political parties and does not alter the existing situation as regards individual candidates.

Also read: Modi Govt Ignored All of RBI’s Warnings Against Electoral Bonds: Report

‘Scheme not for fly-by-night operators, very small political parties’

Further, the secretary explained how it was desirable to restrict the electoral bonds based donations to “reasonably serious political parties and not to non-existent, fly by night operators and very small political parties”.

The Centre’s stand on the issue was that the electoral bond scheme requires registered political parties to receive at least 1% of the total votes cast in any assembly election for being eligible. It also insisted that this was a reasonable requirement “in the context of much higher percentage requirement of the Election Commission for recognising national and state level political parties”.

But as Garg recorded, the “CEC continued to feel that this might be somewhat discriminatory and some people might challenge this in courts and wanted the government to look at this aspect”.

EC flagged inconsistency in laws on cash donation limit

Garg wrote that the CEC also pointed out the “inconsistency in amendments made in the Income Tax Act and the Representation of Peoples Act with respect to cash donation limit of Rs 2,000″.

He stated that that the Income Tax Act has been amended to reduce the amount of donation to only Rs 2,000. However, the Representation of Peoples Act has not been amended and the amount mentioned in the RPA continues to be Rs 20,000.

This the CEC wanted the government to bring similar change in the RPA.

Electoral bond scheme did not provide details on aggregate donation received by parties

The secretary also recorded that the “third issue raised by the CEC was in respect of a report which the political parties are required to make to the Election Commission with respect to political donations in Form No 24A under rule 85b. The CEC wanted information of the aggregate amount of donations received by a political party in the form of electoral bonds divided into three denominations of bonds, ie Rs 1,000, Rs 10,000 and Rs 10,000 to be included in this form”.

Explaining the Centre’s stance in the matter, the official wrote that he explained to the Commission that even today, political parties do not provide information on the total amount received in cash in the Form No 24A. “The information of the aggregate amount of donation received in cash is mentioned in the accounts of political parties concerned and the audited accounts containing that information are filed by the political parties with the EC.”

Also read: PMO Told Finance Ministry to Break Rules, Sell Electoral Bonds Before Assembly Polls: Report

He wrote that the Commission was told that the same method would be applicable to the political parties to furnish information with respect to electoral bonds. However, he said, “CEC still wanted the Government to look into this.”

In SC this year, EC again criticised electoral bond scheme

Incidentally, the Election Commission had in 2017 filed an affidavit in the Supreme Court in which it criticised the electoral bond scheme. Its argument was that electoral bond project and removal of caps on the extent of corporate funding would have “serious repercussions/impact on the transparency aspect of political finance/funding of political parties”.

The Commission had then termed the scheme a “retrograde step” and argued that non-disclosure of donor identity and clauses would allow for shell companies and foreign entities to fund and influence Indian political parties and elections.

Then, in April this year, the EC also told the apex court that while it was opposed to the veil of anonymity associated with such bonds. The Election Commission maintained that it wanted transparency in political funding and that disclosure of the identity of the funders as well as the recipients was essential for democracy. “People have the right to know about the antecedents of their representatives and the political party that candidate represents,” it submitted.

Centre still defended non-disclosure

Appearing before a bench, headed by then Chief Justice Ranjan Gogoi, Attorney General (K.K. Venugopal submitted that “electoral bonds are meant to eradicate black money in political funding…as we have no State funding of elections. Political parties get funds from supporters, affluent persons, etc. The funders all want their political party to come to power. But if their party does not, then there could be repercussions… so secrecy is required”.

The Centre’s stand was that companies seek anonymity for fear of reprisal by other parties, as also opposition from their own shareholders.