PN loans scheme does not fall under party financing rules

The Nationalist Party’s initiative to seek financing from small loans of €10,000 on an interest rate of 4%, will fall outside the scope of recently enacted party financing rules, this newspaper has been told.

Although loans can be considered donations in terms of party financing rules, a loan taken out by a political party on rates that are not more favourable than prevailing commercial rates, does not make such loans ‘donations’.

“It is completely voluntary and we are responding to requests from well-intentioned individuals who want to help the PN,” said Ann Fenech, the PN’s executive committee president who will be supervising the scheme together with party treasurer Alex Perici Calascione.

At a compound interest rate of 4%, the principal €10,000 would rise to €14,802 after 10 years. But the existing depressed interest rate environment means that such a loan does not qualify it to fall under party financing rules.

READ MORE: Nationalist Party asks public for €10,000 loans at 4% interest

Malta’s party financing rules allow parties to accept loans given on terms more favourable than ordinary commercial terms, but these must then be considered as a donation. The ‘donation’ element of a loan is the difference between the interest payable on a commercial loan, and that on the more favourable party loan.

But as long as that difference is not in excess of €25,000, the details of the donor’s name need not be recorded.

Fenech told MaltaToday that the names of the ‘Cedoli 2016’ creditors will not be disclosed, when asked by this newspaper whether the scheme could be used to break down a large loan into smaller, €10,000 loans.

Under party financing rules, the loans will still have to be accounted for by the PN in its annual financial records submitted to the Electoral Commissioner; but as private commercial loans the names of the creditors will not be published.

“This is not a scheme intended for large donors. It is a private matter between the party and the creditor who wants to help finance the party in this way. In 2013, Labour’s extensive electoral campaign cost them millions and we are seeing the results of the ‘payback’ today… but ours is a transparent way of financing parties, and it introduces an arm’s length system because it does not imply the return of a favour to those who loan us the money,” Fenech said.

Former Nationalist MP Franco Debono, who drafted the bill that later became Malta’s party financing law, said the PN’s scheme reflected the law’s “radical change in attitude”.

“Basically, transactions and schemes have to be above board and done in a transparent and accountable manner,” Debono said.

Details of how the PN’s loan system will be managed have yet to emerge, and it is unclear whether the Electoral Commissioner – who will monitor party financing rules – will also be charged to ensure whether the interest payable is discharged, since parties have often employed loans as a form of donation.

“On paper the loan scheme seems to be within the parameters of the law. But one needs to see the way it is operated throughout the years,” Alternattiva Demokratika deputy chairperson Carmel Cacopardo said. “This would be done through an analysis of the financial reporting which the Financing of Political Parties Act establishes.”

Franco Debono said that donations imply that donors do not get anything in return. “A loan could be a donation in disguise if, for example, no interest is payable. However in this case, since interest is due, this would not qualify as a donation since the lender is getting interest in return. Whilst such transactions would probably not qualify as donations, they still have to be declared in the audited accounts of the parties, thus falling within the purview of the provisions introduced by the same party financing law.”

Debono said that the PN’s scheme was the right jumping board for a debate on state funding. “I always believed Malta should never start discussing state funding before the structure ensuring transparency and accountability in party financing is in place, but now since the structure is firmly in place, one can start discussing it.”

While the Maltese law prohibits the acceptance of anonymous donations by political parties as a matter of principle, the rules still allow any donation below €50 to be collected anonymously during party telethons and fund-raisers.

But the positive effect of a prohibition on parties accepting anonymous donations is impaired by the absence of an obligation on parties to register donations below €500. The Council of Europe’s anti-corruption watchdog GRECO said that the regime introduced “remains incoherent and may be interpreted as condoning the acceptance of donations from donors whose identity is not known to a political party or an independent candidate precisely due to the absence of a requirement to register the donations.”