House of Commons - Constitutional Affairs

Select Committee on Constitutional Affairs First Report

3 Potential Solutions: Regulation and Spending Control

51. In his interim report, Sir Hayden Phillips proposed the development of transparency arrangements as a means of improving public confidence in the system.[91] However, he pointed out that evidence from other jurisdictions suggested that "greater transparency can result in public confidence decreasing".[92] Indeed, the New Policy Network told us that since PPERA 2000 came into effect, the transparency in political donations may have actually increased suspicions of political parties and may have undermined trust.[93] Justin Fisher suggested that this apparent paradox is in no small part due to the way in which party finance is reported and commented upon in the press, which he described as "nothing short of scandalous".[94]

52. The public are entitled to transparency. However, greater visibility of donations and loans reveals problems without in itself solving them. Transparency is useful only to the extent to which it allows us to address the issues that the searchlight of transparency shows up. Indeed, our visit to Germany suggested that transparency alone was not enough. In Germany, all parties were required to submit their public accounts on an annual basis for independent auditing. While there were no caps on either spending or donations, all donations over €10,000 must be reported alongside the name and address of the donor, and donations over €50,000 must be reported immediately. It was suggested that this transparency resulted in a degree of self-regulation amongst the parties, but this had not prevented several high profile scandals, which had served to undermine public confidence.[95] However, those to whom we spoke emphasised the importance of the principle of transparency and while it was acknowledged that this could not completely prevent abuses of the system, the party treasurers argued that the solution was a strong transparency framework where abuses could be quickly identified, and the offending party penalised.

53. While we endorse a transparent system, transparency does not solve problems, but draws attention to them. It also invites "sniping" between opponents. It must be based on readily identifiable risks so that audit functions have a clear overall purpose.

54. We welcome the changes and transparency that have come about as a result of the PPERA. We agree with the basic principles of the current system. We note that the system of regulation has largely developed as a response to specific problems which have emerged, and emphasise the need for constant review and flexibility in what is a very fluid and dynamic environment.

55. However, we recognize that current reporting methods fail to provide adequate transparency in the way accounts are presented by the Electoral Commission. We urge the Electoral Commission and the Government to work together to improve and strengthen these processes.

Regulation and Transparency: Party Funding in Germany
The Parties Act lays down strict rules and operates a policy of publicity of party financing. Parties are obliged to present a certified full annual financial report to the President of the Bundestag, irrespective of a party claiming (or intending to claim) state grants. These reports have to contain a detailed account of a party's income and expenditure over the last financial year.

In this annual report, parties are obliged to publish the names and addresses of donors who have made donations exceeding €10,000 per person per calendar year. Donations exceeding €50,000 have to be reported to the President of the Bundestag immediately upon receipt, he or she then causes notice of these donations to be published in the federal gazette (Bundesanzeiger).

The sanctions regime for breaches of the party funding publicity rules under the Parties Act is strict. A breach of the funding publicity rules (e.g. by incorrect reporting of a party's income in the annual financial report) will, as a rule, result in the imposition by the President of the Bundestag of a fine of twice or three times the amount of the incorrectly reported amount. This fine can only be avoided by the affected party's reporting to the President of the inaccuracies prior to them becoming public or known to the President. Furthermore, where a party's annual report is found to be inaccurate and that party fails to provide, upon request, a corrected report, the President will not issue this party the element of the grant which 'doubles' that party's income in membership fees, contributions by elected representatives and donations by natural persons, so that a party's final grant allocation may, in effect, be severely reduced. This is what happened to the CDU in 2000 when that party failed to reveal the identity of donors for an amount in excess of DM 18 Million (= €9 Million).

ENFORCEMENT AND PRACTICALITY

56. In his written evidence to the Committee, Michael Pinto-Duschinsky argued that there were "significant areas of inconsistency as well as a considerable number of legal loopholes" in the PPERA 2000.[96] He explained that the Act created 75 new offences in a previously unregulated area, and that this had resulted in "too much law, too little enforcement".[97] He concluded that there was little point in proposing a new set of laws until the existing ones are seriously enforced.[98] The Electoral Commission emphasised that "any system for the funding of political parties should be fully open to public scrutiny, simple and practicable in terms of implementation".[99] Its Chairman, Sam Younger, confirmed to the Committee that in its role as regulator the Electoral Commission should look at "how we can make sure that whatever we come up with at the end is practicable, can be implemented and can be policed".[100]

57. Representatives from the political parties agreed with this. The Democratic Unionist Party asserted that "workability will be a fundamental aspect of any arrangements which are put in place and the success of any set of arrangements will depend on the detail of them".[101] In Germany, a rigorous and comprehensive system had been developed, and we were impressed by the fact that all of the party representatives we met were in support of this regime. While it was a complex system, the principles and guidelines were clear and considered fair. The penalties were also clearly understood and fairly operated.

58. A further key issue in regulation and compliance was the capability of parties, particularly at the local level to administer and guarantee compliance. The President of Plaid Cymru explained the situation: "currently resources that we have raised from our members to campaign are being diverted into ensuring compliance with the PPERA. We have three members of staff who have taken on various responsibilities in relation to compliance matters, but we do not have the financial capability to fund a full time compliance officer…the only way by which we could ensure that the Party and particularly our volunteer officers across the country are fully compliant with the PPERA".[102] Indeed, he argued that "sufficient resources must be made available for compliance".[103]

59. Our inquiry found a variety of schemes of compliance and sanctions currently in operation. For example, in Germany, the authorities have the power to charge significant fines for any breach of the regulations, whereas in Massachusetts the Electoral Commissioner seeks to negotiate fines and sanctions, with recourse to the Attorney General for prosecution only considered as an option of last resort. A common feature of the regulatory bodies, including Elections Canada and the Federal Election Commission in the U.S, was not to seek prosecution, but to promote understanding of the statute and to help the parties to be compliant. They therefore emphasised the importance of having the capacity to 'warn' parties in the event of minor violations of compliance regulations.

60. There needs to be a fine balancing act between regulation and providing the parties with adequate resources to ensure compliance. It would be counter-productive to increase further the financial burden on the political parties by requiring them to re-direct resources in order to assure compliance.

61. We acknowledge the difficulties with regulation, especially its application at the local level. However, these obstacles should not prevent the pursuit and development of a robust, transparent, workable and enforceable regulatory framework.

The Electoral Commission

62. On the 29November 2005, the Committee on Standards in Public Life announced that the topic of their 11^th Inquiry would be a Review of the Electoral Commission.[104] A wide ranging issues and questions paper was published in February 2006, but the focus of the inquiry was to be a review of the mandate, governance and accountability of the Electoral Commission.[105] Between June and October 2006, the Graham Committee held a series of public hearings throughout the UK. On the 30 October 2006, an article in the Times newspaper reported that the Committee on Standards in Public Life's Review was expected to recommend that the Electoral Commission should become more pro-active and that its powers should be strengthened. Sam Younger's admission of a failure to be proactive in the light of the loans scandal led Sir Alistair Graham, Chairman of the Committee, to describe the Electoral Commission as a "pretty ineffective regulator". He added that what was needed was a slimmed-down watchdog with greater powers, including being able to fine political parties that do not submit their accounts properly.[106]

63. One issue which the inquiry focused on, particularly in the context of the funding of the political parties, was the current ban on party activists being on the staff of the Electoral Commission and the statutory barrier to appointment on Commissioners of people with past experience of party political activity. When giving evidence to the Committee on Standards in Public Life, the Rt Hon Alan Beith MP (also Chairman of this Committee) said that the Commission had "been undermined…by the lack of political experience amongst the commissioners themselves, or indeed at any other level, because it is precluded by statute". He added "it would have been better and would still be better if the statutes allowed for some people experienced in politics to be a minority among the commissioners".[107] This view was also shared by many other Members of this Committee who also gave evidence to the Committee on Standards in Public Life.[108] The Lord Chancellor supported a change in the existing arrangements and told the Committee on Standards in Public Life that representatives of the political parties should sit on the Commission. He said:

109

The Electoral Commission is currently working on its own review, which is expected to be published next year.[110]

64. We recommend change to the Electoral Commission to help it become an effective watchdog with appropriate powers of enforcement. We recommend that the provisions in PPERA should be changed to allow a minority of Commissioners to be people with practical past experience of politics from across the political spectrum.

Spending Control

65. As stated previously, campaign spending for general elections and elections to the devolved Parliament and Assemblies, and European Parliament is capped in the UK. For general elections, the national campaign limit is £20 million for the year in the run up to a general election, while constituency limits are typically around £10,000 for the campaign itself, depending on the size and type of constituency. The constituency spending limits for individual candidates are not counted as part of the national limit of their political party.[111] The law defines the campaign period which counts for this purpose as 365 days preceding polling day. In 2001 the campaign period was limited to four months because the Act did not come into force until 16February.[112]

66. In its review of Party Funding in 2004, the Electoral Commission recommended that the spending cap for General Election campaign spending introduced under the PPERA 2000 should be reduced from approximately £20 million to £15 million following the 2005 General Election, or from £30,000 to around £23,000 per constituency. They recommended that this should be accompanied by a proportionate increase in local candidate spending limits.[113] The New Policy Network went further and recommended a cap of £10 million,[114] whilst a recent editorial in the Times suggested that the national campaign limit should be £6 million.[115] However, it was noted that in real terms there had already been a reduction in the spending cap since 2000: it had not risen with inflation and the reduction in the number of Scottish MPs had meant that in practice the maximum permitted expenditure for a party contesting all UK constituency seats was £18.84 million.[116]

67. Our inquiry found that, in principle, there was general agreement across the political parties and others[117] that there should be a cap on campaign spending at the national level. While the Labour party agreed that a cap should be considered,[118] the Liberal Democrats and Conservative parties proposed a limit of "no more than £15 million".[119] The DUP stated that the cap on election expenses at a constituency level had "proved to be an effective mechanism for keeping spending- and therefore the necessity to raise money- under control…such a restriction could be replicated at national level".[120]

68. The Conservatives suggested further proposals to cut the costs of politics, including a reduction in the number of special advisers, the abolition of Regional Assemblies and consideration of a small reduction in the number of MPs.[121] They argued that "cutting the costs of politics would make it fair to ask taxpayers to contribute more to the cost of political parties".[122]

69. Our inquiry identified some debate as to the impact of campaign spending on turnout at general elections. Campaigning as an activity is not a bad thing: it provides information around policy choices and may engage the voter and encourage participation. Alan Grant asked "whether it is entirely coincidental that the first election where spending limits applied was also the one that saw a precipitous decline in electoral turnout from 71.4% in 1997 to 59.4% in 2001".[123] However, the Electoral Commission argued that voters respond better to local communication that engages them directly and makes politics more relevant than national level political advertising.[124] Based on a survey of the available research to date, Justin Fisher and David Denver concluded that campaigning methods which required voluntary effort were the most effective.[125]

70. The evidence for the effectiveness of increased spending on campaigns is very limited. Mr Michael Koss of Transparency International told us that across Europe there was no clear correlation between levels of campaign expenditure and turnout at elections. Indeed, nowhere was this lack of correlation more apparent than in the United States of America. Furthermore, support for a particular party is more associated with party affiliation and identity. He concluded "the campaign has little impact".[126] Whatever doubts may exist about the usefulness of much of the spending carried out by the main political parties, it is clear that none of the political parties represented at Westminster will voluntarily cut their spending unless the other political parties follow suit. Indeed, the major parties in Germany had agreed a voluntary cap on expenditure, but this proved to be unsustainable.[127] What the evidence does show is that where the regulatory environment permits it the spending trends are all upwards. In some cases escalation is a deep source of concern. However, Justin Fisher has urged caution in consideration of any reduction in the existing spending cap. He argued that a reduction could lead to greater targeting and subsequently further disengagement amongst members of the public not living in marginal seats. Furthermore, he warned that reducing the campaigning capacity of democratically elected political parties could "enfeeble parties in relation to unelected actors", for example pressure groups and the media, at the time of elections.[128]

71. Campaigning is a core activity for political parties which provides information and encourages participation and engagement. It is the means by which political choices are presented to the voters. However, we are concerned about the negative public perception of impersonal and expensive campaigns and their potential impact on participation and engagement should campaign costs continue to escalate.

72. We recommend that there should be a tighter cap on overall party spending. This limit should be set by the Electoral Commission and should be determined as the result of an open debate about the real cost of politics.

LOCAL AND NATIONAL LIMITS

73. While the accounts show escalating campaign costs at the national level, at the local level, very few candidates spend the total expenditure permitted. In 2001 the constituency level spending limit ranged from £6,846 to £11,957, depending upon the size and nature of the constituency. However, the average spending per candidate was only £3,582 and total candidate spending in 2001 fell 17% in real terms compared with 1997. Only 21% of candidates spent more than 80% of the permitted accounts while 53% spent less than 30% of the limits.[129] In the 2005 General Election, candidates spent just over £14.1 million in total, compared to £11.9 million at the 1997 General Election. Almost 40% of all candidates spent less than two fifths of their statutory limit, with only 15% spending over four-fifths of their limit.[130]

74. Sam Younger, Chairman of the Electoral Commission, argued that any spending cap at the national level should be accompanied by "a rebalancing of spending at the local level".[131] The New Policy Network agreed and further recommended that the current constituency spending limits be raised by 20%. They argued that this "would encourage parties to focus on local campaigning and activism rather than running centralised campaigns. An increase in constituency spending limits would also benefit new parties and independents as well as the established parties and would therefore encourage vibrant local contests".[132]

75. However, the Lord Chancellor voiced the argument against increasing the local spending limit and stated that it would "lead to much more expenditure taking place in the constituencies which are perceived to be the battleground for the election".[133] Indeed, Frank Hindle, Deputy Chair, Northern Region Liberal Democrats, identified another potential problem. He said: "if we bring down the national cap and do not control local expenditure correspondingly then the gains which are being sought would not be achieved because it would be very easy for some national treasurer to tell local parties, "we have got a million pounds. You have each got a £5,000 donation and this is how I have spent it. Here is the receipt and here is the invoice".[134]

76. Jack Straw raised a further issue in determining local and national campaign spending limits. He pointed out that there is no clear distinction between national and local campaigning, describing the distinction as "rather illusory".[135] He cited the example of customised telephone canvassing activities which are "very local but they are organised nationally". He added "all parties have call centres which they use to sell a very distinctive local message. Is it national or local spending"?[136]

77. Any additional caps on spending and the revision of local and national spending limits would have to be accompanied by an increase in regulation at the local level. Several party representatives raised concerns about their practical ability to manage further regulation at the local level. The President of Plaid Cymru emphasised that the party "rely to a great degree on the effectiveness of our local officials"[137] to guarantee compliance, while the Labour party stressed that they did "not wish to see unnecessary burdens placed on the volunteers who support political parties at local level".[138] In his interim report, Sir Hayden Phillips acknowledged that a crucial question to be addressed was "whether parties, especially locally, can manage the practical demands of greater accountability; and whether the cost of compliance on small parties is too great".[139]

78. Although election spending at constituency level is subject to defined limits, extensive spending can take place, including in marginal constituencies outside these limits. Any change, even if designed to encourage a more general shift from national to local campaigning would still be subject to loopholes and it is not clear whether it would be administratively feasible to close these.

79. We see merit in the focus of campaigning being shifted from the national to the local level. Whilst recognising that parties must take control of spending, we recommend that there be a modest increase in local spending limits to be set by the Electoral Commission.

A Spending Cap? The Canadian Example
Spending limits for political parties and candidates apply only during the short campaign period. Spending limits were first introduced in 1974, the limits were expanded by the 2003 law. They are considered to be the cornerstone of the Canadian regime, underscored by the extension to include "third parties", or interest groups, thus applying to all participants, not just parties and candidates. The raising of the limits included a broader definition of election expenses, encompassing public opinion polling and surveys, leaders' tours and staff salaries.
Spending limits for parties that receive public funding average about $154 million, and about $78,000 for candidates, during election campaigns. Spending limits for constituency nomination contests, a new feature of the law, are set at 20% of the limit as established for candidates in each constituency, varying according to the number of voters in a constituency, with additional provisions for districts with fewer than average electors and districts with low population density.
"Third parties" may and do advertise and no special provisions of the election law apply with respect to the allocation of broadcasting time, they are sold time under normal broadcast practices. Spending limits for "third parties" were considered in litigation before the Supreme Court of Canada; they are being challenged as unreasonable infringements of freedom of expression. The court upheld the third party provisions contained in the Canada Elections Act. An individual or a group spending more than $500 independently on advertising must register. They are subject to two sets of advertising spending limits: $3,000 for a local constituency election and $150,000 in total, both limits are adjusted for inflation annually. These limits, however, do not apply to individuals or groups who advertise their position on issues not intended to influence how an elector might vote.
Adapted from: Herbert E. Alexander, Comparative Analysis if Political Party and Campaign Financing in the United States and Canada, in Griner and Zovatoo The Delicate Balance between Political Equity and Freedom of Expression: Political Party and Campaign financing in Canada and the United States (Organization of American States (OAS) International IDEA, Washington D.C.)
$1 Canadian = £0.44p.

TIMING: CONSTANT CAMPAIGNING

80. Under PPERA 2000, the campaign period is defined as 365 days before the general election at the national level and approximately four weeks at the local level. During the 2005 General Election the regulated period for candidates spending ran from dissolution of Parliament (11 April 2005) until polling day (5 May 2005). However, many of our witnesses identified problems with defining the regulation period prior to a general election, not least because UK general elections do not have a fixed date. In its December 2004 report on the funding of political parties the Electoral Commission proposed that the regulated period should be extended to four months ending with the poll.[140] In their written evidence, the Labour party identified a further problem with the current definition of the campaign limit which had allowed "spending vast amounts outside of the period of the short campaign and therefore outside of any election limits".[141]

81. Furthermore, there has been a considerable increase in the number of elections that are held in various parts of the UK. In addition to the general election, local government elections and elections to the European Parliament, between 2001 and 2005 there were elections to the Scottish Parliament, the National Assembly for Wales and the London Assembly. There were also elections for the London Mayor and referenda on the Government's proposals for regional assemblies and city mayors. Most political parties face one major set of elections every year in at least one part of the United Kingdom.

82. While these elections occurred in different parts of the UK, defining what counts as campaigning and what does not is difficult. For example, in the run up to devolved elections in Scotland and Wales, events at Westminster, while not part of the official campaign, could have a significant impact on those elections. In response to this, Jack Straw argued that "the notion that there are fallow periods for political parties when they are not using their money for electioneering is, I think, incorrect. The truth is that almost all parties' active spending is for election purposes".[142]

83. Rather than trying to define the period in which election campaigning takes place therefore, it was suggested that a continuous limit be put on party campaign expenditure. Both the Labour and Liberal Democrat parties suggested that the "discussion looks at year-round expenditure by parties as well as election time expenditure",[143] and that caps should be considered "every year- not just general election year".[144] In his interim report, Sir Hayden Phillips suggested that "these could apply to parties separately at a national and local level to take into account the different ways political parties are organised. The limits might be further adjusted to take account of the number and type of elections occurring in a year".[145]

84. Jack Straw argued:

"The original reforms…were aimed in practice at controlling all election spending because all campaigns were primarily conducted at a local level. The 2000 Act which I introduced aimed to fill the gap which meanwhile had been created, on national election spending. But it inadvertently foreshortened the period when controls operate on local campaign spending to a few weeks, and so there's a gaping hole in the system. In my view we now have to have limits in all spending, national and local, by all parties, at all times. If and when we do that, as a result of the current review, parties will be forced if they want to survive to flourish to recruit, retain and involve more members and supporters".

146

However, the Conservative Party pointed out to us that a cap on non-general election spending would be disadvantageous to opposition parties because the Government would have all Government communication networks at its disposal during those periods of time. Other elements of the incumbency advantage were highlighted on our visit to Washington D.C. Despite tight regulation around the use of Senate resources 60 days prior to a general election, Ms Kennie Gill, Minority Staff Director and Chief Counsel, Senate Rules and Administration Committee, told us that the biggest incumbent advantage in the Senate was access to dollars. She estimated that Senators spent approximately half their time in office fundraising in order to finance their re-election. House representatives spend an even greater proportion of their time fundraising.[147]

85. Echoes of this problem have emerged in the UK with money being raised at a national level and being used to fund local candidates between elections. One of the dangers associated with this increased reliance on large donations is the allegation that individuals, corporations and unions can buy influence, or even buy elections. For example, in his written evidence to the Committee, Mr Peter Bradley voiced specific concerns in regard to the activities of a consortium which comprised Lord Ashcroft's Bearwood Corporate Services Ltd, Lord Steinberg and the Midlands Industrial Council, during the 2005 General Election campaign. In some cases, the consortium's donations made up a very significant proportion of the local Conservative association's external funding. For example in the Wrekin, the £55,742 which the Conservatives received from Lord Steinberg and the Midlands Industrial Council constituted the total amount of the donations it reported to the Electoral Commission. In other cases, the consortium's support represented only part of a much larger total. In Welwyn & Hatfield, Bearwood's donation of £15,000 in April 2005, though significant, was only a fraction of the £180,382 which the Conservative association declared to the Electoral Commission for the period 2001-5.[148]

86. Some critics of the current system have pointed to the obvious danger associated with this spending. If close regulation is not placed on the amount which external parties can spend then the effective limits on spending can easily be circumvented. Some of the very problems which have caused most public concern, such as the ability of a few rich people or bodies to buy a disproportionate amount of power, are made much worse if pressure groups can concentrate their support on particular candidates, especially if they are in key marginal seats. As with so much about this subject, the problem is not only the impact of extra spending but also the damage done by the perception of unfairness. Mr Bradley told the Committee that "the source of funds, whether raised locally or from third parties, is not the central issue. The channelling by external donors of substantial funds to several targeted seats poses a particular problem, not least in the influence they may enjoy or be seen to enjoy with national parties or Governments".[149]

87. With an increase in the frequency of elections within the United Kingdom, the current definitions of campaign periods for spending regulation periods are outdated and allow a range of activities outside those periods, which, although within legal definitions, do not reflect the spirit of the law.

88. The effects of any reform to address constant campaigning would be far reaching and should only be considered in the context of an agreed overall package of proposals, including limitations on all sources of income and expenditure.

89. Part of this package would be a revision of the present arrangements to enable the expenditure of all parties, both at local and national level, to be capped over a five year accounting period. During this period parties would be allowed to spend their money as they see fit, provided spending is within predetermined spending caps. Any elections falling within the accounting period would continue to be subject to their own spending caps within the laid down accounting period, but would also be counted within the overall five year cap.

THIRD PARTY SPENDING

90. If a person or organisation other than a registered political party is intending to spend over £10,000 in England or £5,000 in Scotland or Wales (publishing material on behalf of a political party or category of candidates) it must register as a 'third party' and is subjected to a cap of £800,000. At present, the definition of third parties includes registered companies, trade unions and individuals. Only ten 'third parties' were registered for the 2001 General Election.[150] By 2005 this had increased to 26 third parties who spent a total of £1.7 million. Unison and the Conservative Rural Action Group accounted for 72% of this spending.[151]

91. It was clear from our evidence taken from both within the UK and overseas that there were problems with third party spending. The most significant problem within the UK was the occurrence of this type of spending outside the regulated election period, which although within existing legal boundaries could have a significant impact on election results. Jean-Pierre Kinglsey told us that "if the system doesn't control the money, the money controls the system," and our witnesses in the U.S.A and Canada agreed that the money will find its way to those parts of the system which remain unregulated. This was clearly apparent in the United States, where there had been a significant increase in the activity of 527 or "advocacy issue" groups.[152] Regulating these groups was difficult as the U.S Supreme Court had equated free speech with free spending and any restriction on spending was regarded as a breach of First Amendment rights.[153] However, despite these restrictions, Ms Gill predicted legislative action in the next session of the Senate in order to close the 527 loophole.

92. It is essential that, both in perception and in reality, money cannot buy undue influence, (or indeed, buy the election result) from within or outside the party. Third party spending should therefore be subject to a transparent and robust regulatory regime and should be regulated within the same accounting period as that determined for political parties so that current loopholes can be eradicated.

Regulation and Third Party Spending: The U.S.A Example
In 1976, the total elections budget in the U.S.A was $40 million. By 2004 the costs had escalated to $3.9 billion for federal elections alone.[154] However, despite this huge increase in spending, party and election finance in the U.S.A is subject to significant regulation. Following the Watergate scandal, legislation was passed in 1971 in order to limit the appearance of corruption in U.S politics and proposed limits on both expenditure and income. However, the Supreme Court's decision in the Buckely vs Valeo case in 1976 outlawed restrictions on expenditure as breach of the right to free speech under the First Amendment in the U.S Constitution (see also paragraph 91).[155]
Following this there was a significant increase in the number of Political Action Groups. As a result the amount of 'soft money' or unregulated money in the system doubled from $300 million in 1976 to $600 million by 2000. In 2002 the Bipartisan Campaign Reform Act (McCain Feingold) was passed. It prohibited soft money contributions to federal candidates and national political party organizations. It restricted non-party issue organizations from sponsoring television or radio advertising that mentions the name of a candidate in the period thirty days before a primary election or sixty days before a general election.
However, twin bans on "soft money" (i.e. unregulated money) and issue advertising at the federal level has spawned a new generation of political committees, known as 527s, that are functioning under the new law's parameters, and taking over some party operations using soft money in the form of large individual, corporate, labour or other contributions that go well beyond the contribution limits and presidential and party spending limits. In addition they can and do spend on television and radio advertisements.
There was widespread recognition in the U.S that there is incomplete regulation.[156] The money goes wherever there is insufficient regulation, but Ms Gill, Minority Staff Director and Chief Counsel, Senate Rules and Administration Committee, predicted there would be legislative action to close the 527 loophole during the next session of the Senate.
There have also been significant initiatives at the state level to regulate and clean up party financing in the U.S. For example, in Connecticut, a campaign finance law was introduced in 2005, which not only places limits on donations to parties and candidates, but which also introduces an element of public funding.
There was a consensus in the U.S. that the system was flawed and that money was still buying access and influence in their system. All agreed that this semi-regulated structure was unsatisfactory.