Home Fact-Check Huffington Post report on Electoral Bonds: Unlimited sensationalism with little to no sense

Huffington Post report on Electoral Bonds: Unlimited sensationalism with little to no sense

Donors can purchase EBs which will not reflect the identity of the donors. Those EBs can be handed over to political parties of the donor’s choice which can be encashed by those parties in their bank accounts.

What happens when you have a path-breaking decision like the Electoral Bonds by an elected government which is initially met with skepticism from autonomous agencies, when cash as campaign finance is sought to be replaced by funds through the banking route, when its implementation needs initial tweaks not envisaged during conception, when bureaucrats, grappling with interpretation of this measure, make good faith errors?

As a multi-part report in HuffPost India and other outlets would tell you, we have a “scam” whose execution is replete with “illegalities”.

The basics

All political parties need money for campaigning. The big money comes typically from corporate or individual businesses.

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Ideally, businesses should donate funds through the banking route (i.e., cheque or bank transfer). However, donors to specific political parties routinely run the risk of being targeted by rival political parties who didn’t get donations from those donors.

What businesses then end up preferring in order to maintain their anonymity is hard cash. The pitfalls of cash, largely unaccounted, need not be explained. Cash is, after all, a bearer note, an instrument of value owned by one who holds it thereby making it difficult to identify the original owner or even changes in ownership from time to time.

No one then really knows which party received what amount of cash, even if the identity of the donors is required to be kept confidential.

A solution – a balance

For the Modi government, this balance came in the form of electoral bonds (EBs). Donors can purchase EBs which will not reflect the identity of the donors. Those EBs can be handed over to political parties of the donor’s choice which can be encashed by those parties in their bank accounts.

Now, while the identity of the owner of these notes remains confidential from political parties and from the public at large, two distinct elements make them significantly different from cash:

Regulated traceability– Section 7(4) of the Electoral Bond Notification permits disclosure of the path of the bonds when demanded by a competent court or upon registration of a criminal case by a law enforcement agency thereby providing a safeguard mechanism in case of illegality or criminality.

Banking route– The funds underlying EBs (except amounts below Rs. 2,000 which can be contributed in cash) travel entirely through the banking route. Section 11 of the Notification enlists the limited banking routes through which payment for the EBs can be done. Moreover, under Section 4 of the Notification, the RBI’s rather stringent KYC norms apply to the buyers of EBs.

I, therefore, prefer to call EBs semi-bearer notes. Cash neither has traceability nor is there a banking route underlying these currency notes once printed.

Additionally, businesses would actually be required to make accounting entries in their books reflecting the purchase of electoral bonds and political parties would need to report on their statements how many donations they received through EBs. Pursuant to Section 80GGB of the Income Tax Act, donors would be able to get tax deductions.

The senseless attempt at sensation by Huffington Post

There are several bizarre surmises in the HuffPost series, some of which are as follows:

  • The report made much of the fact that BJP received 95% of the funding through EBs in the first subscription thereby concluding that this Scheme was brought in just to benefit one party. Is HuffPostsaying that Congress and other political parties went about their campaigning with just 5% of the remaining funding through EBs? Is it HuffPost’s case that BJP’s rivals didn’t use unaccounted cash at all in their campaigning?

The very fact that 95% of the EBs went to BJP shows that, firstly, we actually know under the EB system how much parties received; secondly, the funds went through the banking route (hence, fully tax paid funds) and, thirdly, those EBs have regulated traceability as explained earlier.

  • The report also decries the fact that RBI and Election Commission weren’t on board with this decision. While the EC continues to oppose the electoral bond scheme in the ongoing Supreme Court case (which actually refutes arguments of BJP’s rivals that EC is a puppet of the Modi government), RBI later did offer suggestions to strengthen the purpose of the EB Scheme some of which were implemented by the government. In fact, the Modi government implemented more of RBI’s suggestions in the Electoral Bond scheme than those put forth by its own party BJP as elaborated by the author here.

The fact that Modi government didn’t align completely with the RBI or at all with the EC is portrayed as a virtual crime in the HuffPost series, again to sensationalize. This is neither the first time nor the first government which has taken a path different from the one preferred by these agencies.

  • It also made much of the fact that the PMO asked the Finance Ministry to permit the issuance of bonds outside of the windows originally mentioned in the Notification in order to fund state assembly elections in 2018. HuffPostloosely throws around words such as “illegality”. Why, one wonders, is this problematic? Campaign funding during state/local elections suffers from the same problem of unaccounted illegal cash floating around and dubious funding. Is it the case that regulations are not amenable to change as one starts implementing them and notices aspects which need tweaking?

Indeed, as desirable as it is that such measures be elaborately thought through before implementation, big-impact measures introduced by the Modi government such as demonetization and GST have witnessed constant changes in implementation to suit the needs as felt from time to time. Inconvenient, it may be. How does that make it “illegal” as HuffPostrepeatedly claims? Another classic case of sensation over sense.

  • Also, the HuffPostseries is riddled with a major contradiction. The byline to each part of this expose claims it is an investigation into “how the Modi government brought untraceable funds” into Indian politics. Part four, on the other hand, bears the headline “Electoral Bonds Are Traceable” and goes on to lament the traceability of the bonds.

So, are they untraceable or traceable? And, what exactly is wrong with the EB system? Traceability of EBs or their untraceability? Or, is it simply a case of heads I win, tail you lose? This tweet by the author documents this contradiction.

  • The lament behind the traceability of EBs is that the government of the day could gain access to the confidential information from these agencies which are “caged parrots”. While this is a possibility, there are courts to seek redress to this breach of privacy even if the efficacy of this action may have its own limitations. Regardless, does that mean we go back to the cash-based system where funding goes completely under the radar?

 

  • Part five of the HuffPostseries completely obsesses over the fact that a political party was permitted to encash expired bonds. Reading the story is when you realize that a mountain is made out of something that isn’t even a molehill. Under the Electoral Bond Scheme, EBs had a validity period of 15 days. One political party went to the SBI to encash bonds assuming that the validity period was 15 business days (as opposed to 15 calendar days). As a one-time exception, the Finance Ministry, upon being asked by SBI to offer clarity, permitted encashing of bonds. The SBI was categorically told to inform everyone concerned that, for the future, the words “15 days” in the Notification would mean 15 calendar days. How was that an “illegal” act? In fact, bonds which had expired beyond the 15 business days were not allowed to be encashed. If rules had been tweaked for those bonds, an allegation of illegality could be sustained.

 

  • Part six is entirely focused on the fact that no business made a formal representation to the Central Government to keep their identity confidential when they choose to donate to a political party. This is, again, bizarre due to the fact that such representations aren’t made formally in writing, that too, to a government official. The vengeance and abuse of power exercised by political parties when in power is an open secret.

Read: Investigation: The lies and the nexus of foreign organisations behind vilification of Rafale deal and Electoral Bonds

And, this happens in democracies with a strong rule of law like the U.S. too. Citing illustrations in the U.S. of how both Republican and Democrat parties have abused their power to intimidate those who donated to the other, Bradley A. Smith, former U.S. Federal Election Commission chairman writes in a piece titled In Defense of Political Anonymitythat “disclosure has resulted in government-enabled invasions of privacy—and sometimes outright harassment—and it has added to a political climate in which candidates are judged by their funders rather than their ideas.”

TheHuffPostseries is riddled with many more errors which evidences a rush to arrive at predetermined conclusions. For example, Part one mentions that foreign companies could now route money to Indian political parties. The Scheme is only for Indian individuals and companies as elaborated in this tweet. Indeed, if foreign money does get funnelled in some way, the regulated traceability of EBs can unveil the path. Another example is that the series misrepresents rather simple words of a bureaucrat as noted here. An incorrect provision of the Scheme is referenced without basic fact-checking.

All of this goes to show that the HuffPost series, far from being a real investigative story like stories on the Bofors or 2G scams were, is but a lazy attempt at inventing sensation from a set of documents obtained through RTI applications. The applicable word for such stories is – “clickbait”.

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