Experts Slam Modi Govt’s Reply to Electoral Bond Challenge in SC

Data reveals that the BJP pocketed 95% of political funding given via electoral bonds.

Instead of increasing transparency, they say it reduces it.

(Photo: Aroop Mishra/The Quint)

“[Electoral bonds] rather increase opacity in the process of political donations. Electoral bonds are a big threat to democracy.”

That is the opinion of OP Rawat, the former chief election commissioner – and it flies in the face of what the government is currently claiming.

On Thursday, 14 March, the Centre filed an affidavit in the Supreme Court countering a petition filed by the Communist Party of India (CPI) which challenged the electoral bonds scheme as “an obscure funding system”.

The government disagrees. The scheme was notified by the Centre on 2 January 2018. It takes the form of a Promissory Note that can be purchased by individuals or corporates to make political donations. The rationale? The government says this scheme will keep the identity of donors anonymous, thereby increasing transparency.

And this is exactly where the experts differ – instead of increasing transparency, they say it reduces it.

So why would the government push this scheme?

Who Benefits Most?

“The real reason could be that they don’t want return favours [quid pro quo] bestowed by the government [to corporates] in the form of contracts, licences, loans, etc to become public. Instead of making electoral funding more transparent, the process will become way more opaque, with information blacked out from the public.”  

- SY Quraishi, Former Chief Election Commissioner

The available data proves that the biggest beneficiary of this electoral bonds scheme is actually the ruling party:

The BJP annual audit report for the Financial Year 2017-18 has revealed that the party received 95% of the total electoral bond political donations made in March 2018.

According to the figures, electoral bonds worth Rs 228 crore were sold in March, of which a whopping Rs 210 crore were donated to the BJP.

Anonymity = Opacity?

In its affidavit, the government has argued that it is necessary to maintain the anonymity of the donor because “past experience has shown, donors would not find the scheme attractive and would go back to the less-desirable option of donating by cash”.

But experts contend that there is no reason why a legitimate donor would want to hide its political donations.

“Why would a donor or a corporate want to hide its political donation? What is there to hide? If the donor or corporate is so fearful of making political donations, then better not donate.”

- Jagdeep Chhokar, Member, Association for Democratic Reforms

In the name of anonymity, what the government is actually doing is increasing opacity, Chhokar added.

Is It Transparency If the Govt Knows the Donor?

Electoral bonds can be purchased from selective branches of State Bank of India. While making the purchase, it is mandatory for the donor to reveal their KYC details to the bank.

The government does claim that these details are kept anonymous “except when demanded by a competent court or upon registration of criminal case by any law enforcement agency”.

But experts say it’s just a sham that no authority would end up getting these details.

“With only State Bank of India knowing who buys the bonds, how long it will take for this information to move to the Reserve Bank of India, and in turn, to the finance ministry, is not difficult to guess. And once it goes to the finance ministry, how long it takes to reach the political party in power is also not a mystery. What that would mean is that the political party in power can – and in all likelihood, will – exert pressure on the buyer of electoral bonds to donate the bonds to itself and not to the opposition parties. This is perhaps the reason why no political party really opposed this provision in Parliament.”

- Jagdeep Chhokar, Member, Association for Democratic Reforms

Secondly, it might take years for the common man to get hold of information of dubious political donors because of the tiresome process of first getting a criminal case registered and then procuring a court order, Chhokar further added.

Former CEC OP Rawat said “it is very important to reveal or to make public the source of the political donation in a democratic system to keep a check on the fund routed in electoral arena”.

Getting Around KYC Through Shell Companies

The government also claims in its affidavit that this electoral bond scheme will “reduce the scourge of black money”, ostensibly because of the KYC requirement, which will ensure only white money enters the political system.

But it seems not even the Election Commission is on board with that argument – it has sharply criticised the introduction of this scheme, calling it a “retrograde step” that opens up the possibility of setting up of shell companies through which to route black money to get around the KYC requirement. It articulated its objection in a three-page letter written to the Ministry of Law and Justice in May 2017.

“Electoral Bonds will make the whole system quite opaque and this may be quite dangerous. The electoral bond system will create vulnerabilities in campaign finances (donations), making the democratic system vulnerable to manipulation. [It can be done] in a manner that money from unknown sources with dubious credentials, is routed through KYC, individuals or corporate identities, and finds its way into the electoral arena to vitiate the electoral process. That risk may remain. Even foreign money can trickle in.”

- OP Rawat, Former Chief Election Commissioner

The government amended Section 182 of the Companies Act in January 2018, which removed the cap of 7.5% of net profit for companies to donate to political parties in the preceding three financial years.

“With the 7.5% limit and the disclosure requirement gone, it is perfectly possible for any dubious entity to set up a company, or a shell company, and route money to political parties completely UNKNOWN to anyone except the State Bank of India.”

- Jagdeep Chhokar, Member, Association for Democratic Reforms

What’s That Hidden, Unique Number on Electoral Bonds For?

The Quint’s investigation reveals that electoral bonds have hidden numbers printed on them.(Photo: Shruti Mathur/The Quint)

The Quint in its expose on 13 April 2017 revealed that electoral bonds carry unique alphanumeric characters hidden in the top-right corner of the bonds. It is visible only under ultraviolet light, and invisible to the naked eye.

In its affidavit, the government repeated is earlier claim that the alphanumeric characters are embedded for security reasons – but that argument has been debunked by The Quint in several articles. Former director RBI in an interview pointed out that even currency notes or Stamp Paper don’t have such a hidden number as a security feature. Then why such a feature exist in the bonds, except for the reason that the government wants to track the donors, he further added.

“While buying an electoral bond, one needs to furnish their KYC details. The serial number of the bond, matched with the KYC details, will clearly reveal who donated how much money to which political party.”

- SY Quraishi, Former Chief Election Commissioner

If security is the sole purpose of the hidden alphanumeric characters, then why are they unique?

“I don’t know what’s the purpose of hiding this number. Even on a currency note, the number is visible. If they wanted to keep it as a security number then they could have very well printed it to be visible.”

- Vipin Malik, Former RBI Director

The electoral bonds will be sold from 1-20 April and 6-15 May in three tranches, the Finance Ministry had announced on 14 March.

The bonds are expected to draw a huge response from corporates.