Electoral finance in contemporary Brazil Wagner Pralon Mancuso (pralon@usp.br) University of São Paulo (USP), Brazil

Presentation plan: How does the Brazilian electoral system work? 2. How does the “official” system of electoral financing work in Brazil? - How was it before major changes in September 2015? - How is it after these changes? 3. How has official electoral financing been studied in Brazil? 4. A challenge for the Brazilian and German research teams: how to study illegal electoral financing in contemporary Brazil?

How does the Brazilian electoral system work? Brazil is a federative, presidential republic, composed of 26 states, 1 Federal District and 5.570 municipalities. http://www.guiageografico.com/mapas/mapa-brasil.htm There are 35 national parties registered in the Brazilian Electoral Justice. http://www.tse.jus.br/partidos/partidos-politicos/registrados-no-tse Word file 1 here.

2. How does the “official” system of electoral financing work in Brazil? “Official” political financing involves both electoral and non-electoral financing. - Electoral financing is a more studied field, regulated by Law No. 9.504 of 1997: http://www.tse.jus.br/eleicoes/estatisticas/repositorio-de-dados-eleitorais - Non-electoral financing is a less studied field, regulated by Law No. 9.096 of 1995: http://www.tse.jus.br/partidos/contas-partidarias/prestacao-de-contas-partidarias/prestacao-de-contas-partidarias This presentation will focus only on the electoral financing.

Electoral financing in Brazil went through important changes in September 2015, because of (i) a Supreme Court decision and (ii) the approval of Law No. 13.165 (also known as “Political Reform Act”). How did the electoral financing work in Brazil before September 2015? What has changed since then and what has stayed the same?

How did the electoral financing work before September 2015? - Main sources from the State: (i) Party Fund (ii) Free television and radio airtime - Main private sources : (iii) Companies (iv) Individuals (including candidates) Electoral financing could be given: to the candidates; to the parties; to the electoral committees (created to raise funds for campaigns). Candidates, parties and committees could spend campaign money directly, or transfer it among themselves.

Party Fund The Party Fund is an annual allocation from the national budget to political parties, being distributed by the Electoral Justice. 5% are equally distributed among all parties. 95% are proportionally distributed according to the amount of votes received by each party in the last election to the Chamber of Deputies. In 2014, Party Fund amounted to US$ 146,9 millions (at the exchange rate of 05/10/2014). Parties can allocate a part of this money to electoral campaigns. There was no important change as regards to the Party Fund.

(ii) Free television and radio airtime During the electoral period, Brazilian government grants free television and radio airtime to political parties. In exchange for this time, broadcasting companies are compensated with tax benefits from federal government. In 2014, the estimated value of these tax benefits was US$ 337,2 millions (at the exchange rate of 05/10/2014).

Main changes brought by Law No. 13.165, as regards to free airtime: Free airtime was reduced by 10 days “to reduce campaign costs”. Airtime distribution is slightly more concentrated by the biggest parties, and the distribution criterion has changed, so that parties have less incentive to “steal” members from other parties: Before the law: 11.1% was equally distributed among all parties. 88.9% was proportionally distributed according to the number of federal deputies held by each party in the beginning of that legislature. After the law: 10% is equally distributed among all parties. 90% is proportionally distributed according to the number of federal deputies elected by each party in the last election. Parties have less incentive to form large coalitions for majoritarian elections: When parties would form a coalition for a majoritarian election, airtime was distributed according to the sum of all their federal deputies in the beginning of the legislature. For airtime distribution purposes, it is only considered the sum of federal deputies elected by the six biggest parties in the coalition.

(iii) Companies Companies could donate up to 2% of their gross sales revenue in the year before the electoral year. In 2014, 16,252 businesses officially donated US$ 1.2 billion to electoral campaigns (at the exchange rate of 05/10/2014). The 10 biggest donors accounted for 28.1% of the total amount donated by companies. This shows that business electoral donations were highly concentrated by a few big companies. The three biggest parties – PT, PMDB and PSDB – received 61.7% of the total amount donated by companies. This shows that reception of business electoral donations was highly concentrated by a few big parties.

Main change brought by a Supreme Court decision: Business electoral financing is now forbidden. Shortly after the Supreme Court decision, and overtly conflicting with it, the Congress approved Law No. 13.165, with articles that allowed business donations to political parties. President Dilma vetoed these articles which conflicted with the Supreme Court decision. Congress had not enough votes to override the presidential veto.

(iv) Individuals Noncandidates could donate up to 10% of their gross income in the year before the electoral year. In 2014, 136.589 noncandidates officially donated US$ 221,9 millions to electoral campaigns (at the exchange rate of 05/10/2014). The 465 biggest donors (0.3% of the total) accounted for 26.7% of the total amount donated by noncandidates. The 30 biggest donors (0.02% of the total) accounted for 8.9% of the total amount donated by noncandidates. This shows how concentrated electoral donations were in the hands of a small group of rich people. Parties that most benefited from noncandidates’ donations: PT: 14.3% PSDB: 14.1% PMDB: 13.7% There was no change as regards to noncandidates’ donations. They remained highly concentrated in 2016 municipal elections.

Candidates could donate up to the maximum value of electoral spending established by their parties for the offices they were seeking. In 2014, 9,710 candidates officially donated US$ 150.5 millions to electoral campaigns (at the exchange rate of 05/10/2014). The 106 biggest donors (1.1 % of the total) accounted for 34,6% of the total amount donated by candidates. The 38 biggest donors (0.4 % of the total) accounted for 22.3% of the total amount donated by candidates. This shows how concentrated electoral donations were in the hands of a small group of rich candidates. Parties that most benefited from candidates’ donations: PMDB: 16% PSDB: 10,1% PT: 8,2% Changes brought by Law No. 13.165, as regards to candidates’ donations: Now there is a ceiling on election expenditures (see next slide). Candidates can donate for their own campaigns up to this expenditure ceiling. Rich candidates are still benefited under the new rule.

Other important changes brought by Law No 13.165: (i) Ceiling on electoral expenditures: - Elections for the executive branch of government, in all levels (with one exception): First round: 70% of the biggest electoral expenditure for the same office, at the same electoral circumscription, in the last election (where election had only one round). 50% of the biggest electoral expenditure for the same office, at the same electoral circumscription, in the last election (where election had two rounds). Second round: 30% of the value for the first round. - The exception: elections for mayor in cities with 10.000 voters, or less: R$ 100.000,00

- Elections for the legislative branch of government, in all levels: 70% of the biggest electoral expenditure for the same office, at the same electoral circumscription, in the last election. Ceilings are to be updated every election, by the official inflation rate. (ii) Electoral campaign was reduced by 40 days, “to reduce campaing costs”. (iii) Electoral committees do not exist anymore. All donations shall be given either to a candidate or to a party.

3. How has official electoral financing been studied in Brazil. 3 3. How has official electoral financing been studied in Brazil? 3.1 – Electoral financing as explanatory variable, electoral performance as explained variable: There is positive, statistically significant association, between electoral financing and electoral performance, even when one controls by other variables that are important for electoral performance, such as incumbency, other forms of political capital, educational level, gender, etc.

3.2 – Electoral financing as explanatory variable, benefits for donors as explained variable: There is a growing body of literature on possible quid pro quo involving electoral financing in exchange of benefits such as: (i) credit granting by state banks; (ii) government contracts, (iii) tax benefits.  I am currently working on a research project funded by a Brazilian research agency (IPEA) whose objective is to verify whether electoral financing correlates with legislative behavior in the Chamber of Deputies.

3.3 – Electoral financing as explained variable: There is a growing body of literature on the effect on electoral financing exerted by: political variables (e.g. the candidate’s political capital, his or her political party, its ideology, its relation with the government in office, etc.), economic variables (for example, the economic sector of donating companies), other individual-level variables (e.g. gender, educational level, profession, skin color etc.)

4. A challenge for the Brazilian and German research teams: how to study illegal electoral financing in contemporary Brazil? Illegal electoral financing is a “hot subject” in Brazil. There have been many political scandals involving illegal electoral financing since redemocratization in the mid-1980’s. However, social sciences literature on this subject is still small. This lack of studies has much to do with difficulties to get reliable data on illegal political activities. Our research project, to be sent to DFG (Germany) and FAPESP (Brazil), aims to fill this gap, providing sound empirical knowledge on the matter.

We are especially interested in studying corrupt arrangements under the specific form of “useful illegality” (Luhmann, 1964; Klinkhammer, 2013; Pohlmann, Bitsch e Klinkhammer, 2016). “Useful illegality” is an action that goes against written rules (laws, codes of behavior in companies and parties,etc.) but attends to informal and non-written rules that are active both at the organizations and at the field in which they operate (for example, the informal rule according to which it is acceptable offering and taking illegal electoral financing because “everybody does this”). This specific kind of illegality is labeled “useful” because its main purpose is to benefit the organization, instead of hindering it, or bringing direct, exclusive and immediate advantages to their authors. “Useful illegality” is perpetrated not by “bad apples”, or “black sheeps”, but by the best apples in the basket, or the best sheeps of the flock. Word File 2 here.

General objective: To identify and analyze, in the light of the sociological concept of “useful illegality”, corruption cases that: happened in Brazil between 1995 and 2016; (ii) involved, on the one side, high echelons of private companies, and on the other side, high echelons of political parties, in illegal arrangements to exchange political financing for public contracts; (iii) were brought to state and federal justice in this period.

Specific objectives: To create an encompassing database on illegal political financing in Brasil; To evaluate how the concept of “useful illegality” can help us to understand deviant behavior in economic and political organizations; To measure, by means of social experiments with different groups, how widespread is the rationale of social actors involved in corruption cases studied in the project; - To discuss ways to prevent and fight organizational corruption under the specific form of “useful illegality”, both in private companies and political parties.