1. Needed: full disclosure on electoral bonds

The Supreme Court’s suggestion to ‘match the following’ on political donations is impractical and incorrect

In 2014, the Delhi High Court held that both the Congress and the Bharatiya Janata Party (BJP) were guilty of illegally accepting donations from two companies registered in India but whose controlling shareholder was Vedanta, a foreign company. The court held that this was in contravention of the Foreign Contribution (Regulation) Act (FCRA), 1976, as the donations accrued from “foreign sources” within the meaning of law.

Following this indictment, the two parties came together in the last memorable bipartisan move. In 2016 and 2018, the government amended the FCRA through the annual Finance Bills, to retrospectively legalise the violations. The amendments and subsequent changes brought in by the current government enabled new and regressive pathways that afford full anonymity to corporate and foreign political donors.

A new form of anonymity

While recently hearing a Public Interest Litigation (PIL) by the Association of Democratic Reforms (ADR), the Supreme Court downplayed the concerns of the corrupting influence of anonymous corporate and foreign money. It offered us voters the suggestion of “match the following”.

Earlier, only profit-making domestic companies could contribute to political parties; now loss-making companies can too. Earlier, foreign companies or companies where the controlling stake was held by a foreign company couldn’t contribute; now they can. India’s political parties could theoretically be fully funded by a foreign company operating in India or by a foreign entity through a shell company.

In 2017, the then Finance Minister said anonymous cash donations to political parties would be reduced from ₹20,000 to ₹2,000 to ensure greater transparency in political funding. However, the concurrent introduction of electoral bonds brought a new form of anonymity to thousands of crores of donations. It drastically reduced public and legislative oversight. Only the ruling party via the State Bank of India (SBI) has a full account of all donations being made via electoral bonds, to itself and to Opposition parties. Parliament, the Election Commission and the Opposition parties do not have this information, nor do the public.

The ADR PIL challenges electoral bonds as unconstitutional. In March 2021, the Supreme Court refused to stay the sale of electoral bonds before the West Bengal elections. Instead, the judgment listed several documents which supposedly establish a paper trail on donations — “all that is required is a little more effort to cull out such information from both sides (purchaser of bond and political party) and do some ‘match the following’.”

This is impractical and plainly incorrect. The Right to Information (RTI) Act of 2005 enables easier access to information held by public authorities. No ordinary person has the resources to navigate documents on obfuscating government websites or pore over income tax returns. The few civic and non-profit organisations that attempt to simplify information to enable accountability have been systematically delegitimised.

Suggesting a “match the following” is incorrect for three reasons. If we set aside individual donors and focus just on registered entities, we will find that the full scale of registered entities is unknown. Even if registered companies filed annual financial statements, many do not disclose political donations. Crucially, political parties do not need to disclose their electoral bond donors either.

According to back-of-the-envelope calculations, there are close to 25 lakh potential donors comprising just companies and firms. This includes about 12.6 lakh active private limited companies as of January 31, 2021. Unlike what is stated in the judgment, the annual reports of all these companies are not readily accessible on the website of the Ministry of Corporate Affairs. More than 12 lakh firms filed income tax returns for the assessment year 2018-19. Firms, unlike companies, have no regulatory mandate to submit their annual reports except for filing their annual tax returns, since their functioning is regulated by Acts other than the Companies Act of 2013.

Even if these documents are indeed filed and available in the public domain, they will not specify donations to parties. Conveniently, the Finance Bill of 2017 amended Section 182 of the Companies Act of 2013 to remove the requirement for declaring disaggregated donations to political parties. At best, company statements might have a total aggregate amount of all donations, including philanthropic ones. If we are lucky, these might be sub-categorised as “political contributions through electoral bonds.” Nowhere are donations to specific political parties required to be mentioned.

Even if one combs through these documents to find an actual political donation, there is nothing to match it with. Political parties do not need to disclose their electoral bond donors. Strictly speaking, political parties are not even supposed to know their electoral bond donors. The only requirement is the annual audit reports with a total of all donations received via electoral bonds. These reports are submitted with great delays. For instance, the audit reports for 2019-20 of major national parties were made available on the Election Commission’s website only a few days ago. The BJP’s report is not yet available as the Election Commission extended the deadline for the submission of Annual Audit Reports for 2019-20 to June 30, 2021. Even if these reports are submitted on time, there is no way to match a donation of a company to that received by a political party as only aggregate amounts are available.

Hence, the “match the following” suggestion of the Supreme Court falls flat on its face. It is impossible for an average voter to pore over documents of lakhs of entities and track potential company and firm donors. Further, recipient-wise information is unavailable. Unlike the tall claims of electoral bonds enabling transparency, it is only RTI applications with the SBI that offer a glimpse into the crores of money funding political parties, and therefore influencing public policies. If they chose to, the Supreme Court or the legislature could order full and real-time disclosure, to the actual benefit of transparency and accountability. Instead, meagre civil society resources are expended in filing PILs and RTI applications, at significant personal risk.

Winners and losers

In effect, electoral bonds give political power to companies, wealthy individual donors, and foreign entities, thus diluting the universal franchise of one voter-one vote. Every vote is not equally valuable if companies can influence policies through hidden donations. The winner of this arrangement is the ruling party, whether at the Centre or in a State, and the loser is the average voter. Companies and political parties could exercise moral leadership and voluntarily disclose the identity of recipients and donors, as the Jharkhand Mukti Morcha recently did. Till then, voters are stuck with a ruling party with war chests of resources, being subject to relentless election campaigns, while donors surreptitiously and directly influence policy.

Rakesh Dubbudu is the founder of @FactlyIndia; Inayat Sabhikhi is associated with the National Campaign for People’s Right to Information

Electoral Bond

• Electoral Bond is a financial instrument for making donations to political parties.
• The bonds are issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh and Rs. 1 crore without any maximum limit.
• State Bank of India is authorised to issue and encash these bonds, which are valid for fifteen days from the date of issuance.
• These bonds are redeemable in the designated account of a registered political party.
• The bonds are available for purchase by any person (who is a citizen of India or incorporated or established in India) for a period of ten days each in the months of January, April, July and October as may be specified by the Central Government.
  • A person being an individual can buy bonds, either singly or jointly with other individuals.
  • Donor’s name is not mentioned on the bond.

2. Embracing cryptocurrency

The fact that cryptocurrency has no legal classification should not be the impetus to prohibit its use in India

Nakul Dewan & Rohan Andrew Naik

On June 9, El Salvador became the first country in the world to adopt bitcoin as legal tender. This is illustrative of the rising global trend of embracing cryptocurrencies with all its attendant risks. While not every country’s approach has been as open as El Salvador’s, the dominant theme has been to permit the growth of the cryptocurrency market subject to certain safeguards. As India finds itself at a crossroads of prohibition and regulation in its tryst with cryptocurrencies, globally, the inclination towards permissive regulation recognises the freedom of choice given to people for using a medium of exchange other than a central bank-backed fiat currency.

Swinging between extremes

The cryptocurrency market in India has developed in a largely laissez-faire regulatory space since the first recorded cryptocurrency transaction in 2010. Between 2013 and 2018, the government’s response to the rise of virtual currencies was cautionary, alerting users to the potential risks posed by cryptocurrency transactions. These fears were legitimate and stemmed from cryptocurrencies’ volatility, their susceptibility to hacking, and the fact that they could potentially facilitate criminal activities such as money laundering, terrorist financing and tax evasion. Instead of developing a regulatory framework to address these issues, the Reserve Bank of India (RBI), in April 2018, effectively imposed a ban on cryptocurrency trading. This ban was overturned by the Supreme Court in 2020. The court reasoned that there were alternative regulatory measures short of an outright ban through which the RBI could have achieved its objective of curbing the risks associated with cryptocurrency trading. While the court had an opportunity to put a label on the legal nature of cryptocurrencies, it stopped short of doing so.

After swinging between the extremes of non-interference and prohibition, a clue as to India’s next move lies in the draft Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. The draft Bill proposes to criminalise all private cryptocurrencies while also laying down the regulatory framework for an RBI-backed digital currency. The Minister of State for Finance, in response to a question in Parliament, stated that regulatory bodies do not have a legal framework to directly regulate private cryptocurrencies owing to their imprecise legal nature in India. As the draft Bill is yet to be tabled in Parliament, there is some hope that his concerns will be addressed in the form of a tailored regulatory approach rather than another ban.

Lessons from other countries

There are lessons in this regard from the U.K., Singapore and the U.S. The U.K. has classified cryptocurrency as property and this has paved the way for cryptocurrencies to be encompassed within a regulated legal framework in the country’s economy. The U.K. has sought to regulate the functioning of crypto-businesses while still imposing some restrictions to protect the interests of investors.

On the other hand, while there is no exact legal classification of cryptocurrency in Singapore, the amenability of cryptocurrency transactions to the contract law framework of the country has been firmly established and there is now a legal framework for cryptocurrency trading. In the U.S., the open approach taken by the authorities has resulted in the trade in cryptocurrency being both taxed and appropriately regulated. While the approaches are specific to the countries’ economic realities and cannot be blindly implemented in India, the global regulatory attitude towards cryptocurrencies offers valuable insights into the alternative ways to achieve balanced regulation. In India, the absence of an existing legal classification of cryptocurrency should not be the impetus to prohibit its use. The government should use this as an opportunity to allow private individuals the freedom to harness a powerful new technology with appropriate regulatory standards.

Nakul Dewan is Senior Advocate, Supreme Court of India and was the lead counsel who argued against the RBI’s cryptocurrency ban; Rohan Andrew Naik is Advocate, Supreme Court of India, who assisted in the case

Cryptocurrency

A cryptocurrency or crypto, is a virtual currency secured by cryptography. It is designed to work as a medium of exchange, where individual ownership records are stored in a computerised database.

The defining trait of a cryptocurrency is that they are not issued by the government agency of any country making them immune against any interference and manipulation from them.

Definition of Cryptocurrency

In simplistic terms, Cryptocurrency is a digitised asset spread through multiple computers in a shared network. The decentralised nature of this network shields them from any control from government regulatory bodies.

The term “cryptocurrency in itself is derived from the encryption techniques used to secure the network.

As per computer experts, any system that falls under the category of cryptocurrency must meet the following requirements.:

1. Absence of any centralised authority and is maintained through distributed networks
2. The system maintains records of cryptocurrency units and who owns them
3. The system decides whether new units can be created and in case it does, decided the origin and the ownership terms
4. Ownership of cryptocurrency units can be proved exclusively cryptographically.
5. The system allows transactions to be performed in which ownership of the cryptographic units is changed.

Types of Cryptocurrency

The first type of crypto currency was Bitcoin, which to this day remains the most-used, valuable and popular. Along with Bitcoin, other alternative cryptocurrencies with varying degrees of functions and specifications have been created. Some are iterations of bitcoin while others have been created from the ground up

Bitcoin was launched in 2009 by an individual or group known by the pseudonym “Satoshi Nakamoto. As of March 2021, there were over 18.6 million bitcoins in circulation with a total market cap of around $927 billion.

The competing cryptocurrencies that were created as a result of Bitcoin’s success are known as altcoins. Some of the well known altcoins are as follows:

1. Litecoin
2. Peercoin
3. Namecoin
4. Ethereum
5. Cardana

Today, the aggregate value of all the cryptocurrencies in existence is around $1.5 trillion—Bitcoin currently represents more than 60% of the total value.