It isn’t only companies that have been allowed to make anonymous donations to political parties through electoral bonds. The fine print of the scheme announced by the Finance Ministry on Thursday also allows individuals, groups of individuals, NGOs, religious and other trusts, Hindu Undivided Family units and all other entities recognised by law to do so too, without disclosing their identities.

As a result, Indians will not be able to identify which individuals, charitable and religious trusts have even bought the electoral bonds and to whom they have made donations. This is ironic, considering that the Bharatiya Janata Party government in Feburary 2017 had announced the electoral bond plan as a way to increase transparency in political funding.

Under the scheme, entities that want to make donations to political parties can buy bonds from the State Bank of India. They can then gift them to registered political parties. The parties will then convert these bonds into money via their bank accounts.

Under Indian law, individuals, NGOs and charitable and religious trusts do not have to put their annual accounts in public domain, even though they do file returns along with their accounts to the authorities. As a consequence, only the government, its various agencies and the banks would know about these donations.

Only companies and limited liability partnerships are required to put information about their income, expenditure and their balance sheets in the public domain. But they are currently not required to specifically disclose how much money they spend on electoral bonds in a year. Even if they were to have to do so, it would not be possible to get collated information about the donations of all companies in a single place: each company’s annual filings with their balance sheets and accounts would have to be individually scanned.

Union government's notification for Electoral Bonds

Thursday’s Finance Ministry notification has listed 52 branches of the State Bank of India across the 26 states and Union territories from which bonds could be purchased during four window periods. The bonds will be available in denominations of Rs 1,000, Rs 10,000, Rs 10 lakh, and Rs 1 crore. The bonds can be purchased only through cheques, demand drafts and electronic transfer of funds. They cannot be bought in cash.

The formal notification for the bonds includes a form with details that purchasers will have to fill, which includes their income tax identification number and address. But the form does not require the purchaser to attach proof of their identity and address unless required under the existing Know Your Customer or KYC norms that bank impose under Prevention of Money Laundering Act, 2002. These regulations do not require customers without accounts at the branch to give proof of their identity for transactions below Rs 50,000.

Some criticism

Some experts have noted that even though electoral bonds provide a route for anonymous donations, they do at least block people and entities from donating black money. But others contend that the lack of transparency and public disclosure inherent in the scheme could help entities route money through shell companies to political parties.

“Through bonds, the government seeks to create a new form of currency for the sole purpose of conducting transactions exclusively between any person and eligible political parties,” said Venkatesh Nayak, Programme Coordinator for Access to Information at Commonwealth Human Rights Initiative. “When read with the related amendments to the Companies Act, 2013, which will kick in on April 1, 2018, the bonds have the potential to become a preferred route for channelising ill-gotten monies into political parties without having to reveal the identity of the donor to anybody but the designated bank .”

He added: “As there is no statutory duty anymore for political parties to record the identity of an electoral bond donor potentially, even criminals and money launderers can buy bonds and have them delivered to the political party headquarters through their chauffeurs.”

Trusts and associations or simply a “body of individuals” as understood in the Income Tax Act formed solely for the purpose of routing funds to a political party of choice could pool in money and buy these bonds, Nayak contended.

Among other opposition parties, the Indian National Congress too has opposed the electoral bonds.

Rajeev Gowda, Congress member of parliament who heads the party’s research wing, said that the Finance Bill, 2017, had surreptitiously removed key safeguards for accountability of donations from companies to political parties. Previously, he said, companies could only donate up to 7.5% of their average three-year net profit to political parties each year. The 2017-’18 budget also did away with other safeguards to ensure companies donating money are profit making and do so with the formal approval of their board.

“The scheme fails three main tests: of clean money, transparency and fairness,” Gowda claimed. “Now any individual, association, trust or company can route black money through the banking system under severely compromised extant KYC norms, and only the ruling party will know about it. Neither the opposition or the public will have any clue about the massive corruption, coercion and quid-pro-quo lobbying this move will unleash.”

The Congress in July 2017 had mooted state funding of elections. “We want genuine electoral reforms like public funding in conjunction with Right To Information Act for finances of political parties must be ushered in,” Gowda said.