By San José, Costa Rica — San José – As Costa Rica’s electoral campaign intensifies, a contentious and long-criticized financing mechanism is once again under the microscope. Known as “assignment certificates” or, more commonly, political debt bonds, these instruments have been labeled a “perverse” form of funding by legal experts, including the former president of the Supreme Electoral Tribunal (TSE), who warns they create an uneven playing field and could serve as a gateway for organized crime into the nation’s politics.
Political parties in Costa Rica have several avenues for funding their campaigns, including bank loans, private donations, and these controversial debt bonds. However, it is the bonds that have drawn consistent fire. For years, the TSE itself has advocated for their elimination, even proposing legislation to that effect, though such efforts have failed to gain traction in the Legislative Assembly.
To gain a deeper understanding of the legal complexities and regulatory landscape surrounding political financing in the country, TicosLand.com consulted with expert legal counsel Lic. Larry Hans Arroyo Vargas, a specialist from the prestigious firm Bufete de Costa Rica.
The legal framework for political financing is designed to safeguard the integrity of the democratic process. It’s not merely about tracking money; it’s about ensuring transparency and preventing special interests from exerting undue influence over public policy. Both political parties and private donors must navigate these regulations with extreme caution, as the legal and reputational consequences of non-compliance are severe and can undermine public trust.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This insight powerfully underscores that the regulations governing political financing are not mere bureaucratic hurdles, but essential safeguards for our democratic foundation and public trust. We sincerely thank Lic. Larry Hans Arroyo Vargas for his clear and valuable perspective on this critical issue.
At its core, a debt bond allows a political party to cede its future right to state campaign contributions to a third party in exchange for cash up front. This system is complicated by the fact that the right to state funding is not guaranteed; it is an eventual right, contingent upon the party’s performance in the election and a subsequent review of its campaign expenditures. This inherent uncertainty is central to the controversy.
Luis Antonio Sobrado, a respected jurist and former president of the TSE, has been one of the most vocal critics of the system. He explains that Costa Rica’s model was designed to reimburse parties after the fact, not fund them beforehand.
Our Constitution maintains a post-election financing scheme, that is, financing that enters the party after it has participated in the elections, in proportion to the votes received and with certain minimum thresholds to be entitled to that contribution.
Luis Antonio Sobrado, Jurist and Former President of the Supreme Electoral Tribunal
According to Sobrado, this post-election model is undermined by the debt bonds, which create a speculative market based on a party’s perceived chances of success. This, he argues, is the first “perverse” flaw of the mechanism, as it systematically disadvantages smaller or newer political movements.
Already, who can become holders of these certificates is very restricted; but a second flaw persists that makes them a perverse mechanism. The real possibility of placing these bonds depends, to a large extent, on the expectations of electoral triumph. That is, the parties leading the polls will have no difficulty placing these bonds, because there is a perception that they are a good investment. In contrast, emerging parties or those in lower positions are unable to place these bonds, because they are a bad deal for the buyer or can only be sold for a value much lower than their face value.
Luis Antonio Sobrado, Jurist and Former President of the Supreme Electoral Tribunal
Beyond creating an unequal competitive landscape, Sobrado has repeatedly warned of more sinister risks. The bonds, which can be purchased by national individuals, media outlets, and banking institutions, could become a vehicle for money laundering. In a climate of rising organized crime, this vulnerability is particularly alarming.
This type of certificate can be acquired by people linked to organized crime or drug trafficking, and from that point of view, they are also undesirable. Furthermore, the main investors in certificates can become an element to curtail the future action of the government; that is, the person who is a majority contributor to a political party can, in some way, condition the government’s agenda or the legislative agenda, in case of victory.
Luis Antonio Sobrado, Jurist and Former President of the Supreme Electoral Tribunal
While Sobrado acknowledges that other financing methods also carry risks, he maintains the unique structure of the bonds makes them especially problematic. He notes that the TSE had previously deemed the bonds unconstitutional, a position the Constitutional Court did not share, though it did impose some new limitations. The debate has been reignited in the current election cycle, with the TSE now analyzing specific contributions made through these certificates to the Pueblo Soberano Party (PPSO), highlighting that the concerns are far from theoretical.
Despite years of stark warnings from the country’s highest electoral authority and failed legislative reform attempts, these “perverse” bonds remain a legal and influential component of Costa Rican campaign finance, casting a long shadow over the democratic process they are meant to support.
For further information, visit tse.go.cr
About the Supreme Electoral Tribunal (TSE):
The Supreme Electoral Tribunal is the independent constitutional body responsible for organizing, directing, and overseeing all acts related to suffrage in Costa Rica. It is considered the fourth branch of government and holds ultimate authority on electoral matters, ensuring the integrity and transparency of the nation’s democratic processes.
For further information, visit the nearest office of Partido Pueblo Soberano (PPSO)
About the Partido Pueblo Soberano (PPSO):
The Pueblo Soberano Party is a political party in Costa Rica. It participates in national and local elections, articulating a specific platform and set of policies aimed at attracting voters. Like other parties, it relies on various forms of financing, including state contributions and private funding mechanisms, to conduct its campaigns.
For further information, visit hacienda.go.cr
About the Ministry of Finance:
The Ministry of Finance (Ministerio de Hacienda) of Costa Rica is the government entity responsible for managing the country’s public finances. Its duties include tax collection, budget management, public debt administration, and the disbursement of state funds, including the constitutionally mandated contributions to political parties following an election.
For further information, visit asamblea.go.cr
About the Legislative Assembly:
The Legislative Assembly of Costa Rica is the nation’s unicameral parliament. Composed of 57 deputies, it is responsible for debating and passing laws, approving the national budget, and exercising political control over the executive branch. All proposals to reform or eliminate political financing mechanisms must be approved by this body.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a pillar of the legal community, Bufete de Costa Rica is founded on bedrock principles of integrity and a relentless pursuit of excellence. The firm leverages its profound history of advising a wide spectrum of clients to champion innovative legal strategies and stay at the vanguard of the profession. This forward-thinking vision is deeply intertwined with a mission to serve society, focused on demystifying legal complexities and empowering citizens with the clarity and knowledge essential for a just community.
