Political parties should be made to disclose donations above a certain value as well as the identity of the donor, a Council of Europe report on Malta has recommended.
Although the report did not specify a threshold, it said even non-monetary donations exceeding this amount should be disclosed.
Donations from sources unknown to the party or a candidate should be banned altogether.
The government has also been called on to introduce rules for political parties to keep proper books and accounts, even regarding election campaigns, and to ensure independent auditing of these records.
Only last Sunday, the two big political parties raised more than €620,000 between them during fund-raising events.
The report was drawn up by the COE's Group of States Against Corruption (Greco), of which Malta is a member. Greco seeks to improve the capacity of its members to fight corruption by monitoring their compliance with Council of Europe anti-corruption standards.
The group has urged the Maltese authorities to introduce "appropriate sanctions, which are effective, proportionate and dissuasive" for those who violate the political financing rules but do not require to be charged in court.
There are currently no restrictions on who can make donations to political parties, the report points out. Donations can take any form and can be made anonymously, and there are no restrictions on membership fees from party members. Neither are there restrictions on what political parties use their funds for. Although they have to keep sufficient records for income tax purposes, they are not obliged to keep books and accounts.
Political parties and election candidates are "heavily dependent" on private sources for their existence rather than public funds. The financing of political parties remains a strictly private matter and transparency is practically non-existent.
The report sees a crucial role in change to be played by the parliamentary committee set up to report to the House on party funding and on the introduction of a verifiable system to regulate financial donations to the political parties.
In a report tabled in Parliament on Monday on the work of the Select Committee on Democratic Change, progress was said to have been made in talks within the sub-committee on the electoral system. This includes controls over spending by election candidates and political party funding.
A public consultation process closes on December 18 and in the New Year the committee will start final talks with the political parties and those who submitted comments.
Over the years, discussions on the regulation of party funding have not led to concrete measures being taken. In 1995, the so-called Galdes Commission had proposed a mix of state and private funding, along with recommendations for parties to cap donations at Lm10,000 and declare every individual contribution above Lm5,000.
The parties had disagreed over the capping levels and the proposals came to nothing.
Two years ago, with a general election in the air, the Nationalist Party had proposed setting up another parliamentary commission tasked with drawing up a system that regulates party funding and making it more transparent. This was superseded by the setting up of the Select Committee on Democratic Change during the new Administration.
Earlier this year, the Labour Party proposed that political parties should receive an annual contribution of €5 from the State for each vote obtained at the last general election and that parties should disclose the identity of donors above a certain amount.
It also proposed that the Auditor General audits the accounts of both parties and that donations above €23,000 should be prohibited.
Currently the two main political parties receive €100,000 each annually from public coffers.