As campaign fundraising heats up ahead of the US midterm elections, making political campaign contributions via cryptocurrencies requires careful navigation of federal and state law
The Federal Election Commission (FEC), which governs campaigns for Congress and the presidency, allows cryptocurrency contributions to political committees. State and local races across the country are a different story — campaign finance laws vary significantly. Further, the laws are quickly changing. California, for example, recently reversed a 2018 ban on the use of cryptocurrencies for campaign contributions.
“The landscape of crypto campaign contributions remains a rapidly developing area,” says Chris White, a campaign-finance specialist with the Washington DC-based law firm Wiley Rein.
In an article published on the law firm’s website in June, White and Wiley co-author Caleb Burns wrote: “As interest in the use of cryptocurrencies for political contributions has increased, states have begun to fashion their own sets of laws and regulations governing the use of cryptocurrencies in campaign finance. The approaches taken at the state level fall on a spectrum from a total ban on the contribution or use of cryptocurrencies to the explicit approval of contributions made via cryptocurrency.”
With such a rapidly changing patchwork of laws, it would be wise for professionals in this area to keep up with the legality of crypto campaign contributions.
A 2014 advisory opinion from the FEC gave a green light to political action committees accepting contributions in Bitcoin. Also, individual federal candidates can accept donations on the form of cryptocurrency, but the FEC prohibits using cryptocurrencies to pay for campaign expenditures.
The FEC holds that that cryptocurrencies fall under the “anything of value” catch-all areas of the Federal Election Campaign Act, which defines such contributions as “any gift, subscription, loan, advance, or deposit of money or anything of value made by any person for the purpose of influencing any election for Federal office.” Therefore, cryptocurrencies are treated similarly to “stocks, bonds, art objects and other similar items that cannot be deposited upon receipt, but will be liquidated at a later date.” The donation’s value is based on the market value of the cryptocurrency on the day of the donation.
Although the FEC specifically referenced Bitcoin in the 2014 advisory, it is presumed that the advisory would apply to other crypto assets. (The commission has a detailed guide to reporting crypto donations on its website.)
States with a green light
In addition to the FEC, Arizona, Colorado, Iowa, Ohio, Tennessee, and Washington have said contributions made via cryptocurrency are permissible.
California recently joined the list when it reversed its ban on crypto contributions after the California Fair Political Practices Commission voted unanimously to repeal the state’s ban on cryptocurrency donations and adopt new rules for accepting the funds. The new California regulation was finalized in late July and will take effect within 60 days. It requires that donations be verified via a know-your-customer (KYC) procedure and be processed through a US-based third-party payments processor registered with Treasury’s Financial Crimes Enforcement Network.
Colorado, Iowa, Ohio, and Tennessee have followed the FEC’s guidance and requirement that the donations should be fair valued at the time of the contributions, and any increases or decreases should be treated as other income or expenditure.
Conversely, Washington and Arizona are treating cryptocurrencies more like traditional forms of currency. Washington state has taken a more restrictive approach, treating crypto donations as the equivalent of cash contributions, capping them at $100, requiring them to be converted to fiat currency within five business days, and prohibiting the use of crypto for the purchase of goods and services. While Arizona stated that “committee[s] may accept an in-kind contribution in the form of cryptocurrency… and such contributions are generally subject to the same rules applicable to traditional contributions in US currency.”
“In keeping with this treatment of cryptocurrency as analogous to ‘traditional’ US currency rather than a commodity, Arizona has neither expressly approved nor expressly foreclosed the use of cryptocurrency by political committees to purchase goods or services,” explained the attorneys at Wiley in their article.
States with clear prohibitions
Only a handful of states have expressly prohibited campaign contributions via cryptos, either by law or official guidance. The decisions to ban the contributions have been driven by fears of outside influence and the volatility of the prices associated with cryptos. Such volatility could make the value of the contributions difficult to verify or ascertain.
Gray area states
With only a handful of states expressly prohibiting or clarifying their position on crypto campaign contributions, most others remain in a gray area.
“In Illinois and Georgia, campaigns have been accepting contributions via cryptocurrency despite the lack of express official permission to do so,” according to the Wiley attorneys. “In Georgia, the executive secretary of the Georgia Government Transparency and Campaign Finance Commission has informally advised that candidates and committees may accept contributions in cryptocurrency if the recipient candidate or committee then immediately converts the cryptocurrency to traditional US currency.”
With such uncertainty and a rapidly developing legal landscape, there are risks and potential opportunities for donors and candidates when accepting cryptos as contributions.
As candidates seek to tap into non-traditional donors and align themselves crypto-supporting voters, they should be extra careful not to run afoul of the regulations on a national or state level. If campaigns or candidates accept crypto contributions, they must establish a thorough KYC process to document the contributions.
Campaigns or candidates should also be careful of the wildly fluctuating value of the cryptocurrencies before their conversion to dollars, particularly now as prices of most cryptos are near lows for the year.
“Prospective donors and candidates or committees should consult with counsel before making or accepting any contributions via cryptocurrency,” White and Burns wrote.