Crypto contributions to US election campaigns require legal navigation | Thomson Reuters Regulatory Intelligence and Compliance Learning

The Federal Election Commission (FEC), which governs congressional and presidential campaigns, allows cryptocurrency contributions to political committees. State and local races across the country are a different story — campaign finance laws vary significantly. Furthermore, the laws change rapidly. 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 evolving area,” said Chris White, a campaign finance specialist at Washington DC-based law firm Wiley Rein.

In an article published on the law firm’s website in June, White and Wiley’s co-author Caleb Burns wrote: “As interest in the use of cryptocurrencies for political contributions has increased, states have begun creating their own 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 contributions or use of cryptocurrencies to explicit approval of contributions made via cryptocurrency.”

With such a rapidly changing patchwork of laws, professionals in this field would be wise to keep up with the legality of crypto campaign contributions.

Federal elections

A 2014 FEC advisory opinion gave the green light to political action committees accepting contributions in Bitcoin. Individual federal candidates can also accept donations in the form of cryptocurrency, but the FEC prohibits the use of cryptocurrencies to pay for campaign expenses.

The FEC believes that cryptocurrencies fall under the “anything of value” catchment 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 influence any election for federal office.” Therefore, cryptocurrencies are treated in the same way as “stocks, bonds, works of art and other similar items that cannot be deposited upon receipt but will be liquidated at a later date.” The value of the donation 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 believed that the advisory will apply to other cryptoassets. (The commission has a detailed guide for reporting crypto donations on its website.)

green light states

In addition to the FEC, Arizona, Colorado, Iowa, Ohio, Tennessee and Washington have said that contributions made via cryptocurrency are permitted.

California recently joined the list when it reversed its ban on crypto contributions after the California Fair Political Practices Commission voted unanimously to lift 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 donations to be verified via a know-your-customer (KYC) procedure and processed through a US-based third-party payment 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 be fair valued at the time of the contributions, and any increase or decrease be treated as other income or expense.

Conversely, Washington and Arizona treat cryptocurrencies more like traditional forms of currency. Washington state has taken a more restrictive approach, treating crypto donations as equivalent to cash contributions, capping them at $100, requiring them to be converted to fiat currency within five business days, and prohibiting the use of crypto to purchase goods and services. . While Arizona stated that “the committee[s] may accept an in-kind contribution in the form of cryptocurrency … and such contributions are generally subject to the same rules that apply to traditional U.S. currency contributions.”

“Consistent with this treatment of cryptocurrency as analogous to ‘traditional’ US currency rather than a commodity, Arizona has neither expressly approved nor explicitly precluded the use of cryptocurrency by political committees to purchase goods or services,” the Wiley attorneys explained in their article .

states with clear prohibitions

Only a handful of states have expressly banned campaign contributions via crypto, either by law or official guidance. The decisions to ban the contributions have been driven by fear of outside influence and the volatility of prices associated with crypto. Such volatility may make the value of the contributions difficult to verify or determine.

Following the reversal of the California ban, Michigan, North Carolina and Oregon are the only remaining states with explicit bans.

Gray area states

With only a handful of states expressly banning or clarifying their stance on crypto campaign contributions, most others remain in a gray area.

“In Illinois and Georgia, campaigns have accepted 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 cryptocurrency contributions if the recipient candidate or committee immediately converts the cryptocurrency to traditional US currency.”

Caution is advised

With such uncertainty and a rapidly evolving 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 with crypto-supporting voters, they should be extra careful not to run afoul of regulations at the 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 wary of the wildly fluctuating value of cryptocurrencies before converting them to dollars, especially now that the prices of most cryptos are near year-to-date lows.

“Prospective donors and candidates or committees should consult with advisors before making or accepting any contributions via cryptocurrency,” White and Burns wrote.

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