Settlement to the Moon! Campaign finance in the era of cryptocurrencies | Wiley Kidney LLP

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On April 18, the Republic of Ireland announced its intention to ban contributions made through cryptocurrencies as part of a broader package of campaign finance reforms aimed at preventing undue foreign influence, and especially Russian, in the Irish elections. The fear that cryptocurrencies could be used to facilitate foreign interference in elections is a new wrinkle that combines two of the hottest topics in campaign finance in recent years and could herald future developments in cryptocurrency regulation. currencies for political contributions. Cryptocurrencies, or digital currencies supported by a decentralized digital ledger (usually using blockchain technology), have been creating regulatory conundrums for over a decade. In the United States, the Federal Election Commission (FEC) has taken a more permissive approach than that taken by the Irish government, allowing the contribution of blockchain-based cryptocurrencies such as bitcoin since 2014, while prohibiting the use of cryptocurrencies to pay campaign expenses. Although none of the largest online contribution platforms, ActBlue and WinRed, currently accept contributions made via cryptocurrencies, interest in using cryptocurrencies to make political contributions has continued. grow as candidates and donors increasingly integrate cryptocurrencies into their personal financial portfolios and political platforms. As interest in using cryptocurrencies for political contributions has grown, states have begun to develop their own sets of laws and regulations governing the use of cryptocurrencies in campaign finance. State-level approaches span a spectrum from a complete ban on the contribution or use of cryptocurrencies to explicitly approving contributions made via cryptocurrency.

Regimes that expressly allow contributions via cryptocurrency. Contributions made via cryptocurrency are currently expressly permitted by law or official guidelines in at least six states (Arizona, Colorado, Iowa, Ohio, Tennessee, and Washington). Additionally, the FEC has indicated that contributions made via cryptocurrency are permitted as an in-kind contribution at the federal level.

The ability to give and receive cryptocurrency as a political contribution necessarily raises questions regarding the valuation of the contribution and the permitted uses of cryptocurrency by the candidate or political committee once it has been made. been received. Most regulatory regimes that expressly allow cryptocurrency to contribute treat cryptocurrency as an asset, analogous to a stock or publicly traded commodity. Colorado, Iowa, Ohio, and Tennessee have followed the FEC’s approach that the value of a contribution made in cryptocurrency is the fair market value of the cryptocurrency at the time the contribution is made. done. The candidate or committee then reports subsequent increases or decreases in the value of contributed cryptocurrency as “other income” or as an expense. Similarly, in these regimes, while cryptocurrency contributions are permitted as an in-kind contribution subject to applicable contribution limits, the use of cryptocurrencies to pay for campaign expenses is prohibited. Candidates and committees must first liquidate the cryptocurrency before using the proceeds to pay for any expenses in traditional US currency.

In contrast to this asset-like approach, Washington and Arizona treat cryptocurrencies as more closely analogous to traditional forms of money. This shared conceptual basis, however, has led Washington and Arizona to take very different approaches in their regulation of political contributions made via cryptocurrency. Washington has taken a fairly restrictive approach, providing that contributions made via cryptocurrency should be treated as the equivalent of cash contributions and limited to a cap of $100. RCW 42.17A.475. Additionally, Washington requires committees receiving a contribution via cryptocurrency to convert the cryptocurrency into traditional U.S. currency within five business days of receiving it. RCW 42.17A.220.

Arizona, on the other hand, has taken a more permissive approach. The Arizona Secretary of State acknowledged 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 applicable to traditional U.S. currency contributions. . . .” Consistent with this treatment of cryptocurrency as analogous to “traditional” U.S. currency rather than a commodity, Arizona has neither expressly endorsed nor specifically prohibited the use of cryptocurrency by political committees for buy goods or services. “This Office of the Secretary of State takes no position on the legality of any committee purchasing goods and services or incurring expenditures using cryptocurrency.”

Regimes that expressly prohibit contributions via cryptocurrency. Contributions made via cryptocurrency are currently expressly prohibited by law or official guidelines in four states (California, Michigan, North Carolina, and Oregon). In Michigan and North Carolina, the decision to ban contributions via cryptocurrency was not driven by concerns about foreign influence, but by the notorious volatility of cryptocurrency markets. Regulators in both states pointed to daily fluctuations in the value of cryptocurrency to prohibit cryptocurrency contributions, as regulators could not determine with certainty the value of such a contribution.

Regimes that neither expressly allow nor prohibit contributions via cryptocurrency. In most states, contributions made via cryptocurrency remain in a gray area – neither expressly permitted nor expressly prohibited by law or official guidelines. In Illinois and Georgia, campaigns are accepting contributions via cryptocurrency despite lacking express official permission to do so. In Georgia, the Executive Secretary of the Georgia Government Transparency and Campaign Finance Commission has informally advised that candidates and committees can accept cryptocurrency contributions if the recipient candidate or committee then immediately converts the cryptocurrency into currency. traditional American.

The bottom line. Using cryptocurrencies to make political contributions creates both risks and opportunities for donors and recipient candidates or committees. Candidates and committees may be able to access a new and growing base of unconventional political donors by accepting contributions made via cryptocurrency. Accepting contributions via cryptocurrency can also serve as an ideological or aesthetic signal to like-minded voters – the campaign finance equivalent of a cool shade set. The fluctuating value of cryptocurrencies also represents both an opportunity and a risk for candidates and committees. Small campaigns or campaigns facing strict contribution limits may attempt to maximize the value of early contributions by receiving and retaining contributions made through cryptocurrencies in the hope that the cryptocurrency will grow in value between the contribution date and polling day. More established campaigns, on the other hand, may prefer the stability of traditional U.S. currency, avoiding the increased compliance work associated with contributions made via cryptocurrency and the risk that the cryptocurrency will depreciate before it can be converted. in US currency. What is certain is that the use of cryptocurrencies in campaign finance remains a developing and complex regulatory environment. Prospective donors and candidates or committees should consult an attorney before making or accepting contributions via cryptocurrency.

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