On Sept. 20, the crypto community was rattled by the news that California’s political campaign regulator ruled in favor of an outright ban of any and all cryptocurrency donations. It came across as a surprise for many that the progressive state, which is home to the world’s largest technology hub as well as to a politician whom Bloomberg calls the ‘Crypto Candidate for Congress,’ has suddenly set such a hard-handed regulatory precedent in the run-up to November’s elections.
If anything, the signals that emanated from the state’s Fair Political Practices Commission (FPPC) up to this point were largely positive: Just about a month ago, the commission considered the status of cryptocurrencies in state-level political campaigns. Although no definitive decision was reached at that time, commissioners were vocal about their reluctance to ban cryptocurrency from elections outright and expressed their willingness to do further research. How come the end result wound up so fiercely anti-crypto?
Preserving fair political practices
The Fair Political Practices Commission (FPPC) is a regulatory body tasked with ensuring the integrity and fairness of state-level elections of public officials in the state of California. Its main responsibility is to administer and enforce the 1974 law called the Political Reform Act — a major piece of anti-corruption legislation enacted in the wake of the Watergate scandal. The ambition of its sponsors has been to eradicate corrupt practices in state government by limiting the amount of money spent in elections and eliminating contributions from anonymous donors. The Act endows the FPPC with the power to institute, interpret and amend particular regulations that will advance fundamental principles of this law.
The FPPC is a five-person, non-partisan commission, meaning that no more than three members can represent one of the political parties. Its current chairperson is Alice Germond, who is a Democrat; so are Commissioners Frank Cardenas and Brian Hatch. One of the remaining seats is currently vacant, which leaves the fourth Commissioner, Allison Hayward, the only Republican on board.
Thanks to the transparency of the FPPC’s records, the process leading to issuance of the commission’s opinions is usually traceable in granular detail. A closer look into the steps and decisions that the FPPC members had to take is insightful in its own right — but it is also instructive on a larger scale. Since campaign finance legislation shares a certain degree of similarity across the states — as often does the design of the regulatory bodies that oversee its enforcement — the Californian case might be indicative to some extent of the scope and character of the issues that state-level watchdogs face when grappling with regulation of crypto in elections.
Staff reports and written comments
In the run-up to the Sept. 20 meeting, the FPPC issued a notice regarding the upcoming vote on the permissibility of cryptocurrencies for campaign contributions and expenditures. There are two main points of contention visible from the document. One applies to the question of whether cryptocurrencies should be treated the same as cash — and as such subject to same regulations — and another concern is the clause in the Political Reform Act that prescribes that a committee should only have one bank account in order to facilitate oversight.
The potential solutions outlined in the document represented the whole range of regulatory approaches: a blanket ban on using crypto for campaign contributions and campaign expenditures; capping crypto contributions at the same level as cash donations (i.e., $100); requiring that cryptocurrency contributions be converted to fiat and deposited to a campaign’s single account; allowing committees to establish separate cryptocurrency accounts and make expenditures from them; classifying cryptocurrency contributions as in-kind and thus removing the cash cap. These, however, were just preliminary policy options that left the door open for any other language at the commission’s discretion.
In response to the FPPC’s earlier call for conducting further research on cryptocurrencies before the final decision can be issued, at least two documents emerged in their sights prior to the Sept. 20 meeting. One was a product of the commission’s own staff’s research — a report put together by Acting General Counsel Brian Lau and Senior Counsel Zachary Norton. The document provides a description of cryptocurrencies’ structural features relevant to campaign finance law (with a nod to the classic traceability issues), clarifies their relation to the tenets of the Political Reform Act, sketches regulatory frameworks that exist in other states and on the federal level, and weighs potential policies listed in the FPPC notice against each other.
Despite dedicating substantial space to Bitcoin traceability concerns, the FPPC staffers sound fairly positive in their evaluations of two ‘soft’ policy options. They note that regulating cryptocurrency contributions the same way as those made in cash will effectively do away with traceability concerns: Such donations will be limited to a modest $100 and required to be converted to fiat before being deposited to a campaign’s single account. Lau and Norton also suggest that if the same standard of mandatory conversion is applied, crypto contributions could also be treated as in-kind donations without the risk of jeopardizing the integrity of electoral processes.
To be fair, they also mention that an outright ban would also solve traceability problems efficiently. The only policy option that staffers explicitly recommend against instituting is treating crypto donations as in-kind while permitting campaigns to maintain separate digital cash wallets. Overall, the report gives the impression of a balanced account and does not contain any language that could be interpreted as favoring a blanket ban.
Another detailed perspective on the issue submitted to the Fair Political Practices Commission ahead of the vote came in the form of written comments from a nonprofit organization called the Campaign Legal Center. It also presents an overview of existing regulation in other jurisdictions and specifies the essential properties of digital money. The argument dwells heavily on the dangers of cryptocurrency transactions’ decentralized structure and pseudo-anonymity, which are not very compatible, the authors note, with the Political Reform Act’s spirit of maximum disclosure.
Moreover, by allowing for an unlimited number of wallets per person, cryptocurrency systems “readily furnish a means for unscrupulous donors to funnel excess contributions through straw donor transactions.” And what sounds even more disturbing is that they “could provide a relatively simple method for foreign entities and other prohibited sources to direct money into California elections surreptitiously.”
This vivid description of crypto threats to election integrity notwithstanding, the recommendation part of the Campaign Legal Center’s comments does not advance the idea of an outright ban. Rather, the nonprofit stands with the option that proposes to subject crypto contributions to the same regulations as those in cash — with a $100 cap per donor and a requirement to convert crypto to cash before depositing.
On Sept. 20, four commissioners voted on the proposed regulation options, resulting in a 3-1 tally in favor of a blanket ban of cryptocurrencies from campaign finance, effective immediately. As the FPPC’s communications director Jay Wierenga explained to Breaker magazine, the main rationale for the decision has been transparency woes. Apparently, the majority concluded that the standards of openness and traceability that inform the Political Reform Act cannot be met with crypto contributions. It’s hard to tell why the vote went down this way despite the generally positive tone of the two major supporting analytical reports. Perhaps gory depictions of potential dangers permeating those narratives dwarfed reasonable — yet cautious — suggestions in favor of a more friendly approach. Or maybe the committee led by a 75-year-old politician, who is bound to step down in January 2019, simply decided to play it safe. At any rate, against the backdrop of opaque federal regulations and the impending election season, California has set a precedent that other states facing similar regulatory pressure might want to follow.
Nine states and DC
Elsewhere in the country, regulation of political contributions made in cryptocurrencies remains scarce: only one in five states has any kind of ruling on the matter is in place. Here’s the roundup of the existing state-level regulations across the US.
In July 2018, Colorado Secretary of State approved amendments to the Campaign and Political Finance Rules that first mentioned cryptocurrency contributions. Unchanged from the first version of the draft published in May, new regulation holds donations made in digital money to the same limit as regular cash donations. The USD value of crypto received is to be determined by the market value at the time of contribution, and campaigns are obliged to report all subsequent gains and losses as well.
District of Columbia
DC has had some professional phrases on cryptocurrency donations because overdue 2014, when its Board of Elections added new rules to title 3 (Elections and Ethics) of the District of Columbia Municipal rules. The documentmentions ‘Bitcoin contributions’ and specifies the order wherein they need to be liquidated and mentioned as in-kind. The text means that the cap isn’t any extraordinary for crypto donations than some other type.
In October 2017, in reaction to a candidate’s request for guidance on whether they might take delivery of bitcoin donations, Kansas Governmental Ethics commission opined that virtual foreign money was ‘too secretive’ to be used in marketing campaign finance. it is unclear, but, if the scope of the ruling encompasses cryptocurrencies apart from bitcoin.
In Massachusetts, the guidelines governing cryptocurrency donations to political committees are summarized in a January 2014 letter that the country’s office of campaign and Political Finance produced in reaction to Massachusetts Pirate partyp.c’s request of an opinion on the difficulty. The essence of the ruling is that ‘contributions in Bitcoins’ are approved and situation to the same limits and disclosure necessities as fiat contributions, with a 5-day period for liquidation. It isn’t always allowed to immediately use crypto for marketing campaign expenditures, due to the fact country regulationholds it that any marketing campaign buy exceeding $50 have to through paid for with a check from an official committee account.
A similar sample is visible in an advisory opinion issued with the resource of the office of Montana Commissioner of Political Practices, also in January 2014. Receipt of crypup to date contributions is authorized, but charges can best be produced from a ‘number one advertising campaign deposiupdatedry,’ for this reason there may be no such element because the candidate’s legitimate crypup-to-date pockets. The time period allowed for converting crypup-to-date up to date US greenbacks is tighter, although: committees up-to-date liquidate the contribution inner 24 hours from receipt.
In August 2018, the North Carolina country Board of Elections marketing campaign Finance workplace responded up-to-date a crypup to date-relatedinquiry through using a candidate named Emmanuel Wilder with a firm ‘no,’ citing the regulaup-to-dater’s lack of potential up-to-date as it should be manipulate such contributions, furtherupdated the reality that it’s miles not possible updated reliably ascribe cost updated crypup-to-date assets.
Oregon up to dateok a more flexible stance, as Secretary of nation Dennis Richardson came ahead in June 2018 with a proposed set of rules designed up to date reflect the FEC’s technique of permitting contributions however now not prices up-to-date be made in crypup-to-datecurrencies. Arguing that ‘crypupdatedcurrency is right here up-to-date live,’ Richardson up-to-date the circulate ‘modern wayup to date extend participation in Oregon elections.’ In August 2018, the rule of thumb became followed.
In South Carolina, the residence Legislative Ethics Committee resorted up to date formal motives while substantiating their desire updated propose in competition updated crypup to date marketing campaign donations closing April. in keeping with the Committee, because the statuup to datery definition of a contribution does not include something like crypup-to-datecurrencies or digital property, the ones can’t function a way of financing political campaigns.
Tennessee law treats digital forex contributions up to date coins contributions, mandating that crypupdated is liquidated earlier than it is able upupdated be spent for advertising marketing campaign needs. The monetary cost of crypup-to-date donations is determined by usingthe marketplace price on the time of receipt.
The Wisconsin u . s . a . Ethics fee, even as confronted with a request updated treatment the issue of crypupdatedcurrency’s popularity as a carupdated for political contributions in April this yr, opted up-to-date skip it onup to date the kingdom legislature. As of overdue September, the Wisconsin nation assembly hasn’t yet addressed the difficulty.
Does the most current California ban suggest that Brian Forde isn’t getting any extra donations in support of his congressional bid from fellow crypupdated entrepreneurs? under no circumstances. The fair Political Practices commission’s ruling best concerns the elections of California public officials and has nothing updated do with the state’s candidates for national offices. those running for the U.S. Congress and presidency up to date comply with steerage of the Federal Election commission (FEC), which has been anything but definitive up-to-date.
A 2014 FEC advisory opinion nevertheless stands as the most effective waymark for those seeking up to date comply with the law while soliciting donations made in crypupdatedcurrency. It simplest mentions Bitcoin and treats it as an in-typedonation that up to date be deposited up-to-date the marketing campaign’s foremost account before up to dateupdatedbe spent. The record additionally deems contributions of as much as $one hundred in line with donor permissible. however, since the advisory opinion is a reaction up-to-date a selected inquiry that handiest concerned contributions as much as $100, it does not specially deal with instances when the $one hundred cap is handed. some applicants avidly make the most this prison gray region up to date obtain crypup-to-date donations really worth as much as $2,700 in line with donor.
within the international where the us house Judiciary Committee chair discloses his ownership of a good-looking chewof digital wealth, a more complete and 3177227fc5dac36e3e5ae6cd5820dcaa set of suggestions for crypup to datemarketing campaign finance is lengthy past due. The extra candidates and voters are becoming comfortable with virtualcash, the greater common crypup to date donations up-to-date. there may be already a registered 2020 presidential candidate who announced his include of Bitcoin as a method of supporting the campaign, and lots of extra will truelyobserve match. Crypup to date–precise political motion committees (%) are coming up to date fruition.
It is very likely that serious legislative work in this area is already underway, and there is hope that national policymakers will adopt a more open-minded approach than did their Californian peers. Granted, anti-crypto fear-mongering is still widespread, as are some legitimate concerns and calls for watchful approach to sensitive legislation. However, there are also signs of countervailing narratives gradually gaining traction among policymakers, which suggests that blanket bans will eventually give way to more nuanced and sensible regulatory architectures.