Kansas Governmental Ethics Commission Recommends Against Bitcoin Campaign Contributions

On October 25, 2017, the Kansas Governmental Ethics Commission (GEC) assessed that bitcoin is too secretive and too untraceable to allow campaign contributions using the digital currency. The guidance was issued in response to a request by a political candidate, who sought clarification on the legality of accepting campaign contributions made in bitcoin. On Friday, ETHNews spoke with Mark Skoglund, executive director of the Kansas GEC.

The Kansas GEC is telling candidates to “not accept bitcoin at this time until further study can be conducted,” said Skoglund, who declined to identify the crypto-curious candidate. Guidance does not carry the “enforcement weight” of a formal advisory opinion, he noted. By following a formal advisory opinion, a person would be “deemed to have followed the law.”

For members of the GEC, the greatest concern was that bitcoin is “not auditable.” Blockchain explorers and investigative services offered by firms like Chainalysis were not part of the GEC’s discussion.

Another discussion point was the risk of malicious actors impacting elections. “The greatest problem would be the strong probability of influencing local elections by totally unidentifiable lobbyists,” said Commissioner Jerome Hellmer. “If you think the Russians affected the presidential election, just wait. This is what’s going to happen.”

In 2014, the Federal Election Commission (FEC) opined that bitcoin could be accepted under limited conditions. Per the FEC’s bitcoin Q&A, contributions should be calculated “based on the market value of bitcoins at the time the contribution is received.”

But what is the “market value of bitcoins?” Which exchange or group of exchanges should be referenced? The price of bitcoin varies between exchanges, so should candidates just pick the most advantageous rate? The answer isn’t clear.

As far as reporting contributions received in bitcoin, the FEC advised that the initial receipt of bitcoin should be reported like in-kind contributions. That is, bitcoin should be treated like goods or services offered either for free or at less than the usual charge. The FEC also provided guidance on liquidating bitcoin through sales to known and unknown purchasers.

“If the committee sells the bitcoins directly to a purchaser, and therefore knows the identity of the purchaser, the purchaser is considered to have made a contribution to the committee,” wrote the FEC. Unknown purchasers are not considered to have made a contribution to the committee.

Another complication for bitcoin-based campaign contributions is the digital currency’s tremendous volatility. Imagine if you made the maximum allowable contribution in bitcoin, and the value of the digital currency doubled before the candidate converted it into dollars. How would a candidate report the gain? Is this fair to other voters? For states with low contribution limits, the problem could be even more pronounced.

In the Sunflower state, campaign contribution limits have not risen for nearly 30 years. In February 2017, a measure to raise contributions was struck down, keeping in place the limit of $2,000 to gubernatorial candidates and $500 to candidates for the state House.

Fortunately, the opacity of bitcoin should not prove too dangerous in politics, at least in Kansas. This is because the state caps anonymous contributions at 50 percent of the amount a candidate can receive from an individual in an election cycle. In state-wide races, that means that the $2,000 individual cap equates to a $1,000 cap on cumulative anonymous contributions. For state Senate races, these amounts are $1,000 and $500 respectively, and for local or state representative races, these amounts are $500 and $250 respectively.

Although candidates like Brian Forde in California and Patrick Nelson in New York have accepted campaign contributions in bitcoin, the dearth of reporting standards remains worrisome. In December 2017, Skoglund plans to raise the issue of bitcoin campaign contributions at the Council on Government Ethics Laws.