The California Fair Political Practices Commission recently decided that political candidates in the state cannot receive cryptocurrencies as campaign contributions. To make its decision, the commission was informed by a staff report that indicated virtual currency could make campaign finance violations much more difficult to investigate.
The commission is an independent body charged with administering the Political Reform Act of 1974, which "regulates campaign financing, conflicts of interest, lobbying, and governmental ethics."
In California, any campaign contribution in excess of $100 must be made via check or some other traceable method. Cash donations over $100 are not allowed, nor are cash expenditures larger than $100. The proposed regulations attempted to be consistent with these rules. According to the staff report:
"In light of the restrictions on cash contributions and expenditures … a question has arisen as to the permissible use of cryptocurrencies, such as Bitcoin, for campaign contributions and expenditures. While cryptocurrencies share some characteristics of cash, they are a relatively modern form of currency and not issued by a governmental entity."
Not counting the complete ban, the commission was presented with three alternative options, of varying permissiveness towards crypto. One of the options would have considered cryptocurrency contributions the same as cash, while the other two options would have treated them as "in-kind" contributions. The commission considered capping the amount of cryptocurrency donations (like cash) at $100.
Two of the alternative options would have required campaigns to convert cryptocurrency into US dollars within two days of receipt of the donation, while the third would have allowed campaigns to hold cryptocurrency. The staff recommended against allowing campaigns to hold crypto. According to the report:
"[A]llowing committees to maintain separate cryptocurrency accounts is inconsistent with the one bank account rule and would severely thwart enforcement efforts. Not only will it will be extremely difficult to identify to [sic] source of any particular contribution given the very nature of cryptocurrency transactions, the Enforcement Division would also face substantial hurdles in even accessing a committee's cryptocurrency accounts giving [sic] the large number of different cryptocurrencies in circulation and the possibility the account is located outside of California or the United States."
Ultimately, the body went with the simplest option. According to The Associated Press, the commission voted 3-1 to prohibit cryptocurrency donations outright.
"As a complete prohibition, this option would not need to address expenditures, and eliminates any concern over the traceability of cryptocurrency contributions," the staff report stated.
This regulatory change comes after Brian Forde, the Democratic congressional candidate out of Orange County, was reported to have been very successful in raising cryptocurrency contributions.