California Bans Crypto Campaign Contributions

The Fair Political Practices Commission (FPPC) is a body created by the Political Reform Act- a ballot measure passed by California voters in 1974 as a reaction to national disgust with the Watergate scandal. It is tasked with curtailing corruption in politics by regulating campaign finance, lobbying activity and conflicts of interest.

What that means for most people is that if you donate to a campaign in California (not for federal level races) that contribution is reported to the FPPC.

This morning -September 20th, 2018- the Commission convened in Los Angeles and discussed whether to allow campaign contributions to be made using cryptocurrency. The staff memo laid out four basic options for the Commission to consider:

1: Prohibit all contributions in cryptocurrency.

2: Permit cryptocurrency contributions as cash contributions, limited to contributions of less than $100 from any source, and requiring cryptocurrency contributions to be converted to cash upon receipt and deposited into the campaign bank account.

3: Permit cryptocurrency contributions as in-kind contributions, but require that the contributions be converted to cash upon receipt and deposited into the campaign bank account.

4: Permit cryptocurrency contributions as in-kind contributions, without requiring conversion to cash, and allow committees to make contributions to maintain a separate cryptocurrency account and make expenditures from the account.

The Blockchain Advocacy Coalition submitted a comment letter supporting options 3 or 4, and in opposition to 1 and 2. We argued that the first two options are unnecessarily restrictive and would diminish the industry’s political engagement. The latter two would need some careful attention in rulemaking but could provide new advances in transparency in political contributions.

The meeting began by staff referencing that advocates (us?) have mentioned the traceability aspects of blockchain but that those aspects are “primarily used to prevent double spending using digital currency”. The misinformation continued from there. It quickly emerged that Commissioner Hatch was strongly in favor of option 1- prohibition.

He began asking if there was any way to tell if a contribution was from an individual who gave their name and occupation or if that person was really a ‘strawman for overseas influence’ or an ‘oligarch’. Staff responded that they were unsure how they would determine that. The Commission as a whole expressed concern for adding to staff’s caseload and the difficulty of tracing contributions. At no point did either the Commission or staff mention the possibility of finding out whether it is possible to trace contributions or learning about how that technology is used. There was no discussion of public/private blockchains, or the fact that whole voting systems have been built on blockchain and are ready to be piloted in other states.

Throughout the discussion cryptocurrency, bitcoin and blockchain were all used interchangeably by various staff and Commissioners. The spectre of Russian election meddling was raised again- one Commissioner blurted out “Manafort” as an apparent non sequitur.

Hatch said he’d like to see cryptocurrency prohibited just like traveler’s checks. When reminded that traveler’s checks are treated as an in kind contribution, as suggested in options 3 and 4 he responded with “Well, I want it treated even worse then”.

Despite staff’s attempt to outline that the value of the contribution would be recorded at the time of receipt- fears that campaigns would hold on to it and play the markets emerged. Having worked on many campaigns the concept of that level of fiscal sophistication is somewhat absurd. There is literally a calculator campaigns share to figure out how much pizza to order for phonebanks (3 slices per volunteer, 4 if it’s college kids folks!).

This market volatility question was provided for in the language given to the committee for options 2–4. And that language was undoubtedly taken from how the FPPC handles stock contributions. That’s right, you can give shares of stock or even a Monet to a political campaign in California but the FPPC can’t envision how to possibly handle a contribution that might ‘change in value’.

Commissioner Hayward made an argument for Option 2- treating crypto like cash and limiting contributions to under $100. She was met with pushback from Hatch. His rationale was that at fundraisers you put cash in what is known as a ‘remit envelope’ and write down your name, so cash must be more traceable than crypto. The Federal Election Commision’s ability to capture name, address, employer and occupation and affirmation that one is not a foreign national when contributing cryptocurrency (much like when you donate online with a credit card) was ignored. If you struggle to envision how that would work, here’s how Gavin Newsom is accepting bitcoin.

Chair Germond expressed that she thought they might reconsider later, but she ultimately sided with Hatch and Cardenas. The vote was 3:1. In the closing discussion the Commission mentioned that perhaps this will come back in 5 years (!) but that the state legislature could pass a law in the meantime. Its disappointing to see a regulatory body with the mission to increase transparency fail to do their due diligence in regulating technology that could help achieve that goal.

Let us know in comments by email to ally@blockadvocacy.org or on twitter @blockadco if you’d like to see a law mandating that the FPPC allow California campaigns to accept crypto.

https://www.blockadvocacy.org/

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