Does the FEC Have a Plan to Deal With Crypto? – WhoWhatWhy

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When it comes to the rules for cryptocurrency and non-fungible tokens (NFTs) in campaign finance, it's a bit like the Wild West: anything goes, and there's no sheriff in town. As a result, "crypto," an underregulated and easily manipulated financial technology, threatens the basic tenets of campaign finance regulations, experts say, allowing bad actors to take advantage of lax rules.

“It's such a poorly regulated area that I think it poses challenges to all three pillars of our campaign finance law,” said Stephen Spaulding, a campaign finance expert at Common Cause.

On the one hand, the unstable cryptocurrency market poses problems for individual contribution limits. That is the first pillar.

“We know its value is what it is on the day the campaign receives it, but then its value can fluctuate wildly and be manipulated in a way that works to the advantage of the campaign,” Spaulding said.

The value of a contribution handled in this way could exceed individual contribution limits without anyone knowing.

“We have contribution limits in place for a reason, to protect against corruption and the appearance of corruption,” Spaulding said.

Valuation is the key issue with cryptocurrency. Items with stable values ​​can easily be compared to the individual contribution limit imposed by campaign finance laws. Volatile items without reliable standards of value may allow donors to exceed these limits, circumventing the law.

“If you give cash or even say you donate something in-kind, like a car, you have a relatively stable and clear way of valuing that item,” said Daniel Weiner, director of the Brennan Center's Government and Elections Program. Weiner previously worked with Commissioner Ellen Weintraub at the Federal Election Commission (FEC).

“What you need is some objective measure of value that is reasonably reliable and not just basically what someone randomly decides,” he added. “Obviously, Crypto is like a whole different ballgame sometimes. Certainly the Sam Bankman-Fried fiasco, the scandals that we've seen, just lead to a real sense that cryptocurrency is volatile and it's not really something that's easy to figure out what you're dealing with."

The valuation problem is integral to what Spaulding calls the "Wild West" of cryptocurrencies.

Volatility, unstable valuation and the uncertain regulatory environment are cause for concern.

“It's the combination of volatility and a lack of objective and reliable valuation measures,” Weiner said. “That doesn't make it impossible. The art market also does not always have objective and reliable valuation measures, but the same volatility does not exist. The two things combined naturally make regulators, not just in the campaign finance space but more generally, very nervous."

“At the time, all we knew about Bitcoin was that it was used for all sorts of illegal activities, so there was a lot of concern about this request,” Ravel said. "Except for the fact that it's very limited in terms of quantity."

If cryptocurrency contributions are treated as liquidable items of value (the category that covers stocks, bonds, artwork, and other securities), the contributions are valued at the market rate when received. According to Myles Martin, public affairs specialist for the FEC, neither the donor nor the campaign is supposed to have control over what the action does.

In addition to possible circumvention of contribution limits, experts are concerned that cryptocurrency could allow foreign influence in US elections.

"Because of the difficulty of tracking it, although in some cases they have some kind of tracking, but not enough to identify who is really behind the money, that was a big problem due to foreign interference in the elections," said the former Commissioner. of the FEC, Ann Ravel.

This concern is especially pronounced after the 2016 elections.

Foreign influence is not the only avenue through which cryptocurrency threatens the principle of disclosure, the second pillar of campaign finance law.

Campaign finance law prohibits contributions on behalf of another person. The opacity of cryptocurrencies creates opportunities to do just that, Spaulding said.

So far, cryptocurrencies and NFTs have outpaced FEC decisions on their use by campaigns and political donors, making enforcement difficult, the third pillar.

“The FEC is simply not set up to respond nimbly to emerging trends in political finance,” Weiner said. “Democratic and Republican appointees have increasingly divergent ideological perspectives on the basic adequacy of government efforts to regulate money in politics. When presented with a novel issue that, frankly, they don't fully understand, commissioners are likely to retreat to some degree into their ideological corners."

The FEC last issued a major decision on cryptocurrencies in 2014, when Bitcoin was first moving from the black market to the mainstream, trading at a price average of $526.92, and was just starting to take on small-scale competitors called altcoins. In 2014, the largest exchange at the time, Mt. Gox, crashed, and the first Namecoin NFT had just been minted.

Make Your Laws PAC (MYL) intended to allow Bitcoin contributions to its committee in amounts equal to $100. Explaining their decision to allow these donations, three commissioners compared contributions to cash donations.

“Given their potentially anonymous nature, bitcoin contributions are more like cash contributions, on which the Act places strict limits,” wrote the commissioners, who included Weintraub, Ravel, who was then vice president, and an independent commissioner. "For this reason, the $100 limitation on MYL's acceptance of bitcoins was a material aspect of the proposed transaction that we relied on when we joined our colleagues in approving MYL's application."

Despite the doubts, Ravel and his colleagues voted to approve the opinion.

“At the time, all we knew about Bitcoin was that it was used for all sorts of illegal activities, so there was a lot of concern about this request,” Ravel said. "Except for the fact that it's very limited in terms of quantity."

Martin said that at current amounts, which exceed $100, blockchain technologies would not be considered comparable to cash contributions. In the absence of further FEC decisions, or acts of Congress, campaigns should rely on the 2014 advisory opinion for legal guidance.

Candidates like Blake Masters (R) in Arizona have been quick to use cryptocurrency and related technologies like NFTs to raise funds. Masters, a conservative Senate candidate, was one of the top recipients of cryptocurrency contributions. The campaign reported a total of $171,626.91 in contributions settled through Coinbase, a cryptocurrency exchange. WhoWhatWhy has not been able to corroborate claims made by the campaign about their crypto-related FEC filings.

Ravel doesn't think a new orientation is likely.

“It was a compromise in the Bitcoin decision,” Ravel said. "It really happened because the Republicans were willing to go to the bottom line."

Guidance from the FEC may not be available anytime soon due to differences of partisan opinion on campaign finance issues.

weiner has defended to resolve the deadlock in the FEC through legislation that would provide an odd number of commissioners, including a required independent.

Absent federal action, Michigan, North Carolina, and Oregon have banned cryptocurrency contributions. California lifted its ban, according to Reuters reports, joining Arizona, Colorado, Iowa, Ohio, Tennessee and Washington in giving the green light.

Meanwhile, campaigns are free to accept and sell NFTs, invest in cryptocurrency, and accept cryptocurrency donations. These elements are considered securities by the Securities and Exchange Commission (SEC). Coinbase, a cryptocurrency exchange, disputes this classification.

“The law is very clear that you can give something of value to a campaign,” Weiner said. "It's really just this practical question of what is the value."

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