FEC Advisory Opinion Approving Bitcoin Contributions For Political Campaigns Leaves Open As Many Questions As It Answered

FEC Advisory Opinion Approving Bitcoin Contributions For Political Campaigns Leaves Open As Many Questions As It Answered

Written by: Kristen Marinaccio

It has been a long-standing tradition of the American campaign finance system that it is your right to contribute to candidates however you see fit. If you want to donate 5,000 plastic cups, you are entitled to make that contribution. [1] Currently, the Federal Election Commission permits political contributions in numerous forms including securities, bonds, and even works of art. It is permissible to donate electronically or digitally through the use of credit cards, electronic checks, and most recently text messages. [2] But, until this past May, the Federal Election Commission was split on whether or not to allow contributions in the form of Bitcoin.

Bitcoin is a cyber currency that is relatively anonymous and is not backed by the government or any central bank. Users can transfer Bitcoins to each other online and store the currency in digital wallets.[3] Bitcoin has grown popular with the younger tech savvy community due to the relative anonymity it offers, but that has also led to the currency being used for illegitimate purposes like the black market. [4]

On the one hand, the Bitcoin system raises concerns about political committees’ obligation to identify its contributors and determine the legality of contributions it receives. [5] There is the concern that the virtual currency could be used to mask the identity of donors.[6]  The crypto-currency allows for anonymous and untraceable transactions, which undermines the most important purpose of campaign finance laws, transparency and disclosure of political spending. [7] The prospect of anonymous or foreign donations, which are both prohibited under federal law, flowing into campaigns has caused unrest among those who oppose allowing Bitcoin contributions to be used in campaigns.[8]

On the other hand is the fact that it is your constitutional right to contribute to campaigns. Contributions are a “concrete and tangible expression for support that enables political speech [which is] at the core of the American political process.” [9] Ultimately Bitcoin is both an instrument of speech and commerce. [10] Accepting Bitcoin political contributions expands the number of Americans who can get involved with campaigns.[11]  And, it allows normal citizens to directly participate in the legislative process and have real political influence.[12]

And so, the FEC was tasked to grapple with the issue of how it should square modern technology with the country’s decades-old campaign finance laws.[13] The Commission issued guidance to allow political action committees to accept Bitcoin. But in reality, the decision left open as many questions as it answered. The ruling was ultimately only a direct response to a narrow proposal from a single political action committee, known as Make Your Laws PAC.[14] The proposal requested the acceptance of Bitcoin through an online form, in which each contributor would have to provide his or her name, physical address, occupation, and employer.[15]

The Commission voted 6-0 to allow Make Your Laws PAC to accept up to $100 worth of Bitcoin per contributor each election. In this advisory opinion, the Commission decided that committees “should value that contribution based on the market value of Bitcoins at the time the contribution is received.”[16] The catch is that while committees may accept Bitcoin, it must “either sell its Bitcoins or disburse Bitcoins to purchase goods and services.” In other words, the Commission isn’t allowing committees to make purchases with actual Bitcoin, but its not expressly prohibiting them from doing so either.

Additionally, the Commission did not formally address whether Bitcoin contributions should be considered cash or in-kind political contributions. It’s ruling provided that Bitcoin fits its definition of “anything of value”, which includes in-kind contributions, but ultimately the ruling took no explicit position on which of the two Bitcoin is more closely aligned.[17] This ambiguity creates a concern, as there are` dramatically different regulations for the two kinds of contributions. The current cap on cash contributions in federal campaigns is $100, where as in-kind donations, such as securities or a painting are subject to higher limits. Currently in-kind donations are permitted for up to $2,600 per campaign per year, $5,000 per PAC, $10,000 for state or local committees and $97,200 for national party committees.[18]

Chairman Lee Goodman, a Republican appointee, stated, “To me, the opinion that the commission approved today supports the right of Bitcoin users to contribute as they would all other kinds of value.” This suggests the advisory opinion treats Bitcoin donations as in-kind contributions, not as an official currency, and so the limits that apply are only the federal caps on all forms of accepted donations. [19]

Commissioner Ellen Weintraub, a democratic appointee, stated “[w]e have to balance a desire to accommodate innovation, which is a good thing, with a concern that we continue to protect transparency in the system and ensure that foreign money doesn’t seep in,” she emphasizes the importance of the $100 limit, providing that the low sum assuages concerns about the risk involved with the digital currency. [20]

Ultimately the ruling is only guidance about what is legal, as it does not establish a bright line about what is illegal. And so, it does not prevent political committees from testing the boundaries of federal law on crypto-currencies, nor does it diminish the risk that testing the boundaries may result in getting reviewed and possibly penalized by the Commission. [21] So in other words, accept more than $100 per election at your own risk.

 

[1] Rob Wile, PRESENTING Bit-PAC: New PAC Launches Just to Support Candidates Who Support Bitcoin, Business Insider (Jan. 8, 2014, 2:33 PM), http://www.businessinsider.com/the-first-ever-bitcoin-pac-has-launched-2014-1.

[2] Tom Murse, Can You Donate Bitcoins to Campaigns? What the Federal Election Commission Says About Digital Currency, About News, http://uspolitics.about.com/od/Money-In-Politics/fl/Can-You-Donate-Bitcoins-to-Political-Campaigns.htm (last visited Sept. 30, 2014).

[3] Peter Cooney, U.S. election panel approves Bitcoin donations to political committees, Reuters.com (May 8, 2014, 9:29 PM), http://www.reuters.com/article/2014/05/09/usa-elections-bitcoin-idUSL2N0NV02B20140509.

[4] Matthew Heller, FEC Decision Pushes Bitcoin Further Towards Legitimacy, MintPressNews.com  (May 19, 2014), http://www.mintpressnews.com/fec-decision-pushes-bitcoin-toward-legitimacy/190961/.

[5] Id.

[6] Matea Gold, Federal Election Commission Approves Bitcoin Donations to Political Committees, Washingtonpost.com (May 8, 2014, 12:49 PM), http://www.washingtonpost.com/blogs/post-politics/wp/2014/05/08/federal-election-commission-approves-bitcoin-donations-to-political-committees/.

[7] Julian Hattem, FEC Backs Bitcoin for Campaigns, TheHill (Apr. 23, 2014, 12:47 PM), http://thehill.com/policy/technology/204166-fec-supportive-of-allowing-bitcoins-for-campaigns.

[8] Jack Gillum, FEC: Donors Can’t Use Bitcoins for Contributions, AP (Nov. 21, 2013, 12:27 PM), http://bigstory.ap.org/article/fec-donors-cant-use-bitcoins-contributions.

[9] Fredreka Schouten, Supreme Court Weights Limits on Campaign Donations, USA Today (Oct. 3, 2013, 5:26 PM), http://www.usatoday.com/story/news/politics/2013/10/03/shaun-mccutcheon-supreme-court-campaign-finance-next-citizens-united/2914415/.

[10]  Rob Wile, PRESENTING Bit-PAC: New PAC Launches Just to Support Candidates Who Support Bitcoin, Business Insider (Jan. 8, 2014, 2:33 PM), http://www.businessinsider.com/the-first-ever-bitcoin-pac-has-launched-2014-1.

[11]  Tom Murse, Can You Donate Bitcoins to Campaigns? What the Federal Election Commission Says About Digital Currency, About News, http://uspolitics.about.com/od/Money-In-Politics/fl/Can-You-Donate-Bitcoins-to-Political-Campaigns.htm (last visited Sept. 30, 2014).

[12] Matthew Heller, FEC Decision Pushes Bitcoin Further Towards Legitimacy, MintPress.com (May 19, 2014), http://www.mintpressnews.com/fec-decision-pushes-bitcoin-toward-legitimacy/190961/.

[13] Peter Olsen-Phillips, Campaign Finance Enters the Age of Bitcoin, Sunlight Foundation Blog (May 8, 2014, 1:33 PM), http://sunlightfoundation.com/blog/2014/05/08/campaign-finance-enters-the-age-of-bitcoin/.

[14] Dave Levinthal, What the FEC’s Bitcoin Ruling Means Some Questions Still Unanswered About How Political Committees May Use Digital Currency, The Center For Public Integrity (May 8, 2014, 1:36 PM), www.publicintegrity.org/2014/05/08/14739/what-fecs-bitcoin-ruling-means.

[15] Mark Blinch, Bitcoin Approved For Political Donations, RT (May 08, 2014, 9:04 PM), http://rt.com/usa/157764-fec-okays-bitcoin-for-pacs/.

[16]  Dave Levinthal, What the FEC’s Bitcoin Ruling Means Some Questions Still Unanswered About How Political Committees May Use Digital Currency, The Center For Public Integrity (May 8, 2014, 1:36 PM), www.publicintegrity.org/2014/05/08/14739/what-fecs-bitcoin-ruling-means (last updated July 18, 2014, 3:25 PM).

[17] Id.

[18]  Michael J. Casey, Bitcoin Campaign Donations Get Green Light From FEC, The Wall Street Journal (May 8, 2014, 5:18 PM), http://blogs.wsj.com/moneybeat/2014/05/08/bitcoin-campaign-donations-get-green-light-from-fec/.

[19] Matea Gold, Federal Election Commission Approves Bitcoin Donations to Political Committees, Washingtonpost.com (May 8, 2014, 12:49 PM), http://www.washingtonpost.com/blogs/post-politics/wp/2014/05/08/federal-election-commission-approves-bitcoin-donations-to-political-committees/.

[20] Id.

[21] Bryon Tau, FEC Oks Bitcoin Campaign Donations, Politico (May 8, 2014, 11:50 AM), http://www.politico.com/story/2014/05/fec-oks-bitcoin-campaign-donations-106492.html.

Author: Kristen Marinaccio

Kristen is a second year law student at Rutgers School of Law – Newark and an Associate Editor of the Rutgers Computer and Technology Law Journal. She graduated from Franklin & Marshall College in 2013, where she double majored in Government and Business Organization and minored in Italian. This past summer, she interned for the Honorable Lisa Firko in the Civil Division of New Jersey Superior Court, while also working part-time as a legal intern for the Law Office of Kathleen Walrod. Kristen is currently involved in the Women’s Law Forum and serves as a student advocate for the Courtroom Advocates Project.