LOS ANGELES — The U.S. Federal Election Commission has taken a leap into the Digital Age, approving the use of the virtual currency Bitcoin to make financial contributions to political candidates.
The FEC’s move comes as several candidates running in this year’s midterm elections have started accepting Bitcoin contributions. In an opinion issued earlier this month, the agency’s six commissioners unanimously adopted guidelines proposed by the Make Your Laws political action committee.
The Federal Election Campaign Act defines a “contribution” as “any gift … of money or anything of value,” and, the commission concluded, Bitcoins “are ‘money or anything of value’ within the meaning of the Act.”
Under Make Your Laws’ guidelines, contributions will be limited to $100 per donor per election cycle and, to promote transparency, an individual must provide identifying information, including name, physical address and employer, in order to make a contribution.
While Bitcoins are now widely accepted as an alternative to credit cards on e-commerce websites, their use in the political arena is being hailed as a major step toward legitimacy.
“The [FEC’s] decision reinforces Bitcoin’s parity with the dollar on the world political stage,” Marco Santori, chairman of the Bitcoin Foundation’s Regulatory Affairs Committee, told MintPress News.
“Over the course of the last year, we have witnessed explosive growth in Bitcoin adoption by merchants and consumers,” he added. “The FEC’s decision continues this trend and permits users to vote with their Bitcoins, just as others can vote with their dollars.”
Last year, the commission balked at a Bitcoin proposal submitted by the Conservative Action Fund PAC after critics including Make Your Laws raised concerns about transparency, auditability and the prevention of money laundering.
Bitcoin has grown in popularity in part because of the anonymity it offers, but that has also led to it being used on the black market. U.S. Attorney General Eric Holder recently told lawmakers that virtual currencies are a challenge for law enforcement because of their possible use to hide criminal activity.
“The Bitcoin system raises serious concerns with regard to a political committee’s obligation to identify its contributors and determine the legality of contributions it receives,” two FEC commissioners noted in a statement.
Make Your Laws founder Sai, who goes by only one name, believes the approach his group suggested to the FEC meets “the standards for accounting for transactions, deterring illegal contributions, and ensuring the collection of donor information.”
“I think this development is quite positive for Bitcoin,” he told MintPress. “It has historically had an association with only illegitimate use. The more that it is adopted for legitimate usage, and seen in at least a reasonably friendly light by regulators, the better it will be treated over time.”
“Empowering ordinary people”
Make Your Laws says its mission is “to allow normal citizens to directly participate in every aspect of their legislative process.” To that end, it is developing its website into a vehicle for making political contributions.
“You’ll be able to contribute to any political entity in the U.S.,” Sai explained, adding that the site will provide one-stop shopping for contributions.
“We aren’t per se interested in the success of Bitcoin,” he said. “We’re interested in empowering ordinary people to have real political influence.”
Make Your Laws, however, didn’t want to jump blindly into offering contributions-by-Bitcoin. If a regulatory framework could be crafted with the FEC, Sai reasoned, that would benefit not only contributors, but also candidates, who wouldn’t have to worry about running afoul of the government.
“They can just point people to our website and we will handle it all, sending the [contribution] to them as an earmark disbursed to their official campaign depository,” he said.
The Conservative Action Fund PAC filed a request with the FEC in August seeking an advisory opinion on the legality of Bitcoin contributions. The total value of Bitcoins in circulation is more than $1.3 billion, the request noted, and Bitcoins account for more than $1 million of daily trade in the U.S. alone.
“[T]he FEC should have no concern in permitting individuals to make online Bitcoin contributions to CAF,” the PAC stated. “… And nothing suggests that online contributions of Bitcoins would in any way compromise the intent of either FECA or current FEC regulations.”
Make Your Laws pointed out several problems with the proposal. “PACs and other regulated recipients should be allowed to accept Bitcoin-based contributions, if and only if they meet restrictions … designed to prevent illegal activity under the FECA and BSA that is an inherent risk of Bitcoin’s anonymous design,” it told the commission.
Those restrictions, Make Your Laws said, should include requiring PACs to only accept contributions made through a one-time linked Bitcoin address and maintain a record of the linked address for each transaction. Contributions should also be limited to $100 per year per recipient per contributor.
In November, the FEC commissioners deadlocked 3-3 on the Conservative Action Fund proposal, presenting Make Your Laws with the opportunity to come up with an alternative. “[We were] in a unique position to turn around and propose something,” Sai told MintPress.
Prophylactic measures
Recipients of Bitcoin campaign contributions have so far included the Libertarian Party, which has said it collects between $10,000 and $20,000 in Bitcoins a year. Others accepting contributions are Texas Attorney General Greg Abbott, a candidate for governor in that state; Jim Fulner, a Libertarian running for the U.S. Senate in Michigan; Blaine Richardson, a Republican candidate for U.S. Representative from Maine; and Oakland, Calif., mayoral candidate Bryan Parker.
The request that Make Your Laws submitted to the FEC in February incorporated many of the suggestions it had made during the review of the Conservative Action Fund proposal. According to Sai, “The combination of the $100 [contribution] limit and the clear explanation for how we would meet the legal requirements to accept contributions were … critical” to winning the commissioners’ votes.
“[T]he $100 limitation on MYL’s acceptance of Bitcoins was a material aspect of the proposed transaction upon which we relied when joining our colleagues in approving MYL’s request,” Commissioners Steven T. Walther and Ellen L. Weintraub said in a statement.
“The fact that Bitcoins are ultimately untraceable makes prophylactic measures at the outset of the transaction particularly important,” they added, citing Make Your Laws’ commitment to require Bitcoin contributors to affirm they are not foreign nationals before it accepts a contribution.
The FEC’s decision falls short of a formal rule-making that would have the effect of a mandate. Walther and Weintraub indicated that a rule-making was “the better approach to this issue.”
Sai told MintPress the $100 limit is not mandatory but is the “de facto standard for now, and will be until someone else comes along asking to do things differently, which will probably happen within a couple of months.”
“The decision left open as many questions as it answered about the digital currency …” the Center for Public Integrity said on its website. “That’s because the commission, in voting 6-0, ruled in a relatively narrow fashion on an request from a single political action committee.”
The FEC did not address, among other things, whether Bitcoin contributions that are received and not liquidated can be disbursed directly to pay for goods and services.
But Sai believes that “Now that the FEC has unanimously ruled that our proposed method for accepting and accounting for contributions is permissible, [political] committees that would otherwise have been in theory willing to accept Bitcoin but leery of potential legal risks will hopefully feel freer.”
“One hundred dollars may not seem like much,” he said, “but it’s in the range of most normal people’s contributions, and it adds up to potentially a lot of activity if people choose to adopt Bitcoin.”