Are PACs allowed to accept limited Bitcoin contributions? Yes.

The third draft was unanimously approved. You can see our live hangout of the meeting on YouTube. We'll post more detailed updates soon.

Our request | Drafts & our response | Official docs | Orgs taking BTC | Previous BTC AOR | FEC Record summary

Recently, the FEC was asked to consider whether Bitcoins should be allowed in political contributions. Because the PAC requesting to use Bitcoins wasn't able to explain how they would know who made the contributions, the FEC ultimately deadlocked on their advisory opinion request (AOR). In the meantime, other political committees are already accepting Bitcoin, without any guidelines for how to do so properly.

We strongly believe that campaign finance needs to be done in a transparent, auditable, and responsible manner. We also want to give our users the ability to make political contributions using Bitcoin.

In order to set an example for how this can be done responsibly, on February 10th 2014, Make Your Laws PAC (MYL PAC) submitted a new request, proposing how we intend to accept Bitcoins.

Because of the legal context of this request, we can only ask the FEC to approve our own activity; we can't ask them to impose requirements on other political committees. However, if we are successful in getting the FEC's approval for our method, it's likely that other political committees will adopt the same policy.

Here's a summary of our proposal:

  1. Receiving Bitcoin
    1. We will only receive Bitcoins online (i.e. no "physical" Bitcoins), after the contributor provides their information, and only through a "one-time linked address" system that makes it harder to contribute in someone else's name.
    2. We will keep records of all Bitcoin-specific transaction details (much like the records kept for check or credit card contributions).
    3. We won't accept any Bitcoins or Bitcoin-derived contributions from any "issue advocacy" (501(c)4) organization.
    4. Both the "traditional" and "SuperPAC" sides of MYL PAC (which is a "hybrid" SuperPAC) will follow the same rules. Bitcoin contributions will be separated the same as any other assets (e.g. with separate "contribution" vs "independent expenditure" wallets).
    5. We will refund Bitcoins in USD only, for contributors who have identified themselves to us. (Our request doesn't address anonymous contributions.)
    6. We won't accept more than $100 worth of Bitcoin (per contributor, per election), because even with our proposed accounting methods, Bitcoin's auditability is more like cash contributions than like contributions mediated by banks.
  2. Spending Bitcoin
    1. We won't directly spend Bitcoins for solicitation, advertising, polling, transfers, loans, refunds, candidate appearances, or political contributions (including transfers to other PACs). Instead, we'll liquidate them to US dollars first.
    2. We will spend Bitcoins for administrative/overhead expenses (including normal transaction fees to anonymous Bitcoin miners), salary, travel, campaign materials, and campaign event expenses (not including payments to candidates).
    3. We will accept merchants' Bitcoin-specific discounts (if they're offered equally to non-political clients).

Why different treatment for some types of spending and contributions?

A 501(c)4 is only supposed to do "issue advocacy" (e.g. "Yes on Proposition X" type campaigns, lobbying, etc). In doing so, they are allowed to accept totally anonymous money. By contrast, PACs affect political elections, and anyone doing so is required to only use money from openly disclosed, non-foreign sources.

There's currently a giant loophole in that system which lets 501(c)4s effectively bypass that restriction and give up to half of their assets to a SuperPAC, which can then use the money to run political ads — even though the ultimate contributors aren't reported and might not even be legally allowed to influence US elections. (The IRS is currently considering closing this loophole.) Because 501(c)4 contributions may ultimately originate from a totally anonymous third party or a foreign national, especially in the case of Bitcoin, we believe that a PAC shouldn't accept any Bitcoin contributions from a 501(c)4.

We feel that it should be fine for a PAC to use Bitcoin to buy food, pay salaries, and other relatively less sensitive items — but that money spent on advertising, political contributions, etc., should go through better regulated, traditional banking channels, which are easier to audit when necessary.

What we didn't cover

In order to simplify this request, we decided not to include a few things that we'd like to see addressed:

  1. We believe that Bitcoin contributions that are anonymous, suspicious, or illegal for a PAC to accept should be given to the US Treasury, or to a 501(c)4 or 501(c)3 (which, unlike PACs, are allowed to take totally anonymous contributions and contributions from foreign nationals). However, current FEC regulations require even clearly illegal contributions to be returned to the contributor.

    It is not currently possible to reliably return Bitcoins to the control of the person who sent them, and we believe it is more ethical to give illegal campaign finance contributions to an entity allowed to take anonymous contributions than to return them.

    Even worse, it is impossible to prevent totally anonymous Bitcoin users from sending us Bitcoins outside of our system for getting information on contributors. Any such contributions would be both illegal for us to possess and impossible to return, so we believe we should be allowed to give them to an entity allowed to accept unlimited anonymous contributions.

  2. We believe that 501(c)4s can accept unlimited, completely anonymous Bitcoin contributions, so long as they are only used for genuine issue advocacy (or contribution to charity) and never, directly or indirectly, used to influence the election of any politician.

  3. We believe that some unusual and/or malicious Bitcoin contributions (e.g. ones that are more expensive to spend than they're worth) shouldn't be counted at all.

We intend to raise some of these issues in a future AOR, when we have a specific situation to address (e.g. if we receive an anonymous Bitcoin contribution). Some issues (like refunds or a cap on the total amount given) might be addressable through an "as applied" interpretation of existing regulations, or might require regulatory or legal changes.

FEC's draft opinions and our comments on them

The FEC has so far issued two drafts, A and B. We filed comments on both. Here's a summary of the major points; please read the full docs for details.

  1. Draft A

    • We may accept and refund Bitcoins per our policy above.
    • Bitcoins may be treated as in-kind contributions.
    • We may both hold and buy Bitcoins.
    • We may expend Bitcoin per our policy above, but only from Bitcoins we receive as contributions and hold unliquidated — not from Bitcoins we purchase.
    • Bitcoin is valued at either at the market price at the time of transaction or at the actual price given by our Bitcoin processor (if converted to currency "contemporaneously").
  2. Draft B

    • We may accept and refund Bitcoins per our policy above.
    • Bitcoins are not currency per se, but must be treated like currency contributions.
    • We may not hold Bitcoin and must immediately convert it to currency held in a depository institution (e.g. a bank). However, we may buy Bitcoins for investment purposes.
    • We may not make direct expenditures with Bitcoin at all.
    • Bitcoin is valued at the market price at the time we first receive notice of the authorization or completed transfer (even if it changes price between receipt and contemporaneous liquidation).
    • Bitcoin contributions must be subject to our proposed $100 limit.
    • We must dispose of un-identified Bitcoin contributions to permitted recipients (e.g. a 501(c)4, 501(c)3, or the US Treasury).
  3. Our comments on drafts A and B

    • Differences between the two drafts

      • Bitcoin is cash-like in terms of difficulty to audit, but definitely not currency/cash/money; it's more like gold or silver pieces. Treating it as "cash" more broadly would be very problematic (see our comments on the previous Bitcoin AOR, first comment, p 7-8).

        Our proposed compromise: we should be required to have the $100 limit (as in B), but allowed to expend non-liquidated contributions and treat Bitcoin as an in-kind contribution (as in A).

        A further compromise could be made by limiting Bitcoin expenditures to $100 too (like the limit on petty cash).

      • We prefer A's valuation method; B's clause for disposal of unidentified contributions; and B's reporting method for immediate conversions.
    • Other issues with both drafts

      • The opinion should use the term "virtual currency" to describe Bitcoin, not "currency", since the latter would be confusing (it's not accurate and is a legally defined term in the FECA).
      • We should always be allowed to pay normal transaction fees (including to anonymous Bitcoin miners), in Bitcoin.
      • We should be allowed to deduct the cost of making a refund (e.g. of an excessive donation) from the refund itself, and if that's more than the refund, dispose of it to a c4/c3/etc.
      • We should be allowed to deduct the cost of processing an earmarked contribution from the amount we disburse to the recipient (since we're not the ones even receiving the money).
      • We shouldn't have to connect a sale of Bitcoin to specific contributions, since that might not even be possible.
  4. Draft C

    • We may accept and refund Bitcoins per our policy above.
    • Bitcoins may be treated as in-kind contributions.
    • We may both hold and buy Bitcoins.
    • Deadlock on whether we can expend Bitcoins.
    • No comment on our $100 limit (i.e. it is part of the circumstances of the request, but the opinion does not say whether it is required or not).
    • Bitcoin is valued at either at the market price at the time of transaction or at the actual price given by our Bitcoin processor (if converted to currency "contemporaneously").

How you can get involved

Draft C was unanimously approved by the FEC on May 8th.

Please create an account, and we'll let you know when we launch the Make Your Laws democratized campaign finance website and invite you to the beta. (What you see now is only a placeholder.)

You can always email us at team@makeyourlaws.org if you'd like to help us get launched sooner. Coders, designers, & financial backers would all be very helpful. See the 4-slide pitch to get the tl;dr of what's coming up, our tech stack, and how you could help.

Official filings in AO 2014-02 (MYL PAC re Bitcoin)

2014-05-08: Official statements released by FEC Chair Goodman (R) and Vice-Chair Ravel, Commissioner Walther, & Commissioner Weintraub (D).

2014-05-08: Final advisory opinion 2014-02 issued.

2014-05-08: The FEC unanimously approved Draft C. (MYL video, FEC audio)

2014-05-07: The FEC issued its third draft opinion.

2014-05-07: The Bitcoin Foundation submitted comments.

2014-04-23: The FEC held an open meeting (MYL video, FEC audio).

2014-04-22: We filed comments responding to Louis Joyce's comments. (FEC scan version)

2014-04-20: We filed comments on drafts A and B. (FEC scan version)

2014-04-18: Louis Joyce filed comments on drafts A and B.

2014-04-17: The FEC published its second draft opinion.

2014-04-16: The FEC published its first draft opinion.

2014-03-28: We granted FEC's request for an extension of time to respond until May 9th.

2014-02-24: Supplemental information re. our $100 limit on Bitcoin contributions

2014-02-12: We submitted our original request. (FEC scan version)