Briefing: The unique risks cryptocurrency donations pose to UK democracy

Due to the anonymity that cryptocurrency can afford, and the way it can be used to obscure the true source of funds (including from the proceeds of crime), political donations in cryptocurrency present particularly high risks of:

• impermissible donations including from foreign actors or hostile states, and 
• donations that might originate from criminality. 

The UK currently has no bespoke rules to tackle the pressing challenges that cryptocurrency donations pose to the health of our democracy. Three political parties in the UK have now said they will accept political donations in crypto. Although uptake has been slow so far, without urgent action this could become a flood. 

Because of the unique risks it poses, several jurisdictions, as well as some states in the USA, have prohibited crypto donations to political parties and candidates. 

To address these risks:

• The Electoral Commission should come forward with robust guidance on crypto donations at the earliest opportunity (requiring that cryptocurrency donations are made from regulated bodies, are prohibited from anonymous wallets, and that they are converted into sterling via a regulated financial institution within 48 hours of receipt).
• The Government should use its upcoming Elections Bill to seriously consider prohibiting cryptocurrency donations altogether.

Banning crypto donations on its own will not be enough to tackle the risks cryptocurrency poses however. The wider loopholes that enable anonymous, impermissible or criminal donations, particularly via third parties, must also be addressed. In particular, it is critical that the government:

• Ensures that corporate donations can only be made from net profits made within the UK in the preceding two years to prevent companies being a route for illicit donations that originate from crypto.
• Ensures that the UK’s electoral laws expressly prohibit money being indirectly or directly received from foreign impermissible sources, and require greater due diligence by parties and candidates to verify this.