Michigan Department of State: Crypto Not ‘A Valid Way to Receive Political Contributions’

Siamak Masnavi

The Michigan Department of State has clarified its stance on the use of Bitcoin and other forms of cryptocurrency for contributions to political campaigns.

In response to a letter from William Baker, a Republican candidate who lost the general election for Michigan House of Representatives District 60 on 6 November 2018, the Michigan Department of State, which is headed by Secretary of State Ruth Johnson, has declared that cryptocurrencies are not valid for the purpose of donations to political campaigns. 

More specifically, Baker's letter was a "Request for a Declaratory Ruling on if a Digital Currency Exchange could be a valid Secondary Depository, under Section 169.221 Part 6 of the Michigan Campaign Finance Act, for the purpose of accepting Digital Currency donations during a campaign."

Baker's argument was that a digital currency exchange (DCE), "which allows individuals and businesses to maintain accounts for the collection and exchange of digital currencies into legal tender," should be considered "a valid secondary depository" (the primary being financial institutions that provide bank accounts) "so long as the DCE additionally allows for the transfer of legal tender from these accounts to other financial institutions (the official depository of the committee)."

Baker's letter also made the rather bold claim that "it should be self-evident that digital currencies are a valid way to receive political contributions," and stated that "the main issues yet to be resolved are how to record their value and how to use them once they have been received."

Michigan's Department of State, in a letter to Baker dated 8 November 2018, made an "interpretative statement", which noted that the implicit question in Baker's letter was "whether committees may accept contributions made via Bitcoin and other forms of cryptocurrency." The Department said that it disagreed that it was "self-evident" that "digital currency is a valid way to receive political contributions as the law does not authorize such a vehicle," and it had never "determined that digital currencies are a valid way to receive political contributions."

So, the first problem for the Department was to determine whether under the Michigan Campaign Finance Act (MCFA) "a committee may accept contributions made via Bitcoin and/or other forms of cryptocurrency." Their review concluded that "that contributions may not be made via Bitcoin" (but the Department's letter makes it clear that this conclusion also applies to other cryptocurrencies). 

The Department had four main reasons for coming to this conclusion:

  • "Bitcoin’s value is extremely volatile," and as with stocks and other commodities, "Bitcoin’s worth fluctuates daily," which means that "there is no way to ascertain the precise monetary value of one Bitcoin on any particular day."
  • "Bitcoin is an anonymous peer-to-peer digital currency which operates without any governmental oversight and without the involvement of financial institutions." (This is a problem since "the MCFA expressly bars anonymous contributions."
  • "Cryptocurrency is not a mere transfer of controlled funds deposited or withdrawn through a financial institution, but rather is traded anonymously through an electronic platform." (In other words, the Department did not consider digital currency exchanges as "financial institutions", which is a problem since MCL 169.221 requires that a political committee hold an "account in a financial institution," and "financial institutions" do not offer cryptocurrency accounts.)
  • "Allowing committees to accept contributions made via a cryptocurrency whose value fluctuates daily would create a quagmire for reports required under section 33 of the Act," since "it is unknown what value the committee should report – the value of the cryptocurrency on the day it is purchased by the donor, or the value of the cryptocurrency on the day of the contribution, or its value on the date the contribution is reported on a campaign statement."

As for Baker's second question, i.e. "whether a digital currency exchange is a valid secondary depository to accept contributions," the Department declined to consider this question. Since it had already made the conclusion that "cryptocurrency is not a valid means to accept contributions," it was deemed "unnecessary to determine" if digital currency exchanges are valid secondary depositories under section 21 of the MCFA. Also, in a previous interpretative statement ("Interpretive Statement to Joseph Olson, August 4, 1993"), the Department had determined that "a committee is required to hold assets only in a bank, savings and loan association or credit union and cannot hold its assets in another investment vehicle."

According to a report by Associated Press published on 21 September 2018, although the "Federal Elections Commission allows bitcoin donations to federal candidates," the various states do not all share the same view. For example, states such as South Carlolina and California have banned the use of crypto for political donations, whereas "states like Colorado and Montana allow them with restrictions."

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