Cryptocurrency use makes regulating party funding tricky
Some cryptocurrencies could make it very difficult to trace donors’ identities and the destinations of their donations
Regulating the funding of politicians and political parties is set to become a tricky affair amid the widespread adoption of new technologies such as cryptocurrencies, according to a new report.
The issue of funding politicians and parties is a big issue in SA, more so following the recent release of public protector Busisiwe Mkhwebane's report on President Cyril Ramaphosa’s ANC presidential campaign donation from controversial facilities-management firm Bosasa. Mkhwebane found that Ramaphosa deliberately misled parliament on the donation to his campaign. The president is challenging the report in court.
The Electoral Commission of SA (IEC) has also been conducting public hearings on draft regulations to provide guidelines and regulate funding of political parties. The new laws on funding of political parties include a ban on donations from foreign sources and a requirement for parties to disclose all donations above R100,000. The enactment of the law, seen as one of the most important laws since the constitution was passed, comes amid explosive revelations of shady dealings between politicians and businesspeople at the state capture commission of inquiry.
Depending on the design, some cryptocurrencies could make it very difficult to trace donors’ identities and the destinations of their donations.
Cryptocurrencies such as bitcoin and ethereum are digital assets designed to work as a medium of exchange. They could be exploited to circumvent existing political finance regulations such as donation limits and bans from foreign and anonymous sources, the report said.
They said although the use of cryptocurrencies in political finance is not common practice, some political parties and candidates have started to accept donations in cryptocurrencies. For example, in 2014 Mathias Sundin, a cryptocurrency advocate, was elected to the Swedish parliament after funding his election campaign solely using bitcoin. While his political views won him the seat, his radical approach to fundraising garnered international attention and sparked a debate on the implication of cryptocurrencies in political finance.
Similarly, Georgia is now ranked second in the world for cryptocurrency mining behind only China. One Georgian political party has started accepting cryptocurrencies to fund its political campaign.
In Canada, the popularity of cryptocurrencies has prompted an ongoing debate as to whether the digital currency should be officially regulated as part of political finance processes, according to the authors of the report.
“It may be too soon to draw any conclusions about the impact of cryptocurrencies on corruption. However, it becomes increasingly important for governments to have a better grasp on such emerging technologies,” the report states.
“It is important to first dissect what diverse implications they have for political finance and anticorruption efforts. Only then will it be possible to assess how they can be best utilised.”
The authors of the report point out that in the case of cryptocurrencies, regulations need to be considered regarding how to exchange cryptocurrencies to regular currency.
“The fight against corruption more broadly requires strengthening of the rule of law, particularly access to justice, and judicial capacity and independence.”
The report by the International Institute for Democracy and Electoral Assistance, an intergovernmental organisation that supports democracy worldwide, highlights the corruption risks posed by new technologies including blockchain, big-data analytics, and artificial intelligence.
It states that while new technologies such as digital reporting and disclosure platforms can be a major driver to increase transparency and accountability in political finance, they can also pose a new regulatory challenge for anticorruption efforts. For example, the emerging popularity of cryptocurrencies raises concerns about their use to finance politics.
In 2019, finance minister Tito Mboweni said the SA Reserve Bank was exploring the benefits and risks of issuing a central bank digital currency which would essentially be the equivalent of digital cash.