Skeptics warn of risks, as NYS clears political gifts of crypto

ALBANY — Political candidates in New York can now receive campaign contributions in the form of cryptocurrency, after a move by the state Board of Elections that watchdogs are calling a "very bad idea."

In a little-noticed action last week, the board voted 4-0 vote to adopt a formal opinion greenlighting candidates to take contributions in crypto.

The state board said its ruling is in line with the Federal Election Commission view that campaign contributions are statutorily defined as gifts, money "or anything of value" given to a candidate and that cryptocurrency or bitcoins fall within that definition and, therefore, are allowed.

A growing number of states have followed the federal rule, though not all. Michigan, North Carolina and Oregon are the three states that expressly forbid cryptocurrency donations.

The New York board said such contributions wouldn’t be treated as cash but rather "in kind" contributions, similar to when, say, a banquet hall owner allows a candidate to use a space rent-free for a fundraiser. The importance of the categorization is that a cryptocurrency donation wouldn’t count toward state-issued matching funds.

Anonymous donations of crypto are prohibited.

New York watchdogs are bashing the board’s approval of crypto, saying it was hasty and lacked public input.

"This is a very bad idea," Susan Lerner, of Common Cause, said. "It invites participation by foreign entities and criminals. And it’s a nice way around [the state’s] campaign contribution limits."

The board said a campaign committee that receives a crypto donation "should value the contribution based on the market value of the bitcoins at the time the contribution is received." 

Lerner said this could be subject to manipulation: 

For example, a crypto company trying to influence lawmakers could make a contribution valued at $1,000 on the day it is made, then later drive up the value by promoting the currency, resulting it being worth many times more by the time it is converted into cash and providing the candidate with a windfall.

At minimum, Common Cause and other groups argue that the board should have initiated the state’s regulatory process, which provides a window for public comment. Better yet, punt the issue to the Assembly and State Senate.

"This is not a decision a four-member board of elections should be making. This is a decision for the State Legislature to make — it’s too big of an issue and it needs a thorough public airing," Blair Horner, executive director of the New York Public Interest Research Group, said.

Critics want the State Legislature to weigh in by passing a law spelling out restrictions. Barring that, they’d like the Board of Elections to adopt regulations through a process that allows the public to comment.

For example, other states that allow crypto donations have implemented laws or rules mandating donations be made by a U.S.-based payment processor that is registered with the federal treasury.

Some mandate campaign committees to convert cryptocurrency to U.S. dollars within three days of receipt.

The New York board left open the possibility of considering further regulations. Horner said officials and lawmakers shouldn’t wait.

He said: "My prediction: This is going to become a very big problem."

By Yancey Roy

yancey.roy@newsday.com@yanceyroy