With the emergence of cryptocurrency as an alternative source of funding for political parties around the world, how will this impact the upcoming Political Party Funding Act?
The Political Party Funding Act (PPFA) is set to come into operation on 1 April 2021 and will signify the first time in history that the private funding of political parties will be regulated. Based on the Act, political parties and donors must disclose donations (including donations in-kind) which exceed the prescribed threshold of R100 000. However in its current form, the Act is silent on the use of cryptocurrencies as a form of funding. This is largely based on the fact that cryptocurrency — a digital currency that is kept and exchanged in a highly secured digital database — is unregulated in South Africa.
Cryptocurrency as a source of political funding does present its own set of challenges. Transparency surrounding the use of cryptocurrency has been a point of contention due to the anonymizing of transactions. For example, when making use of a Bitcoin account, an individual does not require identifying information like a bank account. This can provide serious challenges in relation to the degree of disclosure required by the PPFA.
Hypothetically, the use of cryptocurrency provides a loophole which could be exploited by funders who could donate to political parties without having to make disclosures. In the regulations which have been drafted for the PPFA, there is no mention of cryptocurrency and this is something that needs urgent attention going forward to ensure greater regulation of party funding and to ensure the PPFA is an effective piece of legislation.
Scholars and practitioners who are involved in the financing of political parties believe that cryptocurrencies could become more widely used as a source of funding in the political landscape. A clear illustration of this comes from the United States, where the country’s political finance regulatory agency the Federal Election Commission (FEC) released guidelines on cryptocurrency campaign donations. Based on these guidelines, federal campaigns can buy and accept Bitcoins under certain conditions. One of these conditions is that parties can purchase and accept Bitcoins as donations but must sell the acquired Bitcoins and convert them into US dollars before it is deposited into the campaign account. In addition however, the use of Bitcoins to acquire goods and services was not approved by the FEC.
There has been a significant rise in the popularity and prices surrounding cryptocurrency over the past two years. This has resulted in Bitcoin, the most popular cryptocurrency rising by 72 percent in the past year and was given a major investment from Tesla, the company owned by Elon Musk.
There are however certain risks in investing in this product. Cryptocurrencies are generally unregulated and not recognised by many governments which means there is no form of consumer protection and recourse action available for traders. Therefore people who make a decision to trade in crypto assets do so at their own risk.
Let us know what you think on the use of cryptocurrency in political funding.
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