A political action committee has sought an advisory opinion from the Federal Election Commission (FEC) as to whether bitcoins can be accepted as political contributions and, if so, how bitcoins should be characterized and valued by recipients.[1]  The FEC is accepting comments on the request until September 16, 2013.  A decision from the FEC is expected by October 28, 2013.[2] 

The FEC’s consideration of the request is significant because it will mark only the second time that a U.S. government agency has publicly considered the nature of bitcoins.[3]  An FEC ruling that bitcoins can be accepted as campaign contributions would, at least implicitly, constitute recognition that bitcoins are a legitimate alternative form of currency, which could in turn further broaden their use.  A ruling limiting or precluding bitcoin contributions, however, could create a drag on the growth of the virtual currency industry. 

The FEC’s ruling is also potentially significant in that the FEC has been asked to weigh in on a number of questions that go to the nature of bitcoins and how they should be valued.  Recognizing that current FEC regulations mandate that monetary contributions be treated differently than in-kind contributions (which may include stocks, bonds and intangible goods),  the request seeks guidance regarding whether bitcoin contributions should be treated as  monetary or in-kind contributions.  The request contends that bitcoins resemble both monetary and in-kind contributions in various ways and asks the FEC to rule that bitcoin contributions may be treated as either (consistent with the applicable rules governing receipt and disposition), at the election of the recipient.  The request then poses more specific questions about how bitcoin contributions should be valued under either scenario, including whether bitcoins treated as in-kind contributions can be held indefinitely for future sale and, if so, at what point they should be valued for purposes of reporting and complying with donation limitations.

How the FEC rules on these questions of how bitcoins should be characterized and valued could have implications beyond the narrow confines of election law.  While the FEC’s ruling will not be binding on other federal agencies considering whether and how to regulate bitcoins, it may certainly be cited as relevant precedent.  For example, if the FEC were to characterize bitcoins as in-kind contributions analogous to stocks or commodities, this characterization could influence the future consideration of bitcoins by the Securities and Exchange Commission and the Commodity Futures Trading Commission, both of which have indicated that they are reviewing their possible jurisdiction over bitcoins.[4]  Such a ruling could also create questions about inconsistencies with the Financial Crimes Enforcement Network’s (FinCEN) March 18, 2013 Guidance interpreting the status of virtual currency under the Bank Secrecy Act (BSA) and the anti-money laundering (AML) rules adopted under the BSA.  FinCEN found that while decentralized virtual currencies lack legal tender status, they have many of the attributes of currency, and accordingly held that decentralized virtual currency should be treated like legal tender for purposes of AML regulation.  That ruling could be clouded if the FEC were to rule that bitcoins are not “money” as defined under its regulations.

If you are interested in filing comments with the FEC, or would like to discuss doing so, given the September 16, 2013 deadline, we recommend you contact counsel as soon as possible. 

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[1] See http://saos.nictusa.com/aodocs/1245451.pdf.

[2] Pursuant to 2 U.S.C. § 437f(a)(2), the FEC must issue its advisory opinion within 60 days of receipt of the complete request.

[3] See Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies, FIN-2013-G001 (March 18, 2013).

[4] One federal district court recently held that, under certain circumstances, bitcoin investments may constitute “investment contracts” subject to the SEC’s regulatory jurisdiction.  See, e.g., http://www.perkinscoie.com/court-maintains-bitcoin-related-investment-scheme-is-a-security-under-the-federal-securities-laws-08-08-2013/#footnote2point2.

© 2013 Perkins Coie LLP