Ministers are working to ban political donations made with cryptocurrency but the crackdown is not likely to be ready for the elections bill in the new year, Whitehall sources have said.
The government increasingly believes that donations made with cryptocurrency pose a risk to the integrity of the electoral system, not least because the source can be hard to verify.
However, the complex nature of cryptocurrency means officials do not believe a ban will be workable by the time of the elections bill, due to be published shortly, which is set to lower the voting age to 16 and reduce loopholes in political finance.
The government’s ambition to ban crypto donations will be a blow to Nigel Farage’s Reform UK party, which became the first to accept contributions in digital currency this year. It is believed to have received its first registrable donations in cryptocurrency this autumn and the party has set up its own crypto portal to receive contributions, saying it is subject to “enhanced” checks.
Multiple government sources have said ministers believe cryptocurrency donations to be a problem, as they are difficult to trace and could be exploited by foreign powers or criminals.
Pat McFadden, then a Cabinet Office minister, first raised the idea in July, saying: “I definitely think it is something that the Electoral Commission should be considering. I think that it’s very important that we know who is providing the donation, are they properly registered, what are the bona fides of that donation.”
The Electoral Commission provides guidance on crypto donations but ministers accept any ban would probably have to come from the government through legislation.
Earlier this year, the Electoral Commission initially appeared to believe the risks of donations in cryptocurrency were manageable, saying they could be assessed like any other asset such as a work of art or donations in kind.
Despite a push from some ministers for a ban on cryptocurrency donations, Vijay Rangarajan, the chief executive of the Electoral Commission, said in August he did not think a ban was necessary as there was already a huge responsibility on parties to be sure they knew the source of their donations. “Parties get given far more weird things than crypto,” he said, pointing to donations of artworks, foreign trips or the use of yachts, which can be hard to quantify.
However, government sources said the watchdog had become increasingly concerned that it was difficult to check the origin and ownership of donations, particularly if a cryptocurrency wallet comes from abroad.
In evidence to the joint committee on the national security strategy in September, Rangarajan described his position on crypto donations as “sceptical”.
“You can track back to the different wallets, and you can work out which wallet is holding it,” he said. “Particularly abroad, it is very hard to work out who is actually controlling or who owns that wallet. That comes back to controlling agency and the kind of financial flows that we have seen.
“Yes, you will know that a wallet, with its long string of numbers, had that asset in it and that that asset was transferred on this date, but we do not know who was making these. They flow through many of these, so the resources needed to track back through many of these crypto transactions are really significant. Because of the proportionality of them, it is very hard to do, except for large transactions where we are really investigating something.”
Campaign groups have highlighted multiple risks with allowing donations in cryptocurrency. Susan Hawley, the executive director of Spotlight on Corruption, said that the prospective ban was welcome but that the government must now “come forward with a criminal offence that makes it much harder for foreign money to get into UK politics, and make sure that the police are properly resourced to investigate it”.
“Crypto donations present real risks to our democracy,” she added. “We know that bad actors like Russia use crypto to undermine and interfere in democracies globally, while the difficulties involved in tracing the true source of transactions means that British voters may not know everyone who’s funding the parties they vote for.”
