Do you require a cryptocurrency policy for donations?
There are numerous considerations for charities considering accepting cryptocurrency donations,
including what a crypto policy should look like.
Australian charities are increasingly interested in whether they should accept
cryptocurrency donations and, if so, whether they need a crypto policy.
But what exactly is cryptocurrency and how does it function? Crypto is a unit of currency known as
coins or tokens, according to Matthew Jones, major donor senior relationship advisor at Médecins Sans
Frontières Australia and Médecins Sans Frontières New Zealand (MSF).
"They are decentralised and non-government controlled, and each token or coin is a unique
piece of algorithmic code that cannot be duplicated or manipulated," he says.
"It is virtually impossible to intercept a transaction, so it is extremely secure."
Each coin's code is recorded on a digital ledger known as block chain technology.
Why cryptocurrency?
Cryptocurrency has progressed from a fringe,
anti-establishment currency to an increasingly legitimate player in financial circles,
but there are still concerns about its use in the for-profit sector.
The Australian Taxation Office (ATO) refers to it as property, which adds to the confusion.
An ATO spokesperson told The Sydney Morning
Herald in 2014 that cryptocurrency is considered an asset for tax purposes.
According to the ATO, cryptocurrency is an asset for capital gains tax purposes.
According to an ATO spokesperson, Bitcoin
(or other digital properties) are neither money nor foreign currency,
and their supply is not a "financial supply for goods and services tax purposes."
In the United States, cryptocurrency is classified as property by the Internal Revenue Service (IRS).
The definition of cryptocurrency as property for tax purposes sparked a
wave of crypto donations to charities around the world in 2017, as its value began to rise,
with crypto holders looking to capitalise on the tax benefits of donating to charities.
UNICEF launched the UNICEF Cryptocurrency Fund in 2019, describing it as a "new financial
vehicle" for receiving, holding, and distributing cryptocurrency.
According to a UNICEF Australia spokesperson,
UNICEF has been working in the cryptocurrency space for some time.
"UNICEF was the first United Nations agency to launch a new
financial vehicle in October 2019," they explain.
"The UNICEF Cryptocurrency Fund aspires to increase donor and public visibility
by adding a layer of transparency to the donation and investment processes."
UNICEF, like MSF, uses The Giving Block, which exchanges with Gemini.
"UNICEF Australia accepts donations for over 50 cryptocurrencies, including Bitcoin and Ethereum,
through our fundraising collaboration with The Giving Block and our crypto wallet custodian,
Gemini - who are subject to global regulators' security requirements,"
a UNICEF Australia spokesperson confirms.
"Before UNICEF Australia introduced this method of donation, a comprehensive implementation plan
and due diligence process were developed." This included processes to ensure safety and security,
adhering to best practises, and seeking expert advice as needed.
According to a due diligence process, all crypto donations to UNICEF Australia are screened."
UNICEF USA, France, Luxembourg,
Australia, and New Zealand are among the UNICEF offices that accept cryptocurrency.
What are the advantages?
Since July 2021, MSF has accepted cryptocurrency donations.
"The main benefit is that this is a global group of wealthy donors looking to give," Jones says.
"Cryptocurrency holders are young and wealthy,
and they care about the environment and charitable giving."
75% of crypto users are men, 21% are women, and 58% are under the age of 34.
Surprisingly, 36% have an annual income of more than $100,000 USD.
Is cryptocurrency a secure investment?
According to Bryce Thomas, co-founder of Tokens for Humanity,
an Australian registered charity based in Brisbane that develops blockchain
applications for the charity sector, the industry is highly regulated.
He explains that there are currently three major exchanges in Australia:
Independent Reserve, BTC Markets, and Gemini,
which is based in the United States and has a smaller office on Australian soil.
"We work with exchanges and can provide that as a service
if charities do not feel comfortable holding their own wallets," he says.
He explains that the transactions must adhere to the Anti-Money Laundering
and Counter-Terrorism Financing Act of 2006 (AML/CTF) and Austrac regulations.
"With crypto coins, for example, if you have a wallet that a charity may decide to hold,
you then transfer those coins to an exchange,
which operates similarly to a stock exchange," Thomas explains.
"You move your coins from the charity wallet to the exchange wallet and sell them."
The exchange of coins for cash is usually instant."
Accepting Crypto Donations
Using platforms to complete the transfer of cryptocurrency to cash is known as donation
processing in the crypto charity space, and is largely completed by a third party.
The Giving Block is the most well-known charity-based crypto-transfer platform,
but there are many others on the market, including Charity Engine, NeonCRM, Keela, Gyve,
Give Hub, Bloomerang, Bitpay, Coinbase, and Australia's Tokens for Humanity.
Jones explains that these donation processing platforms function
similarly to how a stock broker functions to convert stocks to cash when they are sold.
The transactions are instantaneous, and both the donor and the charities
receiving the donation receive a tax receipt at the same time.
Considerations for policy
When considering a cryptocurrency policy, Thomas suggests the following considerations.
"If a charity decides to write a policy, I would say that,
like all policies, it would be an internal guide as to how to operate in the cryptocurrency space."
What denominations of coins are you willing to accept?
"Will you use your own wallet or a charity-based third-party exchange?" he asks.
"Those are some things to think about."
Jones elaborates In terms of how to process cryptocurrency as a donation,
MSF treats it like a stock.
Thomas concurs that cryptocurrency can be viewed as a type of stock.
"Stocks are sometimes covered by other policies."
"However, wallets and exchanges are not the same as traditional stocks," he explains.
When asked directly whether he thought a charity should have a crypto policy
if it accepts crypto donations, he said he thought it was necessary.
"I think it's distinct enough that crypto should be treated differently than stock," Thomas says.
"A policy establishes the basic procedure to be followed."
In terms of accepting coins, Thomas believes that
charities will be fine if they stick to Bitcoin and Ethereum.
"It is difficult for a charity to write these plans on its own.
We could certainly assist them in developing a crypto policy," he says.
Donation screening
Thomas explains that there are tools to determine whether a wallet has accepted
funds from a high-risk service or has interacted with a wallet suspected of criminal activity.
"Other tools for money laundering and counter-terrorism exist." There are
various tools for various investigations, some of which can be quite expensive.
"We can look into using these tools for charitable purposes," he says.
"Taking basic 'Know Your Customer'
(KYC) information before accepting it is sufficient for many organisations."
"Many users who give are simply successful individuals."
With the Silk Road, the first online dark web marketplace,
relying heavily on Bitcoin as an alternative to traditional payment systems,
many people are wary of the coin's negative connotations.
However, Thomas claims that the currency's early days and
associations with the underworld "are long gone."
Compliance and regulation tools
According to Jones, "dubious donors are not unique to crypto."
He claims that at MSF, policies already in place regarding suspicious donations are activated,
regardless of the source of the donated funds.
"When people are laundering money, the gifts are usually large, which
sets off an internal trigger or we identify irregular online transactions," he explains.
He also claims that The Giving Block is required to follow applicable US laws,
including those concerning money laundering, sanctions, and anti-terrorism.
"The Giving Block also has a list of US-embargoed
countries from which donations are blocked," he adds.
Jones explains that you can track cryptocurrency donations by looking at:
* Whether multiple donations are made from the same internet protocol
(IP) address by people with different names; * Whether the IP geolocation matches the donor's
address; * If multiple donations are made just under a threshold limit (e.g. $10,000).
According to the website of The Giving Block,
every cryptocurrency transaction is permanently recorded on an open source,
public blockchain ledger that is immutable (that is nearly impossible to tamper with).
"A digital currency donation, like any other crypto exchange, occurs when the donated amount
is transferred from the donor's digital wallet to the charity's wallet," it says.
"This process relies on blockchain technology
to provide both parties with a secure and quick transaction."
"Most non-profits' gift acceptance policies probably require immediate cash liquidation,
which we can automate."
"Our exchange partner, Gemini, one of the most regulatory compliant and secure cryptocurrency
exchanges in the world, provides secure custody and liquidity of crypto assets."