Do you need a crypto policy for donations?
12 July 2022 at 4:11 pm
For charities considering accepting cryptocurrency donations, there are a raft of considerations, including what a crypto policy should look like.
Australian charities are increasingly curious about whether they should accept cryptocurrency donations and if they do, are considering whether or not they need a crypto policy.
But what is cryptocurrency and how does it work? According to Matthew Jones, major donor senior relationship advisor at Médecins Sans Frontières Australia and Médecins Sans Frontières New Zealand (MSF), crypto is a unit of currency known as coins or tokens.
“They are de-centralised and non-government controlled and each token or coin is a specific piece of algorithmic code which cannot be duplicated or tampered with,” he explains.
“It is virtually impossible for a transaction to be intercepted, so it is extremely secure.”
The code for each coin is documented on a digital ledger, known as block chain technology.
Cryptocurrency has gone from a fringe, anti-establishment currency, to an increasingly legitimised player within finance circles, but there are still questions around its usage in the for-purpose space.
Confusion is exacerbated by the Australian Taxation Office (ATO) referring to it as property.
In 2014, an ATO spokesperson told The Sydney Morning Herald cryptocurrency is seen as an asset for tax purposes.
The ATO’s view is that cryptocurrency is an asset for capital gains tax purposes.
The ATO spokesperson said it was neither money nor a foreign currency and the supply of Bitcoin (or other digital properties) was not a “financial supply for goods and services tax purposes.”
The Internal Revenue Service (IRS) in the United States also lists cryptocurrency as property.
The definition of crypto as property for tax purposes was the catalyst for a spate of crypto donations to charities around the world in 2017 as it began to rise in value, with crypto holders looking to take advantage of the tax benefits of donating to charities.
In 2019 UNICEF launched the UNICEF Cryptocurrency Fund, what it calls a “new financial vehicle” to receive, hold and distribute cryptocurrency.
A UNICEF Australia spokesperson says globally, UNICEF has been working in the cryptocurrency space for some time.
“In October 2019, UNICEF was the first United Nations agency to launch a new financial vehicle,” they explain. .
“The UNICEF Cryptocurrency Fund aspires to create visibility for the donor and the public, adding a layer of transparent accounting to the donation and investment processes.”
UNICEF, like MSF, uses The Giving Block which uses Gemini as its exchange partner.
“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 security requirements of global regulators,” a spokesperson for UNICEF Australia confirms.
“A comprehensive implementation plan and due diligence process was developed before UNICEF Australia introduced this method of donation. This included processes to ensure safety and security, following best practice and taking specialist advice accordingly. A due diligence process articulates that all crypto donations to UNICEF Australia go through a screening process.”
UNICEF offices that accept cryptocurrency include UNICEF USA, France, Luxembourg, Australia, and New Zealand.
What are the benefits?
MSF has been accepting cryptocurrency donations since July 2021.
“The main benefit is that this is a global group of possible donors who are wealthy and looking to give,” Jones says.
“Cryptocurrency holders are young, wealthy, they care about the environment and giving to charities.”
Seventy-nine per cent of crypto users are male, 21 per cent are female and 58 per cent are under 34 years of age. Interestingly, 36 per cent have an average annual income of over US $100,000.
Is crypto a safe option?
Bryce Thomas, co-founder of Tokens for Humanity, a Brisbane-based Australian registered charity developing blockchain applications for the charity sector, says that the industry is, in fact, highly regulated.
“We work with exchanges and can offer that as a service if charities are not comfortable holding their own wallets,” he says.
He explains the exchanges must comply to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF) and Austrac regulations.
“With crypto coins, if you have a wallet, for example, which a charity might decide to hold, you then transfer those coins to an exchange, which operates in a similar way to a stock exchange,” Thomas explains.
“You transfer your coins from the charity wallet to the exchange wallet [and] list them for sale. [The conversion from coins to cash] is usually instant.”
How to accept crypto donations
In the crypto charity space, using platforms to complete the transfer of cryptocurrency to cash is known, among other things, as donation processing, and is largely completed by a third party.
The most well-known charity-based crypto-transfer platform is The Giving Block, but there are many in the market, such as Charity Engine, NeonCRM, Keela, Gyve, Give Hub, Bloomerang, Bitpay, Coinbase and Australia’s Tokens for Humanity.
Jones explains that these donation processing platforms act as a mid-way point.
With cryptocurrency the transactions are instantaneous and the donor and charities receiving the donation, both receive a receipt for tax purposes with the same speed.
Thomas suggests the following considerations when thinking about a cryptocurrency policy.
“If a charity decides to write a policy, what I would say [is that], like all policies, it would be an internal guide as to the rules around how to operate in the crypto space. What coins are you willing to accept? Are you going to have your own wallet or use a charity-based third-party exchange?,” he says.
“Those are some things to consider.”
Jones explains cryptocurrency can be considered a bit like stocks and shares for transactional purposes.
Thomas agrees that crypto can be seen as a type of stock.
“Sometimes stocks are covered in other policies. However wallets and exchanges differ from traditional stocks,” he says.
When asked directly whether or not he believed a charity should have a crypto policy if it is accepting crypto donations, he said he believed it is needed.
“I would say it is unique enough that [crypto] should be treated differently to stock,” Thomas says.
“A policy sets out a basic procedure to follow.”
Regarding what coins to accept, Thomas says if charities stick to Bitcoin and Ethereum “they’ll be fine.”
“It is hard for a charity on its own for it to write these plans. If they wanted to write a crypto policy we could certainly help them do that,” he says.
Thomas explains there are tools to see whether or not a wallet has accepted funds from a service that is seen as high risk or that has interacted with a wallet flagged as being involved in criminal activity.
“There are other tools for money laundering and tools for counter terrorism. There are different tools for different investigations and some can be quite expensive. We can investigate using these tools on behalf of charities,” he says.
“For many organisations, taking basic ‘Know Your Customer’ (KYC) information before accepting it is enough.
“Many users who give are just individuals who have done well.”
With the first online dark web marketplace, the Silk Road, relying heavily on Bitcoin as an alternative to conventional payment systems, many are wary of the coins’ negative connotations. .
But Thomas says the early days of the currency and its associations with the underworld “are long gone”.
Tools for compliance and regulation
Jones explains that “dubious donors are not unique to crypto.”
He says, at MSF, policies already in-place regarding dubious donations are triggered, no matter the source of the donated funds.
“If people are laundering money, the gifts are usually large which sets off a trigger internally or we identify irregular online transactions,” he says.
He also says The Giving Block is obliged to meet applicable US laws and is subject to US laws in relation to money laundering and sanctions and anti-terrorism.
“The Giving Block also has a list of US-embargoed countries from which they block donations,” he says.
Jones explains that you could monitor crypto donations by checking:
- whether donations are being made from the same internet protocol (IP) address by persons with different names;
- that IP geolocation matches the donor’s address;
- if multiple donations are being made just under a threshold limit (eg. $10,000).
The Giving Block explains on its website that every cryptocurrency transaction is permanently recorded on an open source, public blockchain ledger that is immutable (i.e nearly impossible to tamper with).
“A donation of digital currencies, like any exchange of crypto, occurs when the donated amount is transferred from the donor’s digital wallet to the charity’s wallet,” it reads.
“This process relies on blockchain technology to provide a secure, quick transaction for both parties.
“For most non-profits, their gift acceptance policies probably require immediate liquidation into cash, which we are able to automate.
“Secure custody and liquidity of crypto assets are provided by our exchange partner, Gemini, one of the most regulatory compliant and secure cryptocurrency exchanges in the world.”