Do you need a cryptography policy for donations?
For charities considering accepting cryptocurrency donations, there are a range 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, wonder whether or not they need a crypto policy.
But what is cryptocurrency and how does it work? According to Matthew Jones, Senior Advisor for Major Donor Relations at Doctors Without Borders Australia and Doctors Without Borders New Zealand (MSF), crypto is a monetary unit known as coins or tokens.
“They are decentralized and not controlled by the government and each token or coin is a specific piece of algorithmic code that cannot be duplicated or tampered with,” he explains.
“It’s virtually impossible for a transaction to be intercepted, so it’s extremely secure.”
The code for each coin is documented on a digital ledger, known as blockchain technology.
Cryptocurrency has grown from a fringe, anti-establishment currency to an increasingly legitimized player in financial circles, but questions remain about its use in the space for specific purposes.
The confusion is exacerbated by the fact that the Australian Taxation Office (ATO) refers to it as property.
In 2014, a spokesperson for the ATO told the Sydney Morning Herald cryptocurrency is considered an asset for tax purposes.
The ATO’s view is that cryptocurrency is an asset for capital gains tax purposes.
The ATO The spokesperson said it was not cash or foreign currency and that the supply of Bitcoin (or other digital properties) was not a “financial supply for property tax purposes. and service”.
The Internal Revenue Service (IRS) in the United States also lists cryptocurrency as property.
Defining crypto as property for tax purposes was the catalyst for a wave 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 charity.
In 2019, UNICEF launched the UNICEF Cryptocurrency Fund, what it calls a “new financial vehicle” for receiving, holding and distributing cryptocurrency.
A spokesperson for UNICEF Australia said globally that UNICEF has been working in the area of cryptocurrency 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 donation block who uses Gemini as a trading partner.
“UNICEF Australia is accepting donations for over 50 cryptocurrencies, including Bitcoin and Ethereum through our fundraising collaboration with The Giving Block and our crypto wallet custodian, Gemini – which are subject to security requirements from global regulators “, confirms a spokesperson for UNICEF Australia.
“A comprehensive implementation plan and due diligence process was developed before UNICEF Australia introduced this donation method. This included processes to ensure safety and security, following best practice and taking specialist advice accordingly. A due diligence process states that all crypto donations to UNICEF Australia go through a screening process.
UNICEF offices that accept cryptocurrency include UNICEF in the United States, France, Luxembourg, Australia and New Zealand.
What are the benefits?
MSF has been accepting cryptocurrency donations since July 2021.
“The main benefit is that it’s a global group of potential donors who are wealthy and looking to give,” Jones says.
“Cryptocurrency holders are young, wealthy, care about the environment and donate to charity.”
Seventy-nine percent of crypto users are male, 21% are female, and 58% are under the age of 34. Interestingly, 36% have an average annual income of over US$100,000.
Is cryptography a safe option?
Bryce Thomas, co-founder of Tokens for Humanity, a Brisbane-based Australian registered charity developing blockchain applications for the charitable sector, says the industry is, in fact, highly regulated.
He explains that in Australia there are currently three main stock exchanges and they are Independent Reserve, BTC Marketswith a company based in the United States Gemini now operates a smaller office on Australian shores.
“We work with exchanges and can offer that as a service if charities aren’t comfortable holding their own wallet,” he says.
He explains that exchanges must comply with the Anti-Money Laundering and Terrorist Financing Act 2006 (LAB/CTF) and Australia regulations.
“With cryptocurrencies, if you have a wallet, for example, that a charity might decide to hold, you then transfer those coins to an exchange, which works similar to a stock exchange,” says Thomas. .
“You transfer your coins from the charity wallet to the exchange wallet [and] put them on sale. [The conversion from coins to cash] is usually instantaneous.
How to Accept Crypto Donations
In the crypto charity space, the use of platforms to effect the transfer of cryptocurrency into cash is known, among other things, as donation processing, and is largely carried out by a third party.
The best-known charity crypto-transfer platform is The Giving Block, but there are many on 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 halfway, much like a stockbroker acts to turn stocks into cash when they are sold.
Transactions are instantaneous and both the donor and the charities receiving the donation receive a tax receipt with equal 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, this would be an internal guide to the rules of operation in the crypto space. What coins are you willing to accept? Are you going to have your own wallet or use a third-party charity-based exchange? he says.
“These are things to consider.”
Jones explains that MSF treats cryptocurrency like a stock in terms of treating it like a gift.
Thomas agrees that crypto can be considered a type of stock.
“Sometimes stocks are covered by other policies. However, wallets and exchanges differ from traditional stocks,” he says.
When asked directly whether or not he thinks a charity should have a crypto policy if they accept crypto donations, he said he thinks it is necessary.
“I would say it’s quite unique for [crypto] should be treated differently from stock,” says Thomas.
“A policy defines a basic procedure to be followed.”
As for which coins to accept, Thomas says that if charities stick to Bitcoin and Ethereum “everything will be fine.”
“It’s hard for a charity to write these plans. If they wanted to write a crypto policy, we could definitely help them do that,” he says.
Verification of donations
Thomas explains that there are tools to see whether or not a wallet has accepted funds from a service that is considered high-risk or has interacted with a wallet reported to be involved in criminal activity.
“There are other money laundering tools and counterterrorism tools. There are different tools for different surveys and some can be quite expensive. We can investigate the use of these tools on behalf of charities,” he says.
“For many organizations, it is enough to take basic Know Your Customer (KYC) information before accepting it.
“Many users who donate are just individuals who have done well.”
With the first online dark web marketplace, Silk Road, leaning heavily on Bitcoin as an alternative to conventional payment systems, many are wary of the coins’ negative connotations. .
But Thomas says the beginnings of currency and its associations with the underworld “are long gone.”
Compliance and regulatory tools
Jones explains that “dodgy donors are not unique to crypto.”
He says that at MSF, policies already in place regarding questionable donations are triggered, regardless of the source of the donated funds.
“If people are laundering money, the gifts are usually large, which triggers an internal trigger or we identify irregular online transactions,” he says.
It also says that The Giving Block is obligated to comply with applicable US laws and is subject to US money laundering, sanctions and anti-terrorism laws.
“The Giving Block also has a list of countries under US embargo from which they block donations,” he says.
Jones explains that you can monitor crypto donations by checking:
- if donations are made from the same Internet Protocol (IP) address by people with different names;
- that the IP geolocation corresponds to the donor’s address;
- if multiple donations are made just below a certain threshold (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 digital currency donation, like any crypto exchange, occurs when the donation amount is transferred from the donor’s digital wallet to the charity’s wallet,” it reads.
“This process leverages blockchain technology to provide a secure and fast transaction for both parties.
“For most nonprofits, their gift acceptance policies likely require immediate cash clearance, which we are able to automate.
“Secure custody and liquidity of crypto assets is provided by our exchange partner, Gemini, one of the most regulatory compliant and secure cryptocurrency exchanges in the world.”