By International IDEA’s Yukihiko Hamada:

One of the most striking findings of International IDEA’s Global State of Democracy Indices is that the perceived level of corruption has not changed significantly across the world in the last ten years. In particular, the regional score of Eastern and post-Soviet Europe continues to remain below the global and European averages. There is no doubt that more needs to be done to strengthen integrity of politics and there are also emerging risk areas that call for better regulation. Addressing the use of cryptocurrencies in political finance is one of them.

While the information and communications technology (ICT) can be a major driver to increase transparency and accountability in political finance, it can also pose a new regulatory challenge. For example, the emerging use of cryptocurrencies can have a profound effect on the integrity of politics in the future, for better or worse (International IDEA, 2018). Depending on the design, some cryptocurrencies could make it almost impossible to identify the sources and destinations of the transaction. Cryptocurrencies could be exploited to circumvent many existing political finance regulations such as donation bans from foreign and anonymous sources.

Although the use of cryptocurrencies in political finance is yet a very new concept to many countries, the issue may be particularly relevant in Europe. For example, Georgia is now ranked second in the world for cryptocurrency mining behind only China (Hileman and Rauchs 2017). One Georgian political party has even started raising funds by mining cryptocurrency via the computers of willing supporters. Similarly, Iceland, Sweden and Estonia also host relatively large-scale cryptocurrency mining facilities. It may be too soon to draw any conclusions on their impact on politics, however it is clear that we should start initiating a debate now in order to better prepare ourselves to regulate them in the near future. Our experiences with regulating other technologies such as social media and big data analytics taught us that policymakers and electoral management bodies are often too slow to react to such digital challenges and underequipped to deal with them appropriately. At minimum, regulations need to be considered regarding how to exchange cryptocurrencies to regular currency.

International IDEA is committed to advance the political finance debates on challenges and solutions brought by new technologies. International IDEA recently co-organised The third Regional Conference on Money in Politics in Central and Eastern Europe in Georgia to explore countries’ experiences with digital reporting and disclosure of political finance. A discussion paper on the use of cryptocurrencies in political finance is currently being developed in partnership with the United Nations Office on Drugs and Crime (UNODC) and will be released in early 2019.

Reproduced by permission of International IDEA from “New technologies in political finance – an emerging trend” © International Institute for Democracy and Electoral Assistance 2018.