KYC and AML in political campaigns: USA 2024

As it is well known, the USA is holding presidential elections next month. Once again, the country faces a transcendental election, not only because of its polarized society, but because of who the candidates are. This time, Khamala Harris is running for President for the Democratic Party and Donald Trump is facing her to get over the Oval once again representing the Republican party. The entire campaign is marked by fierce polarization and incidents of violence, including the assassination attempts on Trump’s life.

Away from the worst moments of the campaigns, as in every election, corruption is a central concern. Corruption and campaign finance controversies are nothing new to U.S. elections – or to the rest of the world – and this year’s election is no different. There have been several reports and allegations of potential misuse of funds and questionable contributions. Let’s look both ways:

Donald Trump: cryptocurrency

Trump’s campaign raised approximately $3 million in cryptocurrency donations in the second quarter of 2024, a significant portion of the $331 million raised overall. High-profile figures in the crypto industry, such as the Winklevoss twins (founders of Gemini) and Jesse Powell (co-founder of Kraken), made significant contributions to the campaign. The Trump campaign’s embrace of digital assets has transformed Trump from a former skeptic into a proponent of crypto-friendly policies, positioning him as the «crypto president. This shift has earned Trump significant support from the crypto community, despite initial criticism. Smaller individual donations have also been recorded, further signaling a growing acceptance of cryptocurrency in political donations. We have to keep in mind that back in 2019, Trump was rather against crypto, he even said it was a scam; but due to its popularity, Trump has changed his mind about it, he is now a supporter of cryptocurrency.

This change of heart was a great asset to the former president. For example, the Winklevoss twins and Jesse Powell made huge donations to his campaign. According to Cointelegraph, the Winklevoss twins, known for their early involvement in Facebook and later becoming major players in the crypto world, donated $2 million in bitcoin to the Trump campaign. Jesse Powell, a well-known figure in the crypto community, donated $1 million in ether. Getting back to AML, this new way of getting money and benefits has brought some problems. Cryptocurrency donations, by their very nature, are harder to track. The Federal Election Commission (FEC) has yet to fully develop guidelines to address the unique challenges of cryptocurrency in political contributions.

As campaign fundraising intensifies ahead of U.S. midterm elections, using cryptocurrency for political contributions requires navigating a rapidly evolving legal landscape. The FEC allows crypto donations for federal campaigns but prohibits their use for expenditures, while state laws vary significantly. States like California, Arizona, and Colorado allow crypto donations under certain conditions, while others like Michigan and North Carolina prohibit them entirely. Many states remain in a legal gray area, which creates uncertainty for campaigns. Therefore, the candidate must adopt Know Your Customer (KYC) protocols to comply with regulations and mitigate risks such as money laundering or illicit contributions.

For example, in California, crypto donations have to be verified through a KYC procedure and processed by a U.S.-based payment processor registered with the Financial Crimes Enforcement Network (FinCEN). However states such as Michigan, North Carolina, and Oregon, have explicitly banned crypto donations, primarily due to concerns over volatility and the potential for foreign or untraceable influence in elections. Many other states operate in a legal gray area where crypto donations are neither explicitly allowed nor prohibited (Todd Ehret)

Establishing thorough compliance measures, such as rigorous KYC processes and careful tracking of crypto’s fluctuating value, is crucial for campaigns to safely navigate the legal landscape.

Kamala Harris: rightful heir of Biden’s campaign funds?

Harris faces allegations of campaign finance violations, with claims that she misused Biden’s campaign funds. The allegations suggest that her campaign engaged in money laundering schemes through the fundraising platform ActBlue, raising further concerns about the integrity of her contributions.

Harris has been accused of using funds from Biden’s campaign for her own purposes, a move that would violate federal campaign finance laws, according to various lawyers. The allegations suggest that her campaign may have engaged in fraudulent fundraising activities, particularly using the fundraising platform ActBlue, which has been at the center of scrutiny for potentially facilitating money laundering. Basically, ActBlue, the platform used by Democratic candidates, allows for small-dollar donations from millions of grassroots supporters, but its critics argue that the platform lacks sufficient oversight, potentially allowing illegal contributions to go unnoticed. The main problem is that people can donate money – when what they are really doing is giving money – through fake identities.

As we can see, both campaigns illustrate new threats to political fundraising, where traditional concerns about transparency and ethics are now combined with modern technology and finance that make AML policies even more difficult to apply and fraud even more difficult to prevent. Both cases highlight the urgent need for stronger campaign finance regulations, especially as digital platforms and cryptocurrencies become more integrated into political fundraising. Without enhanced AML measures and tighter oversight, the risk of illicit funds and other threats that can weaken democracy and transparency will increase.