The dangers faced by charitable trustees in accepting cryptocurrency donations

Gifts of Cryptocurrency to charities are on the rise. Charities are generally required to maximise their assets and at first glance accepting gifts of cryptocurrency may appear attractive. Cryptocurrency transactions are more cost-effective than transactions involving traditional currency, as they are digital and decentralised. Consequently, there are no banks or third-party financial firms involved and charging fees and also no currency conversion costs. In addition, a donor can see through the block chain how the money they have gifted is being used by the charity, which could assist in increasing public trust in charities.

However, before accepting cryptocurrency donations, there are significant risk associated with cryptocurrency transactions, which trustees will need to consider:

it is incredibly volatile and the value can fluctuate dramatically. This makes any financial planning based on the value of cryptocurrencies almost impossible. As such, trustees may wish to liquidate any donations soon after they are received.
it could exacerbate the risk of money laundering. Gifting cryptocurrency allows donors to make gifts anonymously, without being subjected to the ‘know your customer’ due diligence undertaken by traditional financial institutions. Whilst trustees may not believe this is an issue as charities are not generally subject to money laundering regulations, they are subject to the Proceeds of Crime Act 2002 and can be held liable if they receive property constituting the proceeds of crime and know or suspect this to be the case. It is not possible to verify that the donor of the gift is the lawful owner of the currency. Unlike other assets (for example, registered land), the information on the public and private keys (the two lines of code that a holder of cryptocurrency will possess) does not prove ownership. However, there are various services available that can show whether the unit on the chain representing the proposed donation has been used for criminal purposes in the past.
Potential ethical issues. Mining cryptocurrency uses a huge amount of energy, mostly from non-renewable resources. Depending on the individual charity and its objectives, trustees will need to consider the environmental impact of mining and whether accepting donations in cryptocurrency would conflict with its purposes and/or potentially lead to a loss of support.

The benefits and risk set out above will need to be taken into account on a charity-specific basis and before accepting donations of crypto assets each charity will need to explore whether it has appropriate board expertise and governance policies in place to hold crypto funds.

If this has set alarm bells ringing for you, or you require any other legal advice in relation to your charity, please get in touch with your usual Wealth Preservation team member who can liaise with an expert in our Charity sector.

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