Political donations in cryptocurrency should be subject to an urgent temporary ban to stop foreign interference in British elections, the chair of the national security committee has said.
Matt Western, who leads the committee of MPs and peers, said a moratorium was needed until the risks of donations in cryptocurrency have been dealt with – including adequate checks on the source of the money.
The committee also called for a review of sentences for electoral offences, suggesting more of a deterrence was needed, with police highlighting that many covert surveillance measures can only be used for crimes that would lead to jail time of at least three years.
He wrote to Steve Reed, the cabinet minister in charge of electoral finance, asking him to take immediate action, after the new elections bill did not contain measures to restrict donations in cryptocurrency.
The government is considering its policy on donations in crypto after Reform UK became the first party to say it would accept contributions in digital currency earlier this year. It is believed to have received its first registrable donations in cryptocurrency last year and the party has set up its own crypto portal to receive contributions, saying it is subject to “enhanced” checks.
In his letter, Western said the committee was concerned that foreign state intent to interfere in UK political finance may grow ahead of the next election given the worsening global security environment.
It questioned the lack of any clear national enforcement lead for political finance and foreign interference risk, highlighting that responsibility is split across the Electoral Commission, the Metropolitan police service, counter-terror policing, the National Crime Agency, MI5 and local police forces.
“This does not inspire confidence that risks are being investigated and mitigated in the most efficient and joined-up way,” he said, recommending a single national police lead for political finance, with a specific emphasis on foreign interference risks.
In relation to crypto, the committee said there would be “political sensitivities” around taking action against donations in digital currency. But Western said: “The bill should introduce a temporary moratorium on accepting crypto donations until the Electoral Commission produces statutory guidance.”
He said interim guidance should require political parties only to use cryptocurrency service providers that are registered with the Financial Conduct Authority, only accept donations where there can be high confidence in the identity of the ultimate source of funds, and reject donations where there has been use of mechanisms which obscure the ultimate source of funds.
The committee also raised concerns that the bill’s proposals for “know your donor” checks do not go far enough. He said there do not appear to be adequate requirements for donors to demonstrate source of wealth, and the committee is concerned about the possibility that permissible corporate donors or individuals may still act as conduits for foreign donations.
Western said data from the Electoral Commission suggests that the risk of foreign money entering the system is real, even if the proportion of known activity remains low”.
Government sources told the Guardian last year that ministers are looking at ways to ban political donations made with cryptocurrency but the crackdown was not ready for the elections bill due early this year.
The Electoral Commission provides guidance on crypto donations but ministers accept any ban would probably have to come from the government through legislation.
Campaign groups have highlighted risks of allowing donations in cryptocurrency. Tim Picton, senior advocacy adviser at Spotlight on Corruption, said: “Allowing crypto donations significantly increases the risk of illicit finance polluting our politics and foreign interference undermining our democracy.
“With crypto, there is a range of tools available to malign actors looking to conceal the true source of a donation. The Electoral Commission and law enforcement face an uphill struggle trying to regulate against and contain this evolving threat.
“A ban on crypto donations must be enshrined in the new Representation of the People Bill, to ensure it can’t be overturned in the future without a proper parliamentary process and extensive consultation with law enforcement agencies and the Electoral Commission.”
A Ministry of Housing, Communities and Local Government spokesperson said: “Through our Representation of the People bill we are fighting against the risk of foreign interference by strengthening rules around political donations.
“We have also commissioned an independent review, led by former permanent secretary Philip Rycroft, to explore how we can go even further to toughen up the safeguards in place against illicit money from abroad – including cryptocurrencies.”