Bitcoin for Nonprofit Organizations – Regulations and Reservations

Bitcoin is gradually gaining acceptance across the world as a digital currency. A lot of businesses across various sectors have started including bitcoin as one of the modes of transaction alongside fiat currency. Most businesses, except for those in the non-profit sector can easily setup a bitcoin based payment service and start using it in no time, without any hassle in terms of regulations and other legal implications.

Why are nonprofit organizations singled out?

When someone says nonprofit organization, we visualize social good. We think about the humanitarian causes supported by these organizations, their work towards education, healthcare, animal welfare etc.  I agree that many of these organizations are genuinely involved in such activities and playing their part to make this world a better place.  Again, there are bad apples everywhere and the ones in this sector have given the nonprofit industry a bad name, which has led to increased regulatory oversight.

Criminal and terrorist organizations have been setting up and utilizing nonprofit organizations as a front for their illegal activities. These illegal activities range from money laundering, tax evasion to human trafficking and raising funds for terrorism. There are instances where nonprofit organizations are used as propaganda outlets by foreign governments to create disturbance in a host country.

Regulatory oversights

In order to counter such activities, governments across the world have setup regulatory oversights for nonprofit organizations. These regulations include permission to receive funds, monitoring and reporting the utilization of funds, maintaining accounts, regular financial audits, reporting and so on. These regulatory requirements are there for a good reason, even though these regulations and bureaucratic red tape may come in the way of operation of genuine nonprofit organizations as collateral damage.

Bitcoin is created on the premise of anonymity, decentralization and autonomy. These qualities mean that no government or financial institution has any control over what and how transactions happen between bitcoin users. This very thing is on the most part responsible for the flourishing deep web entities like the Silk Road and others. It has also made bitcoin an attractive option for raising and moving money meant for funding criminal or terrorist activities. It also ends up leaving the existing regulatory mechanisms in place to prevent misuse of funds redundant.

Conflict of Interests

In most of the countries, Nonprofits are required to keep an account of all the funds received along with sufficient information about its source. This means, when you donate to an organization with bitcoin, the organization is obliged to ask for your information.  In case of bank transfer or other modes of payment, your information will be there on file somewhere along the path of transaction (usually bank will have your contact and personal information). However, it is not the case with bitcoin and being required to give out your information defeats the whole purpose of anonymity.

In a few countries, non-profits are required to get clearance from the tax authority or some other relevant government body to accept international donations. In order to obtain this clearance, they have to meet certain criteria. In case of bitcoin donations, it will be hard to identify the origin of transaction (unless the donor declares it).

Then there is a case of tax deduction certificate for donations. Many countries still do not have clear regulations and policies in place for digital currency. In a few countries, there are conflicting policies where one government body recognizes bitcoin as money while another identifies it as an asset. So, if you donate bitcoin to an organization and expect tax deductions for that donation… Good luck with that! Unless you are in the US or some other country with a similar policy, in which case you can follow this link.

Having listed all these issues, I will not rule out bitcoin completely from the nonprofit sector, but I do expect the situation to change soon to adopt bitcoin as just another financial instrument for charitable giving.