Crypto donations could entirely corrupt British politics. Labour must act quickly
When someone buys a cryptocurrency their identity is anonymous, but the transaction itself is recorded on the blockchain and is publicly visible. So far we know that this anonymity has allowed cryptocurrencies to be used to fund everything from sanctions evasion to election interference. A recent report from the Centre for Information Resilience revealed that A7A5, a new 'digital rouble', has already been linked to sanctions evasions by Russians. The report also found that Ilan Shor, a fugitive oligarch who has been accused of being involved with Russian-backed attempts to meddle in Moldovan elections, had allegedly used the currency to funnel at least $39m (£29m) into the bank accounts of thousands of Moldovans in exchange for their votes.
In Britain, Reform UK has already declared that it plans to accept crypto donations.
This is the new frontier of campaign financing. Cryptocurrencies give people plenty of ways to hide, obscuring who is funding political parties and what they might want in return. Online 'mixers' can blend an individual's cryptocurrency with others, making it practically impossible to trace the origin of individual coins. People can also donate using multiple crypto wallets with different addresses, splitting large donations into smaller amounts that bypass the reporting thresholds for political donations.
This is a system custom-built for hostile actors and is wide open to abuse, especially by those who launder foreign money into the bank accounts of UK citizens before passing it to British political parties. And Russia is ready to move. It has spent about £230m subverting democracies in at least 24 countries since 2014.
This week, ministers will table a mini white paper that will prepare the ground for a new elections bill. It contains some good ideas. The government will introduce tougher 'know your donor' rules. But it is impossible to really know your donor if they have given money in crypto. The better solution would be banning crypto donations outright (Ireland and Brazil have already done so). The government should also ban unchecked, unverified and unlimited companies or associations – which aren't required to file accounts – from donating cash. Shadowy groups known as 'unincorporated associations' have channelled more than £60m into British politics in the past two decades, but do not have to file accounts or explain where their money comes from.
It is all too easy to earn money abroad and route it into the bank account of a UK citizen, from where it is then forwarded to a political party. This creates huge vulnerabilities. In 2022, the New York Times reported concerns that money transferred from a Russian bank account into the bank account of a UK citizen might have made its way onward into the coffers of the Conservative party. Ehud Sheleg, the UK citizen, said that his donation to the party was unconnected to a gift from his Russian father-in-law, and the Electoral Commission later said they had found no grounds to investigate the donation.
When I reported it to the National Crime Agency, it told me there was no offence because ultimately a UK citizen wrote the cheque to the Tories. There is no evidence that Sheleg was doing anything wrong. But this mechanism could be exploited by bad actors. For that reason, only profits or income earned in the UK should be allowed to fund political parties.
The National Crime Agency and Electoral Commission need more resources if they are to investigate these problems effectively. And they need to be able to impose much larger fines. Labour pledged in its manifesto to strengthen the rules on political donations. The foreign secretary, David Lammy, has worked with clarity to tackle the dirty money that infects global politics – and to shut down London's role as the world's favourite laundromat. Ministers are waking up to the threat of dark money, and a new elections bill is good news for those who want to clean up politics. But only if we close the loopholes. Believe me, the Kremlin is watching.
Liam Byrne is the Labour MP for Birmingham Hodge Hill
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