UK Panel Calls Crypto Donations 'High Risk,' Seeks Immediate Ban

In brief

• The joint committee called crypto donations an “unnecessary and unacceptably high risk” and wants a binding moratorium written into the Representation of the People Bill.
• The report demands a new national Political Finance Enforcement Unit inside the National Crime Agency and tighter rules on overseas donors.
• An expert told Decrypt that KYC-based bans would create “a massive honeypot” for adversaries by forcing parties to centralize donor data.

A UK parliamentary committee has urged an immediate ban on crypto donations to political parties, but at least one industry expert warns the move could backfire, creating new cybersecurity risks even as lawmakers seek to curb foreign influence. The warning comes as the Joint Committee on the National Security Strategy (JCNSS) called in its latest report for a binding moratorium on crypto donations, describing them as an “unnecessary and unacceptably high risk to the integrity of the political finance system.”  The cross-party panel said the government should amend the Representation of the People Bill, entering committee stage on Wednesday, to prohibit such donations until stronger safeguards are in place.

 The report forms part of a broader push to tighten political finance rules ahead of the next general election, amid growing concerns over illicit funding and foreign interference in UK politics. “Few things are more important than maintaining trust in our politics. The pervasive idea that politicians can be ‘bought’ through foreign money is increasingly corrosive,” The Chair of the Joint Committee on the National Security Strategy, Matt Western MP, said in a statement. “The Government must immediately ban political donations made through crypto until firm rules can be developed,” the committee said, warning that “the perception of foreign money shaping politics is increasingly corrosive.”

Issues at hand “The only thing stricter donor KYC rules or an outright ban will accomplish is introducing new crypto vulnerabilities by forcing political parties to maintain personal data…in centralized databases,” Kadan Stadelmann, Komodo Blockchain founder and cybersecurity expert, told Decrypt. “This constitutes a massive honeypot over which the UK’s adversaries would drool,” he added. Stadelmann pointed to the 2024 breach of U.S. President Donald Trump’s campaign servers and the 2016 hacks of Hillary Clinton and the DNC as precedents.  “This proposed ‘fix’ would be the envy of ransomware hacking groups and other nefarious online actors,” he said, noting that only “a truly decentralized architecture secured with cryptography” could achieve parliament’s stated goal. Evidence presented to the committee also highlighted how crypto tools, such as mixers, privacy coins, and cross-chain swaps, can obscure the origin of funds, while AI could enable automated “micro-donations” which are large donations into numerous sub-£500 transfers, each below the reporting threshold under existing electoral law. In its report, the committee heard expert views, with Ian Taylor, Board Adviser at CryptoUK, saying crypto can be transparent within regulated systems, while Tom Keatinge, Director of RUSI’s Centre for Finance and Security, warned a ban may push activity offshore without addressing underlying risks. The report concluded that while crypto can provide transparency and traceability, current oversight is inadequate, warning “the opportunity to evade rules is too high.” Last year, Reform UK, the only major UK party accepting crypto donations since last June, drew scrutiny after receiving a record $12 million (£9 million) donation from Tether-linked investor Christopher Harborne, prompting investigation requests from the Liberal Democrats and Labour, which also contacted the Financial Conduct Authority.

Earlier this month, Labour MP Rushanara Ali called crypto donations a vector for “foreign interference in our democracy,” citing tactics such as micro-donations and the use of multiple wallets to bypass disclosure rules.