“You are stepping right into a system that only 20% of US citizens think is just “okay.” There is a very strong sentiment in the US that everyone assumes the campaign finance system is corrupt, not trusted, not good,” Will Schweitzer, the CEO of the govtech startup Schweitzer Labs begins. “ So we are working on trying to enhance public confidence in public officials who use our system because we can verify and show that they are playing by the rules, they are taking money from people they are supposed to and we do this in a decentralized way. It is not about “take our word for it”, rather it’s a system that they can examine and we can show them how it works. Now, let’s move past this lack of trust in campaign finance and let us get to the things that are issue-based and actually move our democratic states forward”
Schweitzer Labs And CipherTrace Allowing PACs To Safely Accept Crypto Contributions
A few weeks back, we were reporting on the newly announced collaboration between the Schweitzer Labs and the fintech startup CipherTrace. The partnership focuses on allowing political action committees (PACs) to safely accept cryptocurrencies while meeting all of the standards and regulations.
“Our advisory board is filled out with former chairs of the federal elections commission, which is the largest federal government agency that oversees campaign finance and all the regulations there,” Schweitzer says.
Schweitzer Lab is unique in emphasizing the importance of blockchain in campaign financing. As Schweitzer explains, being aware of the heightened risk around crypto-assets and the negative stigma associated with crypto, they were cautious to make any promises about this being something enabled on their platform. After the Schweitzer Lab team saw the growing demand, they started the discussions with the CipherTrace team. After understanding CipherTrace’s KYT (know-your-transaction) capabilities, the two startups began looking at how the solutions can be integrated into a unique process flow.
“We’ve built out the flow with a unique way to leverage CipherTrace’s ability to lookup wallets, lookup the institutions or the companies or just the exchanges, and who hosts that wallet, and go through the risk scoring capabilities that CipherTrace enables to their platform and what they do best, and looking at that as a way to pre-screen transactions before we actually allow them to go through,” Schweitzer says.
“It’s important to call out that our committees don’t have Bitcoin wallets. We set them up with wallet-hosting partners that enable us to be able to facilitate an exchange that captures the information that we get about our proposed transactions, and we feed it into our rules engine before we actually allow the transaction to be processed through. It’s definitely a collaboration amongst a bunch of parties at a technical level to make sure that we can do this the right way and ensure the committees’ risk is minimized and, first and foremost, their compliance and posture are maintained.”
Continuous Stigma Around Cryptocurrencies
Although cryptocurrencies are slowly but surely becoming mainstream and an increasing number of companies are engaging in crypto and propagating increased use of digital assets in everyday life, a negative stigma surrounding cryptocurrencies is still present. Political campaigns often remain hesitant to accept the crypto contributions, even though as Schweitzer points out, there is enough guidance and regulations ensuring people (in the United States) “know how to operate, know how to manage crypto, they know what’s expected of them in all related legal manners with the assets, and that’s just the clarity they need.”
“What we do is we’ve gone a step beyond what regulation requires, certainly in campaign finance, by adding this KYT pre-screening capability,” Schweitzer explains. “That’s something unique to our subject matter and expertise in crypto, and understanding what the value proposition of CipherTrace and KYT services really are and how to do this in a really smart way so we can pre-screen transactions with the right wallet set up underneath”
“There’s money in the crypto space that wants to get into the political financing space but right now there’s not really a well-thought-out or ubiquitous solution that makes that really easy and simple,” Schweitzer says.
Regulatory Variations That Make Managing Cryptocurrencies Difficult For PACs
Moreover, he adds that committees must consider compliance considering they are a highly regulated organization. Not all states allow political committees to accept crypto contributions. In the case of those allowing it, the level of reporting and processes that committees must go through in order to manage cryptocurrencies vary.
“They have to do their compliance right and that’s what 4US (“for us”), our platform, does at its core, regardless of what type of transaction it is. The account for every type of transaction, every type of committee, every type of donor or vendor. We facilitate all the very specific types of nuance and compliance reporting needs the committee has based on whatever jurisdiction they are in, and that includes the federal level, state level, and local level,” Schweitzer says.
“Our system is all about building out an automated tool that will facilitate their compliance needs for crypto and for any type of transaction in a way that they don’t have to worry about it or take it on in the ways that they typically do today that are actually very manual and expensive processes,” he adds.
From 1% Crypto Donations In Campaign Financing To…?
Currently, only less than 1% of all campaign financing is made through crypto contributions. However, with digital currencies becoming more prevalent, that ratio is expected to look very different in a matter of a few years. Schweitzer believes that it is crucial for the campaign finance world to realize that cryptocurrency is here to stay and that it is an ongoing, ubiquitous evolution of payments
“Purely decentralized payment rails amongst trusted actors moving money in the back end, that is where transactions are generally moving,” Schweitzer says. “A blockchain-based transaction network is how all of this is going to evolve in the future. So ten years from now what people think of as crypto will be synonymous with just payments in general.
The platform developed in cooperation with CipherTrace screens the digital wallet to ensure all the standards are met before the contribution is accepted, if it is deemed as too risky, it will not be allowed to go through. With CipherTrace being an expert in detecting nefarious activities and spotting any potential illicit activities occurring in the Bitcoin or any other crypto ecosystem, the potential misconducts are spotted early on and the case can be taken further to intelligence agencies and law enforcement.
Schweitzer Labs And CipherTrace Taking Their Platform Outside Of The United States?
Currently, the platform developed by Schweitzer Labs and CipherTrace is only available in the United States. Considering the differences in the regulations on a state-to-state basis, covering the U.S. alone constitutes a big challenge. However, Schweitzer says he is absolutely considering expanding the project to cover more countries around the world.
“ Our system is all about trying to enhance transparency in political finance, specifically in democracies across the world who are in trouble,” he says.
“We are starting in the US, we are US based, that’s very close to my personal mission to help the United States get this lack of trust sorted out, but we know that there is a global market and we are excited for the opportunity to showcase what we have done here in the US with partners abroad and figure out the best way to build it out in all those unique and different jurisdictional requirements,” Schweitzer adds.