Anna Longely, Assistant Commissioner General Counsel at Australian Charities and Not-for-profits Commission, shares her insight into the importance of charities undertaking due diligence before they consider accepting crypto-asset donations or investing in them.
As charities look for new and innovative ways to raise funds, they may consider accepting donations of crypto-assets or investing in crypto-assets. However, we are urging charities and their advisers – such as their lawyers and accountants – to fully consider the risks and benefits before doing either so they can make an informed decision.
Crypto-assets are digital representations of value that can be transferred, stored, or traded electronically using blockchain technology. One type is cryptocurrency – digital currency that uses cryptography to verify and maintain ownership. Under Australian law, it is considered an asset and not fiat money; it is not government-issued currency backed by a commodity such as gold.
Non-fungible tokens, or NFTs, are another type. These include digital pictures or artworks, video clips, memes or items used in online gaming. Each NFT is unique and ownership is recorded via blockchain.
Cryptocurrency, digital currencies and cryptocurrency exchanges are legal in Australia. Only a small number of charities accept crypto-assets currently, and do so primarily as a way to connect with new donors. However, the continued global digital transformation, accelerated by the COVID-19 pandemic, may mean more people engage with these assets and that more charities consider exploring them.
These kinds of assets can be highly volatile and can experience significant value fluctuations. This is one of the reasons that, generally, the risks connected with a charity investing in crypto-assets are greater and harder to manage than the risks connected with accepting donations and converting to fiat money.
Establishing systems to manage crypto-assets can be time-consuming and requires specialist skills and resourcing, which many charities do not have. A small number of charities already work with crypto-assets and we understand most are doing so through external providers. A crypto-assets secondary service provider, or CASSPr, acts as an intermediary to help charities and other entities build blockchain-enabled products. CASSPrs also offer services such as converting cryptocurrency donations into ‘cash’ that is paid to the charity, so the charity does not have to manage the process.
It is important that charities undertake due diligence before they consider accepting crypto-asset donations or investing in them. Charities’ Responsible People, such as board or committee members, CEOs and CFOS should develop their understanding and seek advice to ensure they are making the right decision for their particular organisation. They need to understand the opportunities and risks and ensure there are appropriate and lawful processes in place to manage assets. They must also ensure they understand how crypto-assets work, as well as their potential benefits and risks – including any legal or tax implications – and have the right resources to manage crypto-assets effectively.
It is good practice for charities to seek financial advice about investments. And if a charity decides to investigate the receipt or use of crypto-assets, it should properly document decision-making processes, risk management processes and the policies and procedures to accept and transfer these assets.
Registered charities should also consider how crypto-assets could impact their governance or charity registration obligations, including compliance with:
- The ACNC Governance Standards – particularly Governance Standard 5, which includes the duty for Responsible People to take reasonable steps to ensure their charity’s financial affairs are managed responsibly. The Standard also requires those in charge of charities to act with reasonable care and diligence, to act honestly and fairly in the best interests of the charity and for its charitable purposes, as set out in its Constitution or governing document.
- The ACNC External Conduct Standards, which may apply in circumstances where charities invest in crypto-assets outside Australia.
Read more in the ACNC’s new guidance: Charities and Crypto-assets. This guidance is intended to assist charities considering whether to deal in crypto-assets, noting this is still an evolving area. The Australian Government has been reviewing the legal framework of crypto-assets. It aims to identify gaps in the regulatory framework, provide additional consumer safeguards, work on a licensing framework, review innovative organisational structures and review obligations for third party custodians of crypto-assets. The ACNC will consider impacts for our guidance as that progresses.
Anna Longley is the Assistant Commissioner General Counsel at the Australian Charities and Not-for-profits Commission. Anna is the senior legal advisor to the Commissioner and contributes to corporate and strategic leadership as a member of the Executive team.
Having worked at the Australian Taxation Office for over 16 years prior to becoming General Counsel, Anna has an extensive background in public administration. She has led assurance and review work on not-for-profit entities and is experienced in dispute resolution and litigation. Anna completed an Executive Masters of Public Administration in 2022 and holds a Bachelor of Laws with Honours, a Graduate Diploma of Legal Practice and a Masters of Taxation. In the charity sector, Anna has spent several years volunteering for and on the board of community legal centres. Connect with Anna via LinkedIn.
