bitcoin, Japan, crypto
Bitcoin’s prominency is clear in Japan, where cryptocurrencies are recognized as a legal method of payment. | Source: Osaze Cuomo/Shutterstock.com

In a clear example of tech evolving faster than the law can adapt, a Japanese minster has confirmed that crypto donations are now legal due to a classification loophole.

According to Reuters, on Tuesday, Sanae Takaichi, the internal affairs and communications minister of Japan, noted the newfound ‘legality’ of crypto donations. She specifically highlighted their use within elections, remarking that cryptocurrencies were not subject to the stringent political fund’s control law; a statute which affirms that all donations to individual politicians — whether it be stocks, bonds or fiat — must be publically reported.

Incredibly, cryptocurrencies, due to their current classification, do not fall into the categories above. In essence, neither the donor nor the candidate is required to reveal any crypto contributions.

crypto loophole Japan regulation
A translated Tweet explaining the loophole | Source: Twitter

Crypto Loopholes

Though at first glance, this seems like a reasonably positive step, upon further inspection, it’s just a major loophole in the legal system.

As mention, there are rigorous rules in place when it comes to political donations in Japan. The Political Fund’s Control Act (PFCA) specifically sets out a range of criteria for a political contribution that this cryptocurrency loophole effectively contravenes.

For example, according to The International Institute for Democracy and Electoral Assistance, Article 22-6 of the Political Funds Control Act, 1948 notes:

“It is prohibited to make anonymous contribution in connection with elections or other political activities”

The fact that cryptocurrencies, in general, are virtually above the law, means that anonymous contributions made via privacy coins, effectively obscure the donor’s identity.

Moreover, other clauses instill a limit on the amount a donor can contribute. As indicated by Article 22:

“The amount of individual contribution to a person other than political parties and political fund organizations may not exceed 1.5 million yen per year.”

The use of privacy coins coupled with the new crypto loophole would completely disguise any such donation over this threshold.  The act also outlaws any donations from trade unions or organizations to individual political figures; a rule now easily avoided via crypto endowments.  This presents a worrying scope for malfeasance, potentially enabling the complete subversion of the political system in Japan.

On top of this, cryptocurrency is taxable within the country. Yet, there’s no taxing what can’t be declared. If allowed to continue, the loophole wouldn’t just impair political regulation, but existing cryptocurrency tax policy as well.

Keeping Pace

While cryptocurrencies such a bitcoin are a legal payment method within Japan, the PFCA hasn’t been updated to reflect this. According to Japanese University Law professor, Tomoaki Iwa, this is a clear example of progress outrunning legislation:

“The current law does not keep pace with the times.”

It’s highly unlikely that this erroneous affair will go unchecked for much longer. Nevertheless, it does highlight a distinct issue with government-mandated regulation. All too frequently, policy is inadequately executed, often struggling to keep up with innovation. Luckily Japan is a pioneer of self-regulation, especially within the cryptocurrency industry – sometimes, these things are best left to the experts.

This article was edited by Samburaj Das.

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