PART 2. TEXAS ETHICS COMMISSION
CHAPTER 18. GENERAL RULES CONCERNING REPORTS
The Texas Ethics Commission (the Commission) adopts amendments to Texas Ethics Commission rules in Chapter 18. Specifically, the Commission adopts amended §18.13, regarding Fine for a Late Report. The amendment is adopted without changes to the proposed text as published in the April 28, 2023, issue of the Texas Register (48 TexReg 2169). The rule will not be republished.
Rule 18.13 contains rules related to fines for campaign finance reports that are filed late. Currently, it includes Chapter 302 filings for speaker candidates. Chapter 302 does not provide for fines for late statements of contributions, loans, and expenditures filed by speaker candidates in the "administrative process." The administrative process is the process by which a civil penalty is automatically assessed against a filer of a late campaign finance report, lobby registration or report, or personal financial statement. The Election Code and Government Code expressly require the Commission to determine whether a person failed to file a timely report and assess a civil penalty for late or missing campaign finance, lobby, and personal financial statements. Tex. Elec. Code § 254.042; Tex. Gov't Code §§ 305.033, 572.031. There is no similar authorization or requirement to assess an administrative fine in Chapters 302 (relating to the speaker election) and 571 (relating to the Ethics Commission). With no statutory authority to automatically assess fines for late or missing speaker election reports, the Commission proposes to amend its rule so that no such authority is implied. This amendment does not affect the Commission's authority to issue fines through the sworn complaint process. See Tex. Gov't Code § 571.061(a)(1) (authorizing the commission to administer and enforce Chapter 302 of the Government Code).
No public comments were received on this amended rule.
The amended rule is adopted under Texas Government Code §571.062, which authorizes the Commission to adopt rules to administer Chapter 302 of the Government Code.
The amended rule affects Chapter 302 of the Government Code.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 3, 2023.
TRD-202302752
James Tinley
General Counsel
Texas Ethics Commission
Effective date: August 23, 2023
Proposal publication date: April 28, 2023
For further information, please call: (512) 463-5800
The Texas Ethics Commission adopts new Texas Ethics Commission rule in Chapter 22 of Title 1 of the Administrative Code. Specifically, the Commission adopts new §22.37, regarding Virtual Currency Contributions. The new rule is adopted without changes to the proposed text as published in the April 28, 2023, issue of the Texas Register (48 TexReg 2170). The rule will not be republished.
The Commission seeks to address and clarify the reporting requirements of political contributions made with virtual currency, such as Bitcoin. The new rule permits candidates, officeholders, and political committees to accept virtual currency. It does not distinguish between any types of virtual currencies, like Bitcoin. The rule requires filers to report virtual currency as in-kind contributions.
Title 15 of the Election Code allows, with some exceptions for source and amount, candidates to accept contributions of goods or services. There is no express prohibition on the acceptance of virtual currency. This rule reflects the reality that candidates have and will accept virtual currency contributions.
The new rule also directs filers to report the value of any accepted virtual currency as the fair market value at the time of receipt. Although virtual currencies may possess attributes associated with both currency and a non-monetary asset, at least for the purposes of reporting, the Commission believes virtual currency is best described as non-monetary. This requirement is designed to address the well-known volatility of virtual currency value and provide guidance on how to report the value of virtual currency contributions. The rule does not require filers to liquidate their virtual currency holdings within any particular timeframe.
The Commission first proposed this rule in September 2021, and received numerous public comments. Based on those comments, the Commission deleted the previous subsection (c), and changed "cryptocurrency" to "virtual currency" throughout the proposed new rule to match the language used by the legislature in House Bill 4474 of the 87th regular session, effective on September 1, 2021. Additional public comments were received before and at the Commission's May 2022 meeting. Mr. Andrew Cates did not support the removal of subsection (e), saying that "the relative nascency of virtual currency and the potential for fraud dictate a public policy argument that the Commission should keep the requirement in rule to ensure that folks aren't simply taking contributors at their word that they are the true source/owner of the virtual currency and the receiving party is doing their due diligence to ensure compliance with the law."
Other Comments included the following:
Dimitra Tsavachidou, President and Founder, Vastogen, Inc., 10-28-21: commented on an earlier version of the proposed rule. She supported most of the earlier version of the proposed rule, but opposed a part that stated cryptocurrency may not be used to make an expenditure and must be sold first because it contradicts the consideration of cryptocurrency as an "in-kind" contribution, and it should be able to be used without the obligation to sell it first. The republished and adopted rule dropped that requirement.
Lee Bratcher, Executive Director, IGE, Dallas Baptist University, 11-4-21: commented on an earlier version of the proposed rule in support of most of the proposal, but opposed a part of an earlier version of the proposed rule that states cryptocurrency may not be used to make an expenditure and must be sold first because it contradicts the consideration of cryptocurrency as an "in-kind" contribution. The republished and adopted rule dropped that requirement.
Michael Scharf, MA Scharf Consulting, 11-4-21: commented on an earlier version of the proposed rule in support of most of the proposal, but opposed the part of the earlier version of the proposed rule that states cryptocurrency may not be used to make an expenditure and must be sold first because it fails to recognize the unique nature of virtual currencies and their use as an "in-kind" contribution. The republished and adopted rule dropped that requirement.
Natalie Smolenski, Chairman of the Board, Texas Blockchain Council, 11-4-21: commented on an earlier version of the proposed rule in support of most of the proposal, but opposed the part that states cryptocurrency may not be used to make an expenditure and must be sold first because such an obligation to sell is more consistent with currency issued by foreign countries. However, its increasing use in the U.S. suggests that cryptocurrency will increasingly be used to pay for goods and services in the U.S. An obligation to sell creates unnecessary red tape and overhead. The republished and adopted rule dropped those requirements.
Andrew Cates, Cates Legal Group, 11-10-21: Commented on an earlier version of the proposed rule. He suggested the word "cryptocurrency" be changed to "virtual currency" based on the passage of HB 4474 in the 87th Legislature. He suggested that treatment of virtual currency as an in-kind contribution be only a stop gap for now with a legislative recommendation to change the definition of "contribution" in the next session. He further suggested an addition to chapter 572 of the Government Code requiring disclosure of virtual currency holdings by Personal Financial Statement filers. The suggestions were incorporated in the republished and adopted rule.
Kristin Smith, Executive Director of Blockchain Association, and Karen Blackistone and Chris Gober, Gober Group, 11-17-21: supported most of an earlier version of the proposed rule, but opposed the part of an earlier version of the proposed rule that states cryptocurrency may not be used to make an expenditure and must be sold first because it is based on a misinterpretation of the FEC's position on a committee's use of cryptocurrency. The republished and adopted rule dropped those requirements.
Andrew Cates, Cates Legal Group, 4-5-22: suggested a reference to TEC Rule 20.51 in the subsection that discusses valuation of the in-kind contribution, and suggested keeping the subsection stating that the value of the virtual currency contribution is its fair market value upon receipt. The suggestion was incorporated in the republished and adopted rule.
Elizabeth Shimeck, Senior Legal Counsel, Campaign Finance, and Patrick Llewellyn, Director, State Campaign Finance, Campaign Legal Center ("CLC"), 11-11-22: Provided detailed comments that included the following: "Any regulations seeking to allow and govern the use of virtual currency in campaign finance must account for both cryptocurrency's usage as a form of electronic cash, which differentiates it from other types of in-kind support, and the federal government's intent to regulate it alongside securities and commodities." CLC recommended adopting additional safeguards to ensure transactions are traceable, and would require more stringent reporting of receipt of virtual currency. The rules should clarify how virtual currency contributions are valued, including the reporting of all transactions, gains or losses, and how to deal with illegal contributions. They made suggestions on proper recordkeeping by campaign finance filers. They agree with valuing virtual currency as the fair market value upon receipt and would require virtual currency contributions to be made via Treasury-registered service providers that utilize KYC protocols. They suggested rules for reporting the use of virtual currency for expenditures. The Commission determined further study was necessary before adopting more substantive regulations on the acceptance and use of virtual currency beyond reporting obligations.
The new rule is adopted under Texas Government Code §571.062, which authorizes the Commission to adopt rules to administer Title 15 of the Election Code.
The adopted new rule affects Title 15 of the Election Code.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 3, 2023.
TRD-202302754
Jim Tinley
General Counsel
Texas Ethics Commission
Effective date: August 23, 2023
Proposal publication date: April 28, 2023
For further information, please call: (512) 463-5800
The Texas Ethics Commission adopts the repeal of a rule in Chapter 28 of Title 1 of the Administrative Code. Specifically, the Commission repeals §28.3, regarding Termination of Candidacy. The repeal is adopted without changes to the proposed text as published in the April 28, 2023, issue of the Texas Register (48 TexReg 2170). The rule will not be republished.
Rule 28.3, regarding the termination of a speaker candidacy, has caused confusion regarding the requirements of a speaker candidate following the election for speaker and the necessity to file a new speaker declaration for each legislative session in which a member seeks to be elected speaker of the house. Rule 28.3 could be read to be contrary to Chapter 302 and should be repealed.
Rule 28.3 states that "a speaker candidate is considered to have terminated the candidacy when the candidate is no longer seeking the office or is ineligible to seek the office." Chapter 302 states a speaker’s candidacy is terminated when a speaker is elected or when a speaker candidate files a statement terminating his or her candidacy. Tex. Gov’t Code § 302.0121(d). In the past, speaker candidates unnecessarily continued to file campaign finance reports in their capacity as a speaker candidate or officeholder after the speaker was elected. The statute is clear. Rule 28.3 is unnecessary and should be repealed.
The Commission did not receive comments for this rulemaking.
The repeal is adopted under Texas Government Code §571.062, which authorizes the Commission to adopt rules to administer Chapter 302 of the Election Code.
The repeal affects chapter 302 of the Government Code.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 3, 2023.
TRD-202302753
Jim Tinley
General Counsel
Texas Ethics Commission
Effective date: August 23, 2023
Proposal publication date: April 28, 2023
For further information, please call: (512) 463-5800