Danish Crowdfunding Projects Could Require A Charitable Lottery Licence

For the most part crowdfunding websites like Kickstarter and GoFundMe are considered a great way to get access to new and innovative products, an altruistic way to support a person or group in need of funds or, if you’ve been ripped off, a complete waste of money.

Regardless of whether you are pro or anti crowdfunding, it is highly unlikely that you have ever thought of them as financial institutions or vehicles for facilitating the distribution of wealth. However, since they are not selling a product of their own but do facilitate the sending money to a third party, they raise the question of whether they qualify as Alternative Investment Fund (AIF).

 Danish AIF Requirements

For Danish sites where crowdfunding offers financial investments with financial returns, access to securities (fiat and cryptocurrency) or are deemed to constitute a remittance service the Danish financial supervisory authority (FSA) requires the platform to hold the correct financial services licence.

These licences ensure that the correct financial controls are in place, proper taxation is adhered to, citizen’s rights are secured and that the Danish Act on Measures to Prevent Money Laundering and Financing of Terrorism is complied with.

Crowdfunding and Lottery Licensing

There is however a subset of the crowdfunding model that to date has not required any form of licencing, those which fall under the following:

“Donations or Rewards Model does not involve any form of financial return and therefore is not within the scope of the Danish financial regulation but only subject to additional regulation.”

These are the kinds of crowdfunding projects you find on Kickstarter, where for a nominal donation you are buying early access to a video game, new technology or even a piece of art.

The Danish Gambling Authority has however noticed a trend towards offering fundraising opportunities which cross the line into gambling by offering what it deems to be lottery opportunities.

It defines these as follows:

“Crowdfundings may be covered by the rules on charity lotteries because the donation is considered a stake in those situations where you pay more for goods than they are worth. When you donate an amount of money in connection with crowdfunding and thereby participate in a lottery, the donation is considered a stake.”

Any crowdfunding project that offers a chance to win a prize or offers access to prizes based on the outcome of a randomised prize draw is in fact operating as a Charitable Lottery and requires a licence under Danish law.

Charitable Lottery Outline

The Danish Gambling Authority only allows associations, institutions, organisations and committees to hold Charitable Lottery licences, not individuals.

Any institution is holding such a lottery if:

• The participants pay a stake to participate (money or similar),
• The chance of winning depends on chance and
• There is a chance of winning a prize

This includes paying a stake via a crowdfunding website as per the Danish Gambling Authority’s guide on charity lotteries and the Executive Order on charity lotteries no. 1288 of 29 November 2019.