Can blockchain technology eradicate corruption?

    English

    So called disruptive technologies have entered common language. Loads of enthusiastic people keep saying that this or that new thing will "change the world." Bitcoin, and its associated blockchain technology, was meant to do away with centralized control of money flows. Parties could buy and sell stuff in this new currency, whose underlying mechanism did away with traditional payment methods, and provide unknown levels of anonymity. Substance abusers and the underworld made quick work of it, adopting and embracing a system that allowed -or so they thought- to conduct all kinds of illegal activities undetected.

    Beyond its initial fanfare, bitcoin remains the province of a small group of users compared to the regular financial system. Its mechanism however, the block chain, brings opportunities to an array of exciting applications. Given that uncompromising fight against corruption is and has been my thing for the most part of the last 14 years, I think blockchain could indeed "change the world."

    Imagine a scenario where governmental institutions publish in a public ledger calls for bids. Each bid, and all its associated processes, are linked, officially vetted and its accuracy cryptographically guaranteed. All government departments share blockchain access. So, for instance:

    - a call for procurement and construction of a thermoelectric plant is published;

    - information of public body and identity of civil servants involved in the process is provided, as well as all details pertaining location of project, amount earmarked, technical requirements and bidding period, participating institutions and banks, and completion timeframe;

    - Public funds earmarked for the project are "coloured", that is disbursements can be traced and mapped as funds move between bank accounts, so that Attorney General Office, Central Bank, financial watchdogs, Congress, Ombudsman, etc., can check, in real time, proper expenditure;

    - vetted bidding companies are subsequently added. As the ledger is public, and information contained therein officially approved, here's where questions start to arise: why was company X allowed to participate? Why its lack of a verifiable track record was ignored by civil servant X, Y, and/or Z? Why the difference in price between bids, or abnormally high costs proposed?

    - company B's bid is selected, but its bid was not the best. As all civil servants involved are identified, block chain records can allow for a level of scrutiny on a public body at an individual level unknown in most of the world;

    - project starts with disbursement of X amount, which can be traced from public body account to company B's account;

    - any cost overruns, delays, and modifications are recorded and added to the project's block in the ledger;

    - as all details of project are in the ledger, any interested party can check whether milestones are being delivered on time and on budget, and whether project reaches goals as expected;

    - wires, transfers, payments, operating costs, and all aspects related to disbursed public funds are also verifiable and subject to scrutiny;

    - responsible authorities sign off on completion. Dates, goals and objectives are time-stamped, recorded and associated to signing civil servants.

    With the above framework in place, and considering that in public procurement most corruption money is misappropriated public money, it would be extremely difficult, if not impossible, for dodgy operators to steal funds with fly-by-nights, or offshore shelf companies. Traceability of public funds would eradicate money laundering, as participating banks will be obliged to block unauthorized capital movements, or face legal consequences for their oversights. Identity of civil servants, and their associated financial details, would make bribing much more difficult.

    In big procurement contracts, like some of the ones I have been investigating in Venezuela, bribing of officials is not an out-of-pocket expense. Rather, it is a promise once public funds have been disbursed upon granting of a contract. So Derwick Associates, for instance, did not pay Diosdado Cabello $50 million of its own money, but rather promised to pay the $50 million bribe upon being given a procurement contract, in whose granting Cabello had influence. Same thing happened with Nervis Villalobos and PDVSA's Rafael Ramirez. That is Villalobos promised, on behalf of Derwick or on behalf of Luis Oberto, to give X amount to Ramirez, should Ramirez grant X contract to Derwick or Oberto.

    Introduction of "coloured" money would make all of it very difficult indeed. Given that the ledger is public, and participating companies and officials totally identifiable, how could, for instance, Juan Carlos Escotet, Victor Vargas or David Osio claim ignorance on Derwick's money movements through their banks? How could real estate vendors, in Madrid, Paris, Miami and New York, and their bankers, willfully ignore illegitimate source of funds and participate in money laundering? Ditto their lawyers. Civil servants and corrupt contractors - in the case of Venezuela nearly 100% of them- could be made personally responsible for any wrongdoing.

    This is, perhaps, a case of an existing technology that could disrupt, truly, a cancer that deprives billions of people of needed funds to develop, to escape poverty. It remains to be seen whether there's anywhere the political will required to implement it.

    Slider Image: