October 10, 2017
Why Blockchain Could Build a Steel Curtain Against Public Corruption
By Brent M. Eastwood
Why Is Blockchain Effective Against Corruption?
Governments cannot function without the use of budgets, ledgers, and databases. Blockchain promises to make these systems more efficient and transparent. Before blockchain technologies burst on the scene, public sector record keeping was frequently plagued by fraud and corruption. It is often difficult for governments to identify who fraudulently changes or who alters a ledger or database. Blockchain in distributed networks “locks in data, making data verifiable and independently auditable," writes Marc Prosser in the crypto-currency news outlet CoinDesk.
CoinDesk’s guide to the technology explains more about how blockchain works, “It represents an innovation in information registration and distribution that eliminates the need for a trusted party to facilitate digital relationships.”
Automatically establishing a digital identity in a shared ledger is paramount in a blockchain system. Austin-based startup Factom has already helped governments like Honduras with its public land registry ledgers that are susceptible to abuse by fraudsters. Abhi Dobhai, a Factom executive, explained that since data transactions in the developing world can be fraught with problems, “a shared ledger – or source of truth, if you will – could ensure that transactions and data shared with the core systems are consistent and error free.”
Georgia is another country whose government has struggled with managing land titles without corruption creeping in. Startup BitFury has teamed with the Georgian civil service to enable government workers to more closely monitor property rights and titling. With blockchain, Georgia will be able to make near real-time audits of the registry as opposed to the usual once-a-year auditing process. Citizens will also be able to connect with the registry from mobile devices more efficiently and at a much lower fee. This improved connectivity aspect is a way to promote transparency and allow watchdog groups and the media to shine the light on land titling corruption. Forbes’ Laura Shin has reported that because of this initiative and others, Georgia is now ranked 44th on Transparency International’s Corruption Perception Index. This was a big improvement after being ranked 123rd on the same index in 2003.
Lack of clean water, electricity, and other difficulties with infrastructure construction in Africa mean hundreds of millions of dollars are being dispersed throughout the continent by various foreign aid and development programs. This money also attracts various types of corruption, fraud, and graft. As Nigerian bitcoin expert Iyke Aru has noted, “Allegations of corruption at various levels usually leads to inflation of (project) contracts despite low (tax) revenues for most of these developing countries.”
Aru believes that this type of project expense inflation and lack of transparent contract procedures can be mitigated by using blockchain technologies in Africa. Bitland, for example, aims to protect property rights in Ghana. The company’s platform uses “decentralized models such as Bitcoin’s blockchain to bridge the gap between the government and the undocumented areas.” Its customer management system offers a way to peacefully settle land disputes among governments, citizens, and organizations. Both individuals and bureaucracies “will have more control over their data, and the public ledger will verify the integrity of records without sacrificing the privacy of users,” according to Bitland’s web site.
On the financial services consumer side, UAE’s Emirates Islamic Bank is installing blockchain technology to foil fraudulent check writers. The system the bank is testing relies on quick-response (QR) codes on each written check. The QR codes will enable a registration ledger to ensure that each one is authentic.
Bank of Tokyo-Mitsubishi UFJ, the biggest bank in Japan, is also using digitized checks on a blockchain to guard against check fraud in a pilot project with Singapore’s central bank and the Hitachi Group in Singapore.
Corruption Fighting Goes Beyond Blockchain
Technology analyst Tushar Mehta, writing in PCQuest, has uncovered other examples of corruption-fighting digital applications outside of blockchain. Moroccan startup Mamdawrinch, whose name is translated as “We will not take a bribe,” is an anti-corruption effort that reports on graft and other fraud regarding the Moroccan government. Their motto is “fight against corruption.” Indonesia’s Korupedia.org is a watchdog that keeps a running log of public corruption, extortion, embezzlement, bribery, and abuse of authority.
Mehta also describes how data miners working at international development banks can use big data analytics software from large corporations such as Dell EMC to monitor government behavior when bureaucracies “issue bids and identify patterns of deceit or collusion or corrupt intent in transactions.”
Sometimes an online competition brings out the best in anti-corruption technology. That was the idea behind Citigroup’s “Tech for Integrity Challenge,” a contest that had applicants from over seventy countries. In June, Citi’s demo day in Singapore showcased “solutions to promote integrity, accountability, and transparency.”
Two companies stood out due to their potential to help fight unlawful financial activity in emerging economies. Identitii focuses on using blockchain, so banks can better “know their transactions” and not rely on dated methods of conventional customer level information. This improves the process of financial crime compliance. Sqreem Technologies, according to Citi’s award description, “fuses structured and unstructured data to provide an early warning system for anomalous behavior that may indicate financial crime.”
Blockchain and other technologies are showing promise, but with 190 countries in the world, it is difficult to tell whether the tide is turning against government corruption. So the fully-built blockchain “steel curtain” may still be years away. More success stories may require greater regional cooperation through international organizations. FutureSource has revealed how the World Bank is encouraging the use of its own anti-corruption mobile app. But each country is faced with unique cultural and historical proclivities relating to corruption that would make a one-size-fits all approach difficult. At least for now, sharing best practices of technology solutions such as blockchain may be the most prudent tactic in the global corruption fight.
Brent M. Eastwood, PhD is the Founder and CEO of GovBrain Inc that predicts world events using machine learning, artificial intelligence, natural language processing, and data science. He is a former military officer and award-winning economic forecaster. Brent has founded and led companies in sectors such as biometrics and immersive video. He is also a Professorial Lecturer at The George Washington University's Elliott School of International Affairs.