Puerto Rico recently announced that it may be looking for a blockchain solution to fight government corruption, particularly after a Puerto Rican mayor pleaded guilty to accepting a cash bribe of more than $100,000.
But could a distributed digital ledger really make an impact in the unincorporated United States territory’s struggle against public fraud and wrongdoing?
It might if it were done in tandem with other public efforts, governance experts tell Cryptox. Puerto Rico could gain, too, by heeding lessons from other countries that implemented blockchain to fight corruption in recent years, including Georgia, India and Colombia, and it shouldn’t be reluctant to bring in outside help, though much of the key work should still be done by local agencies. Puerto Rico shouldn’t expect a quick technical fix.
“We have a real credibility problem,” the Puerto Rican House Speaker told Bloomberg, and more transparency and accountability — the sort that blockchain technology potentially offers — “might be part of the solution.”
Nir Kshetri, professor at the Bryan School of Business and Economics at the University of North Carolina at Greensboro, for one, thinks the Commonwealth official might be onto something. Blockchain technology can not only enhance anti-corruption efforts, but it can also be a game-changer, he told Cryptox.
“Blockchain systems can keep a full audit trail of all activities and transactions that government officials have been engaged with,” Kshetri said, adding, “The immutability feature means that government officials cannot delete files. Any change will be noticed immediately by other participants connected on the blockchain network.”
Others aren’t quite so certain but say that blockchain technology can keep the government clean if other conditions are right. “Blockchain can play a role in securing transactions and monitoring events, preventing fraud and corruption,” Per Aarvik, a researcher at the Chr. Michelsen Institute (CMI)/U4, told Cryptox, continuing, “but not without a regulatory framework as a foundation.”
Puerto Rico risks adopting expensive systems that “may have a limited effect, unless a wide range of issues are addressed,” he added. Along these lines, “There are lessons to be learned from other highly digitized countries such as Estonia or Singapore” — as well as the former Soviet republic of Georgia.
The technology can play a big role in the area of land titles, Jonas Hedman, professor at the Copenhagen Business School, told Cryptox, as has already been shown in Sweden, where such a program has been partially implemented, it also can have “a huge impact on procurement and elections. Imagine if an agency or state — like Puerto Rico, CIA, UN etc. — had an open ledger of all their spending?”
Advice for Puerto Rico
Asked about Puerto Rico’s plans to fight public corruption, Kshetri said the island territory needs to begin in the most corruption-prone areas. It will need to cross-validate the data that it receives before it is entered on the blockchain, and here it might be well served to use other emerging technologies, such as artificial intelligence, machine learning and remote sensing technology rather than relying on government officials.
Reforms should expect to face resistance, too, from actors who are currently benefiting from the status quo, both within and outside government. Involving outside parties — as with Colombia’s school meal procurement program — can enhance informal accountability.
That said, “Puerto Rico should not rely too much on foreign companies to implement blockchain to fight corruption,” Kshetri told Cryptox. “It should develop local blockchain manpower” — as what happened in India’s Andhra Pradesh state. “Local blockchain companies are more effective in providing low-cost solutions suitable for local needs.”
Georgia gets creative
Georgia is often cited as an instance where a blockchain has been used to secure a government registry, “but the story did not start with blockchain,” Aarvik told Cryptox. “The country had radically reformed the whole public sector before blockchain was introduced.”
This included carefully studying its corruption problem and then applying sometimes creative solutions, including moving some borderline practices into the legal sphere. “For example, most people were paying a bribe to obtain a passport or any other document that they needed urgently and were not ready to wait for,” according to Tamara Kovziridze, former chief adviser to Georgia’s prime minister. “Today, an international passport can be obtained within a day if a higher fee is paid.”
When blockchain firm Bitfury introduced its Exonum blockchain-as-a-service solution into the country to secure land titles, Georgia already had a working land-registry system, said Aarvik, adding that technical solutions can’t exist in isolation. Certain pre-conditions must be met. Or as Kovziridze told CMI:
“The rule-of-thumb is that if elites remain corrupt, no country can really defeat corruption.”
Aarvik has this message for Puerto Rico: Blockchain experts hired to discuss solutions with governments may be tech experts or digital fintech specialists, but they may not necessarily be designers of sound governance systems. Unless the reform design “includes the full range of competencies from law, social science, economics and tech, I don’t believe the project will yield the expected results.”
Kshetri agreed that land registration is an area where distributed ledger technology can make a difference, citing a promising blockchain-based pilot program in India’s Andhra Pradesh state. “Bribery in land administration is rampant in India,” he told Cryptox. A typical land record on the blockchain has 58 attributes, “such as unique ID, plot code, geo-coordinates, survey number, boundary information — e.g., information about neighboring plots, location in relations to roads or other landmarks— classification of land as well as dynamic attributes that are subject to change, such as owner and mortgage information.”
But what’s critical is that it also introduces a system of checks and balances. Kshetri added:
“A blockchain-based system in which many agencies act as nodes or validators of transactions could serve as a counterbalance for one another to assure that no agency can manipulate the system without being noticed by others.”
The “validators” in the state’s land records include its revenue department, the chief commissioner of its land administration department and other officials. “If any node tries to change the record, the landowner will receive a text message. The immutability feature means that data cannot be deleted.”
Colombia cracks down on crooked contractors
In Colombia, crooked contractors were inflating bills for school meals, selling chicken breasts to the government for more than four times their cost in supermarkets and, sometimes, not delivering purchased goods at all, Kshetri told Cryptox, so the government teamed up with the World Economic Forum and the Inter-American Development Bank to implement a public blockchain procurement program to track the supplier selection process in the city of Medellín.
This required a tenderer to publicly commit to contract terms and selection criteria prior to eliciting bids, explained Kshetri, saying, “Risks such as tailoring selection criteria after the request for proposal is published to favor specific contractors are eliminated.”
Because the vendors are competing, “a blockchain-based solution’s permanent and tamper-proof bid records can ensure that a firm cannot alter submitted bids after learning new information about competing bids,” Kshetri explained.
Adding other technologies
In the fight against public wrongdoing, blockchain technology can be paired effectively with other emerging technologies, too. “In the cobalt supply chain, there is a concern that blockchain systems can be corrupted if the government agents whose role is to tag bags collude with smugglers and enter incorrect data,” Kshetri reported, but the implementation of artificial intelligence and drones can be used to cross-verify the data.
Traceability-as-a-service provider Circulor, for example, has developed solutions on blockchain and AI in the cobalt sector. When miners enter supply chain data, their identities are confirmed with facial recognition software.
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All in all, blockchain technology can be an effective means to fight government malfeasance as it introduces more “transparency into governmental spending,” which makes corruption more difficult to commit, as Hedman noted. But it can’t work in isolation, and it won’t work if a government is corrupt at the top. The Georgia experiment was successful, according to Kovziridze, because “the top leadership was non-corrupt.”
A holistic approach to combating public corruption is key, “rather than technological quick fixes,” added Aarvik. But to streamline processes, increase public self-service and omit previous corruption-prone processes, digitalization, including blockchain technology, “is absolutely a powerful tool,” he told Cryptox.
