Disruptive technologies have become common parlance. Many enthusiastic individuals continue to say that this or that new thing “will change the world.” Bitcoin and its associated blockchain technology were intended to end centralized control over the flow of money. Parties could buy and sell things using this new currency, whose underlying mechanism eliminated traditional payment methods and provided previously unknown levels of anonymity. Substance addicts and criminals quickly took to it, embracing a system that allowed— or so they thought— the execution of all kinds of illegal activities without detection.
Beyond its initial fanfare, Bitcoin remains owned by a small group of users compared to the regular financial system. However, its mechanism, blockchain, offers opportunities for a variety of interesting applications. As my focus has been on the relentless fight against corruption for most of the past 14 years, I believe blockchain could “change the world.”
Imagine a scenario where government institutions publish tender calls in a public ledger. Each bid and all its associated processes are linked, officially scrutinized, and cryptographically ensured for accuracy. All government departments share access to the blockchain. So, for example:
– a call for the acquisition and construction of a thermoelectric plant is published;
– information about the public body and the identity of the public servants involved in the process is provided, along with all details related to the project’s location, budget, technical requirements, bidding period, participating institutions and banks, and the completion deadline;
– the public funds allocated for the project are “colored,” meaning disbursements can be traced and mapped as funds move between bank accounts, allowing the Attorney General, Central Bank, financial oversight bodies, Congress, the Ombudsman, etc., to verify proper expenditures in real time;
– subsequently, the examined bidding companies are added. Since the ledger is public and the contained information is officially approved, this is where questions start to arise: why was company X allowed to participate? Why did officials X, Y, and/or Z ignore its lack of a verifiable history? Why is there a price difference between bids or unreasonably high proposed costs?
– the bid from company B is selected, but it wasn’t the best. As all involved officials are identified, blockchain records can enable scrutiny of a public body at an individual level previously unknown in most of the world;
– the project begins with the disbursement of an amount X that can be traced from the public body’s account to company B’s account;
– cost overruns, delays, and modifications are recorded and added to the project block in the ledger;
– as all project details are in the ledger, any interested party can check if milestones are being met on time and within the budget, and whether the project is achieving its intended goals;
– transfers, payments, operation costs, and all aspects related to disbursed public funds are also verifiable and subject to scrutiny;
– authorities sign off at the end. Dates, goals, and objectives are timestamped, recorded, and associated with the signing officials.
With the above framework in place, and considering that in public procurement most corrupt money is misappropriated public funds, it would be extremely difficult, if not impossible, for unreliable operators to steal funds using shell companies or offshore accounts. The traceability of public funds would eradicate money laundering, as participating banks would be obligated to block unauthorized capital movements or face legal consequences for their negligence. The identity of public officials and their associated financial details would make bribery much more challenging.
In large procurement contracts, like some I’ve been investigating in Venezuela, bribing officials isn’t an out-of-pocket expense. Instead, it’s a promise once public funds are disbursed upon granting a contract. Thus, Derwick Associates, for example, didn’t pay Diosdado Cabello $50 million from their own money, but promised to pay the $50 million bribe upon receiving a procurement contract, where Cabello had influence. The same situation occurred with Nervis Villalobos and Rafael Ramírez from PDVSA. Villalobos, in other words, promised on behalf of Derwick or on behalf of Luis Oberto to give X amount to Ramírez if Ramírez awarded X contract to Derwick or Oberto.
The introduction of “colored” money would complicate everything significantly. Given that the ledger is public and the participating companies and officials are fully identifiable, how could, for instance, Juan Carlos Escotet, Víctor Vargas, or David Osio claim ignorance of the money movements from Derwick through their banks? How could real estate sellers in Madrid, Paris, Miami, and New York, and their bankers, willfully ignore the illegitimate source of funds and participate in money laundering? The same applies to their lawyers. Corrupt public officials and contractors—in the case of Venezuela, almost 100%—could be held personally accountable for any irregularities.
This is perhaps a case of an existing technology that could truly disrupt a cancer that deprives billions of people of the necessary funds to develop and escape poverty. It remains to be seen whether the necessary political will exists to implement it.