Blockchain and Compliance: Perfect Partners in the Fight Against Corruption

Technology is changing our lives, introducing new habits, and facilitating our way of interacting and getting along. We no longer have to stand on the sidewalk to wait for a taxi or go out to buy food; we do both from the comfort of our homes through an app. Nor do we have to go somewhere physically to meet someone, or go to the movies to see the latest release. Everything is just a click away.

The fight against corruption, and the implementation of compliance programs to prevent bad practices in public and private companies, is also more accessible than ever before, thanks to blockchain technology. This tool helps to optimize compliance in corporate processes, making it not only more efficient, but also more transparent, and enabling companies to have solid evidence in case of possible investigations by the U.S. Department of Justice and other anti-corruption agencies.

Blockchain, which is revolutionizing the compliance field. offers greater transparency and inviolability of information. It is akin to a database created to prevent the information from being modified once it is published, thus making it incorruptible and traceable. Corruption and bad practices often stem from the vulnerability of documents created and stored without a high level of security and traceability.

Although this technology was conceived as the architecture underlying cryptocurrencies, its current uses go much further. It is already being used in the banking, medical, automotive, retail, and insurance sectors, in particular to provide traceability to the supply or process chain; to digitize and manage data, records, or procedures; or to manage inventories. Basically, its widespread use is due to the fact that blockchain solves various reliability problems, offers greater process efficiency, and boost accountability.

I saw an opportunity in blockchain to support companies in their everyday fight against corruption. By incorporating this tool into tech platforms that monitor corporate compliance programs, corporate counsels and company leaders can have peace of mind. Blockchain can ensure companies that their processes aimed at preventing corruption are being correctly defined and implemented. It also generates evidence that the business is doing everything possible to avoid bad practices.

Through blockchain, evidence of good practices can be created, sealed, and printed, creating a ‘fingerprint’ for each document with the aim of avoiding modifications to the information. That makes this evidence more credible before any anti-corruption authority or judicial system in the world. It can provide a robust defense in case of a corruption investigation 10 to 15 years down the road.

Blockchain and compliance are the perfect match for many reasons:

• Data integrity.  Evidence of good practices is stored in an unalterable way, guaranteeing greater transparency and reliability for years to come. By preventing the data from being modified, this technology reduces the risk of fraud or forgery, which is also why it is used to prevent money laundering through cryptocurrencies.

• Greater traceability.  All the information is recorded identically in multiple locations (decentralized technology), which grants access to the ‘fingerprint’ of the document, at each stage of the process. This allows for the storage of historical and original information.

• More automation, fewer intermediaries.  Just as process automation eliminates the possibility of human errors, blockchain reduces the intervention of intermediaries and, therefore, prevents crimes from being committed. In this regard, the use of smart contracts has expanded. Smart contracts enable the workflow to be automated, and since they are immutable, they guarantee compliance with their clauses. Also, paperwork is eliminated.

• Cost savings.  By offering new and greater efficiencies, in addition to less human intervention, blockchain technologies reduce logistics costs. But most important, by protecting the data that constitutes evidence of good practices, and therefore preventing corruption, it saves enormous costs in terms of defense, litigation, sanctions, and reputational damage, if and when a company is involved in a corruption investigation.

Thus, blockchain technologies become a powerful weapon for reducing both public and private corruption, facilitating processes that often—because they are cumbersome and bureaucratic— give way to bad practices and flawed processes.

Not only is the private sector beginning to use blockchain as a weapon to fight corruption, but the public sector is making progress on this front as well. For example, in 2019, Peru was one of the first countries in Latin America to implement blockchain at the governmental level.

Specifically, it did so with Perú Compras (the central state procurement agency), in order to combat internal corruption in public contracting, registering purchase orders and their respective offers on multiple servers (nodes). Each purchase order has a QR code that can be read with any smartphone, where the original PDF file of the order can be accessed, verifying the authenticity of the document. In 2020, Colombia began using blockchain to hinder corruption in its School Foodservice Program, using smart contracts to reduce the number of people involved in administrative processes.

If the public and private sectors continue to embrace blockchain technologies, it is very likely that together they will combat the epidemic of corruption that has destabilized and weakened many economies in the world and has cost companies their reputation and millions of dollars in fines. It is clear that the role of business executives and boards of directors is key to the implementation of blockchain and other new technologies that can advance the fight against the destructive power of corruption.

Susana Sierra is CEO of BH Compliance, a global company with offices in Miami and Chile that offers an innovative tech platform to monitor corporations’ compliance programs and ensures their process prevents corruption and is correctly defined and implemented. 

From: Daily Business Review