A Low-Cost, No-Tech Solution to Petty Corruption: Stickers

On a recent trip to Myanmar, I was surprised to find that all of my dining receipts came with government stickers on them. It turns out that these stickers are a solution to a tax fraud problem. Restaurants are supposed to charge sales tax, but the government has limited capacity to ensure that the tax collected from patrons actually reaches the government. So the government sells stickers to restaurants that say the price the restaurant paid, and restaurants post these stickers on each receipt for the amount of the tax. Compliance is secured through a combination of direct enforcement and public pressure. This low-cost, low-tech solution ensures the flow of money to the government instead of the pockets of unscrupulous business owners.

The same innovation could be applied to combat petty corruption, helping to ensure that the money from various charges paid by citizens—from license fees to road tolls to other government service charges—flows to official coffers rather than bureaucrats’ pockets. In any situation where an individual has to pay the government – from garbage collection to healthcare to speeding tickets – demanding a stickered receipt could ensure that the government agent doesn’t pocket some (or all) of the payment. Moreover, using these stickers would have a more subtle secondary benefit: fixing the price of government services. Consider a citizen who applies for a driver’s license and has to pay a cash fee. The bureaucrat in charge of processing the application not only has an incentive to not only pocket the cash, but also to exaggerate the size of the license fee in order to have more to steal. The stickers help ameliorate this problem, because a citizen who demands proof of payment in the form of stickers diminishes the incentives of the bureaucrat to inflate the price.

Of course, while the sticker system helps address petty embezzlement, it does not (directly) address the problem of petty bribery. A bureaucrat could demand an additional bribe on top of the official price for a service. Or a government agent could offer to not impose some charge or fine in exchange for a bribe paid directly to the official. The classic example here would be a police officer offering to look the other way on a traffic offense in exchange for a payment. Nonetheless, the sticker system may also help to curb these sorts of petty bribery, for a few reasons: Continue reading

Can Blockchain Help Bypass the Problem of Corruption in Development Aid?

Corruption undermines the effectiveness of foreign aid. While precise numbers are hard to come by, numerous press reports suggest that mass “leakages” (a euphemism for probable theft) are all too common. UN Secretary General Ban Ki Moon has reportedly asserted that approximately 30% of foreign aid is lost to corruption, though controversy over the magnitude and impact of the problem remains (see, for example, here, here, and here). The perception of a severe problem has naturally led to searches for innovative solutions, including technological solutions. One possibility that has been garnering some recent attention is blockchain technology. In fact, a few months ago, the Ministry of Foreign Affairs of Denmark, the think tank Sustainia, and the blockchain currency platform Coinify jointly published a report delineating how blockchain technology can be used to “hack the future of development aid.”

Blockchain systems make use of a shared digital “ledger,” in which each transaction contains the history of all previous transactions; because the ledger is transparent and distributed across many computers, rather than stored in a centralized database, it is (allegedly) not susceptible to manipulation or hacking, and ensures the transparency of all transactions (though not necessarily the real-world identities of those engaged in those transactions). Blockchain is probably best known as the technology that makes possible Bitcoin and other so-called cryptocurrencies. But blockchain technology and its applications are rapidly evolving, and many have already begun to see how this technology can be used as a tool to combat corruption, for example by increasing transparency in land records and by using blockchain systems to support anti-money laundering efforts. Now, companies such as Disberse, AID: Tech, and Donorcoin are developing blockchain-based fund management systems that, their proponents contend, can help reduce corruption in development aid. Blockchain technology would allow donors to transfer money to end users directly (and instantaneously), bypassing the formal financial institutions and corrupt bureaucracies that have often been the source of financial leakage, and preserving a transparent record of all transactions. This would help ensure that aid money goes to where it is intended to go.

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National Digital Currencies Raise New Risks of Grand Corruption

In 2017, you may have heard of this thing called blockchain. The technology, which works by creating a decentralized, encrypted, and independently verifiable ledger of transactions distributed over a network of computer systems, has allowed innovations in the design of secure systems for recording votes, registering land ownership, and confirming digital identity. The most famous application of the blockchain, however, has been the creation of digital currencies such as Bitcoin, Ethereum, and Ripple. Many private individuals consider these currencies to be the way of the future, and the death knell of the central banker: universal, transparent, and valued according to mathematical laws rather than political preferences, cryptocurrencies—according to their proponents—will bring with them immeasurable benefits, among them making the fight against corruption easier by allowing all interested parties to “see the entirety of any transaction instantly and accurately.”

But private citizens aren’t the only ones who have heard of the blockchain: the same central bankers who are meant to be rendered irrelevant by the advent of cryptocurrencies have also taken notice. Several governments, including those of Israel, Russia, China, Estonia, Sweden, and Venezuela, have announced plans to create their own national digital currencies (NDCs) based on blockchain technology. While there are several sound economic reasons for introducing an NDC, governments frequently cite the same anticorruption benefits mentioned above.

However, there are crucial differences between NDCs and cryptocurrencies like Bitcoin. Rather than open architectures enabling full financial transparency, most NDCs currently plan to use some form of centralized ledger, giving government authorities (and only them) the ability to see and police transactions. While such centralized transparency will give honest governments a much-needed boost in the fight against corruption, it will also give oppressive and kleptocratic regimes another tool with which to steal from and oppress their populations. Continue reading

Legalized Sports Betting in the United States: Analyzing the Impact of Legalization on Corruption Risk

The rise of corruption in sport has captured the attention of many anticorruption groups, including Transparency International and the United Nations Office on Drugs and Crime. Sports corruption takes many forms, but one of the most prevalent is match fixing, which occurs when players or officials alter the outcome of a sporting event in a way that benefits those who bet money on those “fixed” games.

In the United States, concerns about match fixing, among other things, led Congress to enact the Professional and Amateur Sports Protection Act (PASPA) in 1992. The Act prohibits most states from legalizing sports gambling, with only Nevada allowed to offer betting on single games. Yet PASPA failed to curb gambling on sports, mainly because bettors turned to the black market; each year, Americans gamble an estimated $150 billion-$400 billion in illegal sports betting.

PASPA appears to be in legal jeopardy: Last December, the U.S. Supreme Court heard oral arguments in the case of Christie v. National Collegiate Athletic Association (NCAA), and while a decision in the case is not expected until later this year, legal experts believe that the Supreme Court will invalidate PASPA. This would provide all 50 states with the opportunity to legalize and regulate sports betting in their state. With that in mind, it is important to consider the effects that legalized sports gambling may have on bribery in professional sports.

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Reforming the ANDSF Payroll Management System: The Limits of a Technological Solution

In my last post, I discussed the how the problem of “ghost soldiers”—soldiers who are inaccurately listed as on active duty, for purposes of generating salary payments that are then stolen—adversely affects the capacity and readiness of the Afghan National Defense and Security Forces (ANDSF). To make things worse, not only is the government making salary payments to soldiers who don’t exist, but some ANDSF personnel who do exist are not receiving the full salaries they are due. Approximately 20% of Afghan National Police (ANP) and 5% of Afghan National Army (ANA) personnel are paid in cash through so-called “trusted agents,” who are supposed to facilitate salary payments to ANDSF personnel when electronic funds transfers (EFTs) are not possible, but according to reports, corruption in the system could take as much as half of an employee’s salary. And while most ANDSF personnel receive their salaries via EFT to their personal bank accounts, this only reduces the threat of pilfering in the final distribution stage; it does nothing to correct for errors, either intentional or inadvertent, generated earlier in the process.

What can be done about these problems? The U.S.-led multinational military organization working with the Afghan government to reform and strengthen the ANDSF, known as the Combined Security Transition Command-Afghanistan (CSTC-A), is applying a technological band-aid that focuses on implementing a set of computerized systems that track personnel and pay. While these measures are helpful, they do not fundamentally change the incentive structures that drive corruption, and so are unlikely to represent a long-term solution, particularly after direct U.S. involvement winds down.

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The Road Ahead in Anti-Money-Laundering (AML): Can Blockchain Technology Turn the Tide?

One of the most exciting developments in financial and information technology in the past decade is the emergence of so-called blockchain technology. A blockchain is a database of information distributed over a network of computers rather than located on a single or multiple servers. The first and most famous practical application of blockchain technology is the electronic currency Bitcoin. Bitcoin and similar cryptocurrencies using blockchain technologies offer users the equivalent of anonymous cash transactions, and have been linked to illicit transactions in drugs, weapons, and prostitution as they. It is therefore no wonder then that blockchain technology is sometimes viewed as a problem, or at least a challenge, for those interested in fighting financial crime and corruption.

But blockchain technologies have other uses, many of which could in fact aid in the fight against these crimes. In an earlier post on this blog, Jeanne Jeong discussed how blockchain technology could be used managing land records. Another use for blockchain that has occasionally been mentioned (see here and here), but not yet sufficiently pursued, is anti-money-laundering (AML). Currently, banks spend about US$10 billion per year on AML measures, yet money laundering continues to take place on a vast scale. The goal of laundering money is to “wash” illegally obtained money (e.g. through corruption) into “clean” money, making the origins of the money untraceable. Blockchain technologies have five features that could make AML efforts both more effective and less costly:

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Guest Post: Catalyzing Anticorruption Efforts in the Pharmaceutical Sector–Collaboration Is Key

Michael Petkov, Programme Officer for Transparency International’s Pharmaceuticals & Healthcare Programme, contributes the following guest post:

It will come as no surprise to readers of this blog that the pharmaceutical sector has extensive corruption risks: the sector is extremely complex, with multiple actors, high-value products, large-volume contracts, and a high degree of information asymmetry. But despite these well-known risk factors many actors in the pharma sector are failing to produce and enforce adequate anticorruption policies. Key decision-makers in the pharma sector frequently do not perceive corruption as an important issue and often do not display a genuine commitment to anticorruption efforts.

A recent paper published by Transparency International and the Leslie Dan Faculty of Pharmacy at the University of Toronto identifies several overarching challenges that are hampering efforts to minimize corruption in the pharma sector, and posits key areas for action including the importance of harnessing technology to minimize corruption vulnerabilities and of increasing the monitoring, enforcement, and sanctions of actors. Because of the complexity of the sector, collaboration is essential to making progress on all of these fronts. After all, a key difficulty for tackling corruption in the pharmaceutical sector is the fact that the medicine chain stretches across national borders. It is encouraging that governments came together at the London Anti-Corruption Summit and recognized the need for national institutions to share relevant information with their peers in other countries. Similarly, multi-stakeholder initiatives such as the European Healthcare Fraud and Corruption Network are excellent opportunities for all types of actors to come together, share information, and collaborate with others to take action.

There are two other ways in which greater collaboration is critical for making progress on the fight against corruption in the pharma sector: Continue reading