Oh Brazil! Only Smart Contracts Can Save You

The specter of corruption rules the world. Indeed, over 6 billion people live in countries afflicted by an acute corruption problem. Brazil is a case in point. In the scandal du jour, the government-controlled oil company, Petrobras, allegedly has lost billions of U.S. dollars due to fraudulent contracts, bribery, and money laundering. Fortunately, there is a weapon to help state-run institutions, like Petrobras, dramatically reduce corruption and mitigate its effects: blockchain’s “smart contracts” technology.

Also read: The Digital Revolution Increases Sovereignty

Brazil’s ‘Car Wash’ Operation

It is sad to see countries that are rich in natural resources and talented people succumb to the nefarious clutches of corruption, driving millions into poverty and hopelessness. For decades, systematic corruption has plagued Brazil, devastating its economy. Brazil ranks 76th in the corruption perception index, out of 168 measured countries.

Corruption has become so pervasive in Brazil that volumes of laws and regulations, as well as armies of auditors, investigators, and law enforcement agencies, could not prevent corruption from occurring in the biggest Brazilian company, Petrobras.

This scandal has been revealed as a result of the police investigations, code-named “Operation Car Wash.” In this operation, top businesspeople and politicians are under investigation in what might be the greatest corruption scandal ever in Brazil’s history.

As a result, millions of people are regularly taking to the streets accusing the government and prominent businesspeople of corruption.

Protests in Brazil, March 2016

In the latest anti-government protests, people called for the impeachment of President Dilma Rousseff. Demonstrators also called for the arrest of her predecessor, the former president Lula da Silva. Surprisingly, as soon as a judge started investigating Lula da Silva, President Rousseff immediately appointed Lula da Silva as her new Chief of Staff. According to protestors, this move was intended to shield Lula da Silva from investigations related to the Petrobras scandal.

Ironically, millions of government sympathizers, simultaneously, also protested on the streets, supporting the government. Government supporters claim that allegations against the government are an attempt to topple the government.

Blockchain: A Weapon Against Corruption in Brazil

But, who is right, the pro-government, or anti-government protesters? How could contracts worth billions of U.S. dollars disappear without a trace?

Unfortunately, Brazil lacks proper instruments ensuring that business transaction records are immutable, irrevocable, and transparent. Therefore, it is possible that nobody will ever be able to answer these questions accurately. This problem could have been avoided if Brazil had used smart contracts based on Bitcoin’s blockchain technology.

Petrobras has in place policies and procedures to ensure the fairness of business and financial transactions. The Supplier’s Channel provides information to suppliers on how to conduct business with Petrobras, “To ensure that its work is always guided by ethics and transparency, Petrobras adopts monitoring, oversight, and accountability mechanisms.” Petrobras also publishes a Code of Ethics and the Petrobras Corruption Prevention Program manual.

Moreover, Petrobras offers a whistleblowing link and a dedicated telephone number to facilitate the disclosure of fraud, corruption, money laundering, and mismanagement. All these anti-corruption controls are supposedly implemented by a well-equipped corporate governance structure, including a general ombudsman and an army of auditors.

However, all of these internal controls and governance entities have been to no avail. Corruption still reigns.

Under these circumstances, to successfully fight fraud, the Brazilian government and Petrobras may wish to reengineer their business processes, putting in place new internal controls to make certain that all business transactions are accurately recorded, transparent, tamper-proof, and perpetually preserved.

Specifically, authorities should study the benefits of adopting Bitcoin’s blockchain technology, including smart contracts and smart assets, because these technologies offer the following relevant attributes:

Reliability & accessibility: The blockchain resides in thousands of nodes, distributed all over the globe; therefore, it is safe from a single point of failure. If one node fails, all the other nodes continue to work. Each node maintains a copy of the blockchain. Transparency: Everybody can see all the transactions residing on the blockchain. Irrevocability: Transactions can be irrevocable. Immutability: Undetected alterations in the blockchain data cannot occur. Digitally secured: Documents and assets can be cryptographically secured. Rio de Janeiro

Smart contracts are computer algorithms that, without relying on human intervention, can verify, execute, and enforce the terms of a business agreement. A smart property is a property whose ownership is controlled by means of smart contracts.

The good news is that smart contract platforms are being developed at a rapid pace. For example, RSK Labs recently announced that it has raised $1 million to advance the development of the first Bitcoin-based smart contracts platform, while fully compatible with Ethereum. As the smart contracts pioneer, Nick Szabo, put it, RSK brings the “Best of Bitcoin (currency and settlement system) + best of Ethereum (smart contract programming environment).”

Ethereum smart contracts are immune to fraud, according to its website. Specifically:

Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third party interference.

Consequently, smart assets and smart contracts, using blockchain attributes, can be developed to ensure: a) Petrobras’ transactions are auditable; b) Petrobras’s assets can always be verified via a chain of custody; c) transaction records cannot be altered; and d) malicious and corrupt individuals cannot dispute the veracity of records.

By implementing these solutions, Petrobras and other government-run entities could eventually restore their credibility in the market and enhance their relationship with their stakeholders, including the Brazilian people.

What are your thoughts on governments using smart contracts and smart assets to fight corruption? Let us know in the comments below!

Images courtesy of Pixabay, Wikimedia Commons, Petrobras – Petróleo Brasileiro S.A., and Agencia Brasil Fotografías, Flickr

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