Peru sets its eyes on blockchain to fight government corruption

Just weeks ago, former president of Peru, Alan Garcia, committed suicide as police raided his home in connection with the infamous Odebrecht affair—a corruption scandal that has rocked Latin America for the last half decade.

Days later, another former Peruvian president, Pedro Pablo Kuczynski, was sentenced to three years in prison over the same corruption scheme involving the Brazilian construction company Odebrecht, and its elaborate plot to bilk Latin American governments of multi-million-dollar contracts for bogus projects from fake customers through fraudulent invoices.

So while North Americans or Western Europeans may scoff at the notion of “blockchain technology” as a potential solution for political or societal ills, there’s genuine hope for exactly that within the corruption-riddled country of Peru.

The government of Peru recently announced that it has partnered with blockchain startup Stamping.io and the Inter-American Development Bank (the primary source of multilateral financing in Latin America) to build a fully transparent, contract-procurement system—the entire process digitized on an immutable ledger so there can be no doubt as to its veracity.

The idea is to create a verification system for government contracts that is immune from data manipulation, unauthorized deliveries and receptions, or any other fraudulent procedures that could grant a contract to an entity without proper documentation.

“A key part to reducing corruption is to create more transparency and traceability,” says Steve Ghiassi, CEO of Legaler and president of the Australian Legal Technology Association. “[I]t could reduce some level of internal fraud and tampering, as internal audits could be conducted more accurately with a full, visible trail.”

And that’s exactly what Stamping.io and the Peruvian government aim to do.

The blockchain startup has created a platform that will register purchase orders from Peru Compras, the government agency that regulates electronic purchases in the country, on the LAC-Chain blockchain. LAC-Chain is an initiative of the Inter-American Development Bank (IDB), which was created to promote a blockchain ecosystem in Latin America and the Caribbean. It has a network of nodes based on Quorum, an open-source protocol developed by JPMorgan with Ethereum technology.

LAC-Chain is a premissioned (private) blockchain. Its nodes are managed by the IDB through the IDB Lab program, and permitted nodes will be verifiable using the Stamping.io website.

At the moment, the project remains in testnet, but Stamping.io Co-founder José Zárate Sousa tells Decrypt  it’s already showing signs of rapid growth, verifying some 500 to 1,000 orders every day. “LAC-Chain promises to become one of the most important private blockchain networks in the region,” he says.

While Ghiassi notes that, ideally, publicly available data could be verifed using open networks like Ethereum for maximum transparency, Peru’s use of a permissioned chain to test the waters is a step in the right direction, says Mario Solis, head of Cryptoeconomy at the Business Blockchain Association of Peru.

“The initiative of Peru Compras to use blockchain demonstrates the [government’s] willingness to fight against corruption in Peru,” he says. Solis adds that, since the news first began to spread throughout the country, interest in blockchain among local companies has boomed.

Beyond just a tool to battle corruption, local businesses may be drawn to the technology’s ability to improve efficiencies in adminstrative processes. “Blockchain eliminates steps in validation and validation demonstration, and is able to speed up those processes by 80 percent,” says Stamping.io’s Zarate. “This applies in almost all evaluation tasks.”

Zarate says Stamping.io is already expanding its vision beyond Peru, and is actively working to improve business practices in Chile, Ecuador, and Colombia by implementing similar systems.

It appears that the technology that Latin America needs to at least begin  to address systemic government corruption, and improve accountability, already exists. All that’s missing is the political will.