Corruption & Fraud, an INGO’s Dilemma

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Corruption & Fraud, an INGO’s Dilemma and a Blockchain Solution

Photo by Random Institute on Unsplash

Two weeks ago the Associated Press (AP) announced that the WHO had launched an investigation into the U.N. agency, UNICEF, and other international agencies for financial fraud in Yemen. Allegedly, billions of untraceable dollars in aid had been received by the INGO’s since 2015. Activists are now pushing for aid transparency, demanding that INGO’s provide financial reports on aid funding and disbursement.

“More than a dozen U.N. aid workers deployed to deal with the wartime humanitarian crisis have been accused of joining with combatants on all sides to enrich themselves from the billions of dollars in donated aid flowing into the country, according to individuals with knowledge of internal U.N. investigations and confidential documents reviewed by The Associated Press.” (source)

But this isn’t a unique case…

2019 (8.5 million) Top US aid fraud investigator defends tough counter-terror stance… The OIG chief of investigations reveals $8.5 million of food aid diversion in Syria. (source)

2018 The Oxfam scandal is about more than sex… Oxfam perpetuated the silence by misleading UK government officials in order to preserve its share of foreign aid funds — which totaled £31.7 million (approximately $43.8 million U.S.) last year alone. (source)

2017 (3.2 million) Revealed: huge rise in foreign aid fraud but officials still only detect £3.2m of missing funds… allegations of fraud involving British foreign aid have risen more than four-fold in just five years… (source)

With the growing sophistication of blockchain technology, zk-SNARKs, and cryptocurrencies I believe that there is a better way to hold international aid organizations accountable, deploy resources in-country, and better support venerable populations.

So I proposed a five-step solution on Twitter- which is the inspiration of this article.

Many thanks to the @ZcashFoundation team, and other contributors like @zooko and @gladstein for the dialogue.

Here’s where it all started.

https://twitter.com/ttmariemia/status/1159542598723395595

I sort of went on a rant…six Tweets later, I finally got to my proposal:

1. transfer all funds to Yemen using a blockchain

2. tokenize funds for aid assets

3. embed smart contracts on the blockchain to maintain control over disbursement

4. ensure transaction privacy protocol protect vulnerable populations

5. use an asset transfer program to distribute tokens to remote areas / unbanked

I thought I’d give a visual to set the stage. Please consider that this is a VERY simplified version of how aid works. It’s also not the most beautiful diagram. I was on the plane, so I made do with stock shapes on Word.

I want to start by debunking the idea of end-to-end direct disbursement.

If you want a completely decentralized, end-to-end traceability solution for aid funding and disbursement on the blockchain, you could transfer international funds (any currency) directly to people in-country under conflict.

However, there are glaring issues with this proposition. It won’t work, here’s why:

- Aid organizations do serve a purpose. They provide strong, experience-based expertise on where funds are most needed, which programs to implement, and how to best serve vulnerable populations.

- Sometimes a direct transfer of currency will not address the most immediate needs; people may need water, food, blankets, medicine, etc. before needing an ability to transact.

- It assumes that under conflict there’s a marketplace which exists where currency can be exchanged for goods and services.

- Not all individuals under conflict will have access to smartphones.

- Even if they do, they may not have internet connectivity to receive funds.

- There is no way to guarantee that funds will be used / accepted appropriately — even if transactions are traceable, doesn’t mean they’re used well.

- One person can receive 1 million dollars, and another can receive 1 dollar.

I could go on but for brevity’s purpose; this option simply does not make sense.

I see blockchain technology addressing three major pain points in the aid sector:

1.) Traceability and ability to audit fund disbursement.

2.) Permissioned end-of-line use of funds.

3.) Controlled privacy for donors, aid workers, and at-risk populations.

INFRASTRUCTURE | If you want end-of-line, in-country traceability and assurance of proper use of funds:

Traceability on the blockchain is great, but blockchain alone does not solve all problems. Unless an entire ecosystem exists whereby vendors are setup in-country and accept transactions on the blockchain, funds disbursed as cryptocurrency may need to be converted into fiat which can result in issues of illiquidity.

https://twitter.com/gladstein/status/1161030973355696128

In addition to this, countries may have banned the use of cryptos, the internet infrastructure may not be adequate to support blockchain transactions, there remains issues of scalability, and users may not have smartphones or know how to operate blockchain transactions.

Nevertheless, I think that this there’s a way to make this work. It requires a little bit of creativity and some infrastructure, but the end-result would be better that the current status quo.

Let’s have a re-cap on our objectives for using Blockchain for aid:

- Traceability and ability to audit fund disbursement.

- Permissioned end-of-line use of funds.

- Controlled privacy for donors, aid workers, and at-risk populations.

0) On a blockchain, international donors send funds to an INGO. (optional)

1) The INGO would receive funds and disburse them to their offices in-country, while maintaining the ledger.

2) Aid workers would receive and deploy funding as needed (either by purchasing goods & services, or through payment to staff salaries) all recoded on the blockchain.

And here comes the fork… once crypto is converted to fiat there’s no certainty on how funds are used subsequently, I will offer two options;

3.a) local aid agencies could send cryptocurrencies to the end users directly

3.b) local aid agencies could tokenize currency (locally or remotely) and send one-time use tokens to end users. Users would then transact at approved vendors for goods and services.

Option 3.b would look something like this:

Source: Sikka.me Concept Paper

Benefits of this System:

- It goes around any local laws banning cryptocurrencies.

- It does not require (less reliable) internet connectivity, and tokens can be transferred, accepted, and exchanged by SMS (more reliable, and usually the first telecommunication service to be enabled after a natural disaster).

- It allows controlled usage of aid funding by deploying tokens and having the ability to approve appropriate transactions.

- Minting tokens can be done remotely.

Blockchain can act as a form of digital identity for end users.

Conceivable barriers to adoption:

- It requires preparation and infrastructure.

- Vendors need to have willingness and capacity to adopt the technology.

- There must be access to basic cell phones and SMS functionality.

- It requires a learning curve on behalf of the end user and vendors.

PRIVACY | It’s a Human Right — Especially when pertaining to vulnerable communities

If you’re looking for an end-to-end traceability solution for aid (or any blockchain solution for that matter) privacy should always be a consideration. For this use case, privacy considerations are as follows:

1. International donors may want to support a cause but in doing so may put them (or their families in-country) at-risk of exploitation by an opposing militant group or government.

For example, take the Hong Kong protests.

- Imagine being a Chinese national working in Canada. Let’s call her Jenny.

- Jenny wants to support the protestors in Hong Kong and decides to send funds to a local advocacy group in Hong Kong accepting crypto transactions.

- If Jenny can’t ‘shield’ her transaction a malicious entity, like the Chinese government, could likely determine her identity with some internet research and a block explorer.

- The Chinese government can take action like freezing Jenny’s domestic accounts, arresting her upon entering Chinese territory, or even freezing the accounts of her family still residing in China.

2. Refugees’ and humanitarian aid workers have a human-right to transaction privacy as well, for many of the same reasons- if they are working in a conflict environment or fleeing from an oppressive regime, public transaction information will put these already vulnerable individuals even more at-risk.

This is our dilemma. Complete privacy (like Monero) doesn’t work because there’s not auditing ability, but complete public access (like Bitcoin) is also not ideal because it may put individuals even more at-risk. This necessitates the ability to send a private transaction. Fortunately, there are some very brilliant people working on this, and one of them just happened to join the conversation on Twitter, Zooko Wilcox (CEO of Z.cash) put it perfectly:

https://twitter.com/zooko/status/1161017826506940419

To recap: here’s the five-step solution we started with:

1. transfer all funds to Yemen using a blockchain

2. tokenize funds for aid assets

3. embed smart contracts on the blockchain to maintain control over disbursement

4. ensure transaction privacy protocol protect vulnerable populations

5. use an asset transfer program to distribute tokens to remote areas / unbanked

Is this a be-all, end-all solution? Probably not.

I could write a whole master’s thesis on this topic. Needless to say, in only 1000-and-some words I’m barely scratching the surface. That being said, I think this is a good place to start. My objective was to provide a solid use-case for blockchain technology and cryptocurrencies for development.

Comment below if this article has made an impact on you.

If you have any thoughts or disagreements (even better) comment or get in touch with me directly. There’s always room for improvement.


Corruption & Fraud, an INGO’s Dilemma was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.