HOW SMART CONTRACTS AND THE BLOCKCHAIN CAN REDUCE FINANCIAL CRIME AND PROVIDE TRANSPARENCY IN P3 INFRASTRUCTURE PROJECTS
Governments all over the world, including the UK, US, China, Nigeria, Canada and Iran, have announced massive infrastructure projects to stimulate economic growth. Over $78 trillion is expected to be spent on infrastructure globally over the next 10 years.
Most of these projects will be private-public partnership (P3) deals that transfer obligations to design, build, finance and manage infrastructure assets to private asset management funds, in exchange for long-term, lucrative government payments.
However, P3 infrastructure projects carry financial crime risks as they are a high risk for corruption. Some studies have estimated that the global average cost of corruption in infrastructure, solely from bribery, ranges from between 5 and 20 percent of the project costs. The American Society of Civil Engineers, for example, estimates the cost of corruption to be between 10 and 30 percent of infrastructure costs. In Canada, the government’s corruption inquiry found that such costs tend to be higher with so-called ‘mafia taxes’ levied under the table for some large projects.
What this means is that if financial crime is not resolved in the infrastructure space, up to 30 percent of global infrastructure costs – between $4 trillion and $25 trillion – will be paid as corruption leakage in the next decade. There are significant economic incentives for both the private and public sector to implement financial crime mitigation programmes in infrastructure.
Jan-Mar 2017 Issue