Digitalisation as an anti-corruption strategy: what are the integrity dividends of going digital?

By Carlos Santiso, Director, Digital Innovation in Government Directorate, Development Bank of Latin America

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The response to the coronavirus crisis is providing a unique opportunity to “reinvent government”, rebuild trust and accelerate the global fight against corruption, propelled by the smarter use of new technologies and data analytics. Digital transformation is central to recovery plans, which will require agile government and cutting red-tape, but also corruption-proofing reactivation programmes. Additionally, it will require managing and mitigating the risks to privacy and cybersecurity. At a macro level, the correlation between digitalisation and corruption is well established. Digitalisation can disrupt corruption by reducing discretion, increasing transparency, and enabling accountability by dematerialising services and limiting human interactions. Furthermore, it allows for more effective oversight by smarter accountability institutions and data-savvy civil society. However, there is less actionable evidence at the micro level on the effects of specific digitalisation reforms on different types of corruption and the policy channels through which they operate.

The rise of integrity-tech

One important way digital acceleration is permeating the integrity space is through the use of disruptive technologies and data analytics as anti-corruption devices by integrity actors, within and beyond government. These actors include government entities overseeing public resources such as tax authorities, procurement agencies and finance ministries, as well as accountability institutions, such as audit offices, civil society and, increasingly, civic-tech startups. Integrity-tech refers to the use of digital technologies as anticorruption tools to prevent and investigate corruption. In particular, the smarter use of data analytics is proving to be a game changer, as the exponential surge and opening-up of data provide potent integrity drivers.

Tax authorities have been active users of new technologies to increase tax compliance and prevent tax fraud. Evidence shows that the e-filling of tax obligations lowers tax compliance costs, improves tax collection, and reduces tax fraud. In Kenya, economist Njuguna Ndung’u demonstrates how digitalisation of the tax system has reduced direct interaction between taxpayers and tax officers thus deterring bribery. In Britain, the revenue agency has energetically extended its digital transformation and data gathering powers to reduce the “tax gap.” Its Connect system analyses taxpayer data and social networks to identify potential tax evaders. Its predictive algorithm identifies people most likely committing tax fraud and helps devise pre-emptive actions through behavioural nudges. Between 2008 and 2014, it secured £3 billion in additional tax revenue, from the £80 million initial costs of the Connect system, representing a 37.5 to 1 return on investment in its first 5 years.

The digitalisation of government procurement is another important area for the deployment of integrity-tech, accelerated by the adoption of the open contracting data standard by a growing number of countries and endorsed by the G7 and G20. In 2006, South Korea pioneered business intelligence in government contracting to identify cartel activity and bid rigging. Ukraine made digital procurement mandatory in 2016 and adopted the ProZorro platform to scrutinise its 4500 bids per day. In its first two years of operation, ProZorro saved US$1.9 billion. More recently, the coronavirus crisis exposed corruption risks in emergency procurement, which many countries such as Paraguay have sought to mitigate by releasing their COVID-19 spending on open data platforms.

The use of integrity analytics by oversight agencies, audit institutions and anti-corruption offices is another area where integrity-tech solutions are being deployed. Audit agencies are resorting to artificial intelligence robots to red-flag irregularities in government procurement. These tools have been particularly useful during the pandemic to uncover anomalies in emergency health spending. In Colombia, the audit office developed an analytics platform, Océano, that triangulates contracting data with company registries to detect anomalies. It estimates that 27% of the 7 million large government contracts between 2014 and 2019 were concentrated in a limited number of bidders.

In recent years, tech geeks have entered the integrity space. Increasingly, tech-based, data-powered start-ups are seeking social impact partnering with civil society to leverage data against corruption. For example, the French startup Linkurious and the Swedish Neo Technology helped the International Consortium of Investigative Journalists make sense of the trove of data leaked from Panamanian law firm Mossack Fonseca that led to the so-called Panama Papers global scandal. The rise of civic-techs is a promising trend in the tech for integrity space. In 2018, the World Economic Forum created a tech4integrity platform to serve as a global marketplace for such integrity-tech innovations.  

However, integrity analytics rely on a number of prerequisites to work. It requires good quality data that can be effectively reused and overcoming digital silos within governments through clear rules and protocols regulating data sharing. The Open Data Charter identifies 30 datasets that are critical for anti-corruption purposes. The quality of those databases are still, at best, uneven and incomplete. It also requires robust regulatory frameworks to prevent abuses and breaches of privacy. 

The integrity dividends of digitalisation

The irruption of tech in the integrity space has captured the limelight. There are, however, more subtle integrity benefits to governments’ digitalisation efforts. Although more difficult to measure, because it is not easy to untangle corruption gains from broader efficiency gains of digitalisation, these benefits can have lasting impact, changing structural incentives and altering rent-seeking calculus.

At the core of most digital government reforms are the simplification of administrative processes and the rationalisation of regulatory policy. By cutting red-tape, the digitalisation of bureaucratic procedures reduces discretion and therefore opportunities for bribery. The costs of red-tape can be significant, representing as much as 3.4% of GDP in Mexico. In 2019, petty bribery alone costed the Mexican economy US$650 million in 2019, an average of US$200 per victim, according to the statistics agency.

Digital government reforms entail automating bureaucratic procedures, expanding digital services, and reducing reliance on paper-based processes, therefore improving their transparency and reliability. In 2015, Argentina decided to go paperless, with the digitalisation of administrative procedures, the introduction of digital authentication, and the expansion of digital services. It launched a simplification programme targeting the productive sector to cut red-tape faced by the private sector. In the span of four years, this initiative eliminated 600 norms that did not aggregate value but were subject to arbitrary interpretation, resulting in savings estimated at US$2.1 billion.

Digitalisation has been instrumental in reducing corruption in social protection programmes. The introduction of universal digital identity, digital beneficiary registers, and digital transfers has improved targeting and reduced leakage. In India, universal digital identity has been instrumental in plugging leakages in social transfers. Digital payments and biometric identification through the Aadhaar unique identification system launched in 2009 have reduced corruption in employment and pension programmes, as well as in fuel subsidy programmes. Digital payments help plug leaky government transfer programmes. This is what countries such as India have been trying to do with the withdrawal of large banknotes from circulation in late 2016.

Mind the gap

Government digitalisation policies can be an effective anti-corruption strategy, precisely because they are not called as such. However, the complexity of corruption and the solutions required to address it cannot be resolved by digitalisation alone; they depend on the institutional context. Institutional incentives, state capacities and strong leadership are key. As such, to make digitalisation work as an anti-corruption devise, it is important to fix related institutions too. Lastly, digitalisation also creates new corruption risks, as a result of the sharp rise in governments’ tech budgets and the increasing complexity of technological solutions that governments need to procure. The more governments go digital, the more they expose themselves to cybercrime and ransomwares.