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Blockchain and Trade Finance Tech (Series: Blockchain Basics)

Blockchain and Trade Finance Tech (Series: Blockchain Basics)

The financing of the international trade of goods — and the underwriting thereof — implicate a many-staged process of manufacture, storage, movement, delivery, inspection, and vending. The parties involved are many. The documentation of rights and responsibilities used to fill a small library of paper, and now involves paper, electronic communication, and some digital information transfer. Many points of delay and potential contention persist. Can blockchain clean this up? What other technological developments are reshaping trade finance?

\To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/trade-finance-tech-2019/

The financing of the international trade of goods — and the underwriting thereof — implicate a many-staged process of manufacture, storage, movement, delivery, inspection, and vending. The parties involved are many. The documentation of rights and responsibilities used to fill a small library of paper, and now involves paper, electronic communication, and some digital information transfer. Many points of delay and potential contention persist. Can blockchain clean this up? What other technological developments are reshaping trade finance?

\To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/trade-finance-tech-2019/

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Blockchain and Trade Finance Tech (Series: Blockchain Basics)

  1. 1. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 1
  2. 2. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Practical and entertaining education for attorneys, accountants, business owners and executives, and investors. 2
  3. 3. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DISCLAIMER The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure the information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. About this PowerPoint: if you are looking at this PowerPoint without the benefit of listening to the conversation that surrounded it then you are doing yourself a disservice. This PowerPoint was prepared in contemplation of being viewed in conjunction with listening to a one hour webinar on the topic 3
  4. 4. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MEET THE FACULTY Moderator: Chris Cahill – Lowis & Gellen LLP Panelists: Michael Baumert – Barnes & Thornburg LLP Oscar Jofre – KoreConX Bryan Kagel – Meridian Finance Group Jeffrey Kamins – Integrated Trade Finance LLC (ITF) 4
  5. 5. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS WEBINAR: Blockchain and Trade Finance Tech The financing of the international trade of goods — and the underwriting thereof — implicate a many-staged process of manufacture, storage, movement, delivery, inspection, and vending. The parties involved are many. The documentation of rights and responsibilities used to fill a small library of paper, and now involves paper, electronic communication, and some digital information transfer. Many points of delay and potential contention persist. Can blockchain clean this up? What other technological developments are reshaping trade finance? 5
  6. 6. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS SERIES: Blockchain Basics In Dr. Strangelove, a party created a ―doomsday machine‖ that would automatically destroy all life if the machine detected a nuclear attack on that party. There was no override, and, well, let’s just say that the film is hilarious but probably not a comedy in a conventional sense. There, if the ―network‖ received certain information, the device would activate. Like a smart contract on a blockchain. The problem in Dr. Strangelove was that the party that created the doomsday machine activated it before telling its adversary (i.e., the other network participant). That ―smart contract‖ was critically not smart. Blockchain smart contracts (with much smaller but still meaningful stakes) are computer code designed to adjust automatically the rights and obligations of network participants based upon the inputting of information to the network, with such information visible to all and inputted per means and procedures agreed upon by all before the contracts become effective. And thus paper-intensive, multi-step and multi-party transactions, like securities sales, supply chain coordination, and supply chain finance, might proceed with greater ease and security. Costs could be lowered, transactional speed quickened, and litigation simplified or evaded entirely. We will examine these areas of promise. 6
  7. 7. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EPISODES IN THIS SERIES 8/23/19 Episode #1: Blockchain and Smart Contracts 9/20/19 Episode #2: Blockchain and Supply Chain 10/18/19 Episode #3: Blockchain and Trade Finance Tech 7 Dates shown are premiere dates. All webinars will be available On Demand approximately 4 weeks after they premiere.
  8. 8. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Episode #3: Blockchain and Trade Finance Tech 8
  9. 9. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHAT IS BLOCKCHAIN? • A ledger • Not stored in any one place • Composed of a decentralized network of nodes • New data on the blockchain must be verified by a majority of nodes • Verification occurs by executing energy-intensive cryptographic calculations • Once validated, a block of data is added to the chain • Blocks may never be removed or edited 9
  10. 10. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHAT IS BLOCKCHAIN? (cont’d) • Decentralized – data on the blockchain is not stored in any single place but distributed across many nodes • Immutable – once data is added to the blockchain, it cannot be removed, edited or backdated 1 0
  11. 11. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TYPES OF BLOCKCHAINS • Public Blockchains (permission-less) • Private Blockchains (permissioned) 1 1
  12. 12. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe FROM CENTRALIZED LEDGER TO DECENTRALIZED Blockchain establishes a decentralized ledger, by contrast to the familiar centralized ledger, with a custodian or administrator being trusted to process monetary transactions and manage the transfer of property See the two diagram on the following pages, from David Sneyd, ―Blockchain solutions to ESG problems‖ (BMO Global Asset Management, Oct. 2018) 1 2
  13. 13. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TITLE Content 1 3
  14. 14. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe HOW DOES BLOCKCHIAN ESTABLISH A DECENTRALIZED LEDGER? •Participant makes an entry, i.e., creates a new block •Proposed transaction is broadcast to each participant on the network •Validity of the new block is subject to pre-set criteria and a complex algorithm called ―proof of work‖ •A majority of miners conclude that transaction is valid •New block is created and time-stamped •All are provided with an updated version of the ledger: 1 4
  15. 15. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 1 5
  16. 16. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SOME COMPONENTS OF A BLOCKCHAIN •Each block contains: A ―hash,‖ which is a digital fingerprint or unique identifier Time-stamped batches of recent valid transactions And the hash of the previous block •The previous block hash links the blocks together and prevents the past form being altered or rewritten •Each subsequent block strengthens the verification of previous blocks (and the entire blockchain) 1 6
  17. 17. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SOME COMPONENTS OF A BLOCKCHAIN (cont’d) Proof of work requires high computational capacity, provided by ―miners‖ Miners supply the network with computing power, to allow the updating of the database A majority of mining power must be able to confirm the new blocks by decrypting the data Once a “block” (a record of a purchases and sales created by miners by solving a mathematical puzzle that validates the transactions) is added to the network ledger of older transaction (the “chain”), such record on the blockchain can’t be changed or reversed (i.e., the transaction is immutable) Thus a blockchain, to be non-falsifiable, must not have any operator holding at any time more than half of the computational power of the chain 1 7
  18. 18. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ACCORDING TO SATOSHI • A coin can be defined as a chain of digital signatures • The input to each transaction is the output of one or more other transactions • The balance in your Bitcoin wallet is the sum of your unspent transactions • The coins in your wallet can be traced all the way back to the miner that mined it 1 8
  19. 19. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SO WHAT IS GAINED BY GOING FROM A CENTRALIZED TO A DECENTRALIZED LEDGER? If a bank or credit card company keeping a centralized ledger is hacked, then other participants lose access to their data With a decentralized ledger, all participants keep a copy of the data With a decentralized ledger, there is no extra cost of (or litigation from) efforts to synchronize records kept by counterparties to a transaction 1 9
  20. 20. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SMART CONTRACTS •Smart contracts are ―self-executing contracts with the terms of the agreement between [a] buyer and seller being directly written into lines of code. Once a smart contract has been created, computer transaction protocols will execute the terms of a contract automatically based on a set of conditions.‖ Rensel v. Centra Tech, Inc., 2018 WL 4410110 at *10 (S.D. Fla. June 14, 2018). The promise re smart contracts: Self-executing Additional parties not needed to monitor the transactions Greater cost efficiency and faster transaction speed •To determine whether contractual conditions are met, smart contracts use ―oracles,‖ which are agreed-upon real-time data providers which confirm triggering events 2 0
  21. 21. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SMART CONTRACTS (cont’d) • The rights and obligations of the parties are reduced to code in the form of if- then scenarios that can be automatically executed as soon as data is received that fulfills or negates the fulfillment of agreement benchmarks • Sensor technology connected to the Internet of Things generates data then received to verify that the shipment has reached a geographical threshold, triggering obligations to pay or insure, or shifting the risk of loss 2 1
  22. 22. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe LEGAL CONTEXT OF SALE OF GOODS: BUSINESS RULES EMBEDDED IN TRANSACTIONAL DOCUMENTS • What exactly is being supplied? When and where must it be delivered? • What are the warranties and disclaimers? Incoterms? Quantity? Last ship date? • Price? Currency? Duration of supply obligation? Limitations of damages and remedies?  How manage adjustments due to changes in production capacity, split shipments, dramatic rises in raw material costs 2 2
  23. 23. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe PLAYERS IN INTERNATIONAL TRADE FINANCE: A PARTIAL LIST • Importer, exporter, importer’s bank, exporter’s bank • Freight forwarder, insurer, pre-shipment inspector, • Export customs, document courier, shipper (multiple) • Import customs, correspondent bank 2 3
  24. 24. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DOCUMENTS IN INTERNATIONAL TRADE FINANCE: A PARTIAL LIST Purchase order, sales contract and trade terms (terms and conditions); Commercial invoice; Letter of credit; Insurance policy; Certificate of origin; Customs value declaration; Export licenses/certificate; Weight/packing list; Bill of lading, airway bill, delivery note; Shipment status (e.g., booking confirmation, arrival notification); Port declaration, manifest; Customs clearance; Import licenses/certificates; Letter of Credit processing; KYC/AML sanctions 2 4
  25. 25. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe THE PROMISE OF BLOCKCAIN: LINKAGE AND VISIBILITY IN REAL TIME • A smart contract registers content and moment of effectiveness of Bill of Lading, whereby goods are loaded onboard and booked re: sailing date, origin/destination ports, vessel name, and bill of lading number • Smart contracts help fulfill requirements to file manifests, submit importer security filings and apply for customs clearance • All of the above is recorded in real time on a digital ledger visible to all of a defined group of participants 2 5
  26. 26. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SMART CONTRACTS AND UNDERWRITING: AN EXAMPLE • On what data should trade credit insurers rely in underwriting a policy to insure payment to a lender or seller on credit?  Invoices can be uploaded onto the Ethereum smart contract blockchain  Thereon, a smart contract can identify the network of companies trading with a given purchaser  Whenever a seller is not paid timely by purchaser X, smart contract can decide, based upon the rules programmed into it, whether and when to send notice to other suppliers of the same purchaser 2 6
  27. 27. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BLOCKCHAIN AND INTERNATIONAL TRADE, PER THE WORLD TRADE ORGANIZATION REPORT (2018) • Per the WTO report (cited below), the WTO:  expects blockchain technology to add US$3tn to international trade by 2030  acknowledges that blockchain is (in 2018) in the ―irrational exuberance‖ phase  sees need for regulatory overlay  sees need for blockchains to be interoperable and connected to all banks  notes that large trade finance banks and fintech firms and industry bodies are working on the Universal Trade Network to connect networks Eammanuelle Ganne, ―Can Blockchain revolutionize international trade?‖ World Trade Organization 2018 2 7
  28. 28. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe BLOCKCHAIN AND TRADE PROJECTS UNDERWAY • IBM and Maersk are developing TradeLens (shared visibility of each transaction, real- time shipping data and documents • FedEx, UPS, and DHL working together under Blockchain Transport Alliance (build blockchain standards and urge blockchain-related shipping standards re counterfeit and illegal goods) • Walmart and IBM developing blockchain platforms to improve traceability of produce • BMW partnering with blockchain start-up to track cobalt sourcing for its EVs See Cole Callihan, ―When Supply Chains Become Blockchains‖, Industry Today (May 14, 2019) 2 8
  29. 29. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THE FACULTY 2 9
  30. 30. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Chris Cahill – ccahill@lowis-gellen.com Mr. Cahill is Head of the Bankruptcy and Restructuring Practice Group at Lowis & Gellen LLP, in Chicago, Illinois. He guides secured lenders, creditors, debtors, creditors’ committees, potential purchasers and others through bankruptcy cases, out-of-court workouts, assignments for the benefit of creditors, and receiverships. Mr. Cahill has substantial mega-case experience representing very large debtors, and counsels and litigates on behalf of manufacturers and secured lenders in large and middle-market cases. Mr. Cahill also publishes frequently and speaks regularly on commercial insolvency issues. He is an executive editor of Commercial Bankruptcy Litigation, 2d Edition (Jonathan P. Friedland, Elizabeth Vandesteeg & Christopher M. Cahill eds., 2017) and is the host of Financial Poise Radio, a periodic broadcast for investors and other curious persons, on www.financialpoise.com. 3 0
  31. 31. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Michael Baumert – mbaumert@btlaw.com Michael Baumert is an associate in Barnes & Thornburg’s Chicago office. As a member of the Intellectual Property Department and Corporate Department, Michael focuses on technology-driven transactions, sourcing, cloud computing, and data privacy and security. Michael has earned a Certified Information Privacy Professional/United States (CIPP/US) certification offered by the International Association of Privacy Professionals (IAPP). Michael also counsels clients in technology and intellectual property transactions, and has developed a focus on blockchain and distributed ledger technologies, autonomous vehicles, machine learning, and other artificial intelligence-related concepts. Prior to becoming an attorney, he worked as a software engineer designing and developing business intelligence, warehousing, and customer relationship management software. 3 1
  32. 32. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Oscar Jofre – oscar@koreconx.io Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide. Oscar is a featured speaker on Blockchain, Digital Assets, Digital Securities, Securities Token, Fintech,
regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, UAE, Peru, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, digital securities offerings, equity crowdfunding, DSO, STO, TAO, ICO/ITO, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Blockchain, STO, TAO, ICO, Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business. He is a member of the Crowdfunding Intermediary Regulatory Advocates (CFIRA) in the USA, and a contributing author to The Fintech Book, the world’s first crowdsourced book on Fintech globally. He writes for Sharewise, Locavesting, Equities.com, Business.com, Crowdfund Insider, Crowdfund Beat, Bankless Times, and Agoracom. Oscar has been recognized as one of the 10 most influential Hispanic Leaders in Canada. In May 2010, Oscar A. Jofre Jr. was recognized by the Rt. Hon. Stephen Harper for his accomplishments. Oscar was awarded the Vision 2012 Business Man of the Year by the Toronto Hispanic Chamber of Commerce on September 2012. 3 2
  33. 33. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Bryan Kagel – bkagel@meridianfinance.com Bryan Kagel is the Regional Director of Midwest at Meridian Finance Group. He assists companies with the management and utilization of their domestic and international trade receivables, specifically those looking to eliminate customer non-payment issues, grow sales while protecting cash flow or looking to increase access to working capital financing. In most instances this is achieved through some sort of account receivable protection like trade credit insurance. He works with Business Owners, C-Suite Executives, Credit Departments, Asset Based Lenders, International Bankers and U.S. Exporters. He starts with a consultation where he gets a firm handle on the unique challenges facing the business with respect to the management of its trade receivables. He then learns where the company may be at risk and what factors might affect its ability to grow safely, either domestically or abroad. From there, a plan is developed to respond to these challenges and empower the company to trade safely anywhere in the world. 3 3
  34. 34. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Jeffrey Kamins – jkamins@itf-finance.com Jeffrey Kamins, MBA/MIM, is the CEO and Founder of Integrated Trade Finance LLC (ITF), a global finance and market development company founded in 2009, headquartered in Omaha, Nebraska. Jeffrey has over 22 years of international finance and sales/distribution experience, mainly in industrial machinery, agriculture equipment, infrastructure finance and renewable and nuclear energy. He has held senior international management positions at three corporations including AGCO Corporation (NYSE: AGCO) Valmont Industries, Inc. (NYSE: VMI), and RWE NUKEM GmbH formerly part of RWE AG in Germany. He also served in the United States Department of Commerce working extensively US exporters to the former USSR republics. ITF's mission is to help manufacturers and exporters expand internationally by integrating finance solutions into the sales process. ITF's total portfolio of projects consists of nearly $2.3 billion globally supported by a network of over 235 financial institutions worldwide, representation in 52 countries, and directors in 12 cities worldwide. In the past two years, ITF has built 18 captive finance programs with 55 agreements between manufacturers and foreign banks and leasing companies. ITF works with over 30 Export Credit Agencies worldwide to facilitate cross-border trade and project finance. 3 4
  35. 35. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe QUESTIONS OR COMMENTS? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 3 5
  36. 36. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT FINANCIAL POISE DailyDAC LLC, d/b/a Financial Poise™ provides continuing education to attorneys, accountants, business owners and executives, and investors. Its websites, webinars, and books provide Plain English, entertaining, explanations about legal, financial, and other subjects of interest to these audiences. Visit us at www.financialpoise.com. 3 6 Our free weekly newsletter, Financial Poise Weekly, educates readers about business, business law, finance, and investing. To receive it simply add yourself by going to: https://www.financialpoise.com/newsletter/ Email addresses are never sold to or shared with third parties.

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