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? Part of the webinar series: Blockchain Basics 2022 See more at https://www.financialpoise.com/webinars/

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4. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
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4

5. Meet the Faculty
MODERATOR:
Dan Waterloo – Interface Technologies
PANELISTS:
Andrew Kumiega – IIT Stuart School of Business
David Lopez-Kurtz – Dinsmore
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6. About This Webinar – Evolution of Trade Finance
Technology
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?
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7. 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.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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8. Episodes in this Series
#1: Blockchain and Smart Contracts
Premiere date: 7/21/22
#2: Blockchain and Supply Chain
Premiere date: 8/18/22
#3: Evolution of Trade Finance Technology
Premiere date: 9/15/22
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9. Episode #3
Evolution of Trade Finance Technology
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10. Singapore Scenario
*Long-time fuel trader Hin Leong Trading Pte collapsed in April, 2020 leaving 23
banks on the hook for $3.5 billion
*The banks were not alone in Singapore in 2020, victimized by forged
documents, traders (not just Hin Leong) pledging the same cargoes to back
multiple loans Trader pledged fuel to back the loan and engaging in
accounting tricks, fraud, and forgery – for a total amount of bank losses
exceeding $9.26 billion over prior six years

11. Singapore Scenario (cont’d)
*Banks try to onboard transactions quickly; margins on trade finance are often thin,
and so lenders have incentive to led rapidly and in large volume –thus borrowers
face less scrutiny
*Documentation of letters of credit and other instruments are voluminous,
and no central international base had been established for such collateral
*Raising financing costs and refusing L/Cs harms borrowers

12. Singapore Scenario (cont’d)
*What is to be done? Banks active in the Singapore market are working on
establishing a central registry for cargo
*DBS is eliminating manual workflows, and digitizing L/Cs, import bills,
chipping guarantees
*DBS has adopted BLOCKCHAIN technology for trade finance, toward
instant verification of supplier credentials, validating and verifying the
authenticity of supplier transactions

13. Singapore Scenario Concluded
*Citigroup is using AI to review transaction and documentation
*DBS joined ING, HSBC, and other banks in Contour, a Singapore-based
blockchain network
*Paper processing time 10 days; for Contour, 24 hours
This is drawn from C. Chanjaron, A. Cang, and L. Y. Chen, “Trade Finance Under Scrutiny in
Singapore,” Treasury & Risk (July 9, 2020), at
https://www.treasuryandrisk.com/2020/07/09/trade-finance-under-scrutiny-in-singapore/
(visited 09-22-22021)

14. Increased Risks and Costs Spur Fraud
*Some risks: commodity price changes, currency fluctuations, non-payment, political
instability
*Spot container shipping rates in Sept. 2021 5X those of Sept. 2020; Jo-An Stores
LLC spending 10x its historical cost in some cases to move products form here to
there; pandemic blamed for long-lasting surge in costs; shortage of trucks and
shipping containers; diesel fuel costs up 25% since April 2020, see Thomas Gryta,
“Rising Shipping Costs Add to Pricing Pressure,” Wall St. Jour. (Sept. 17, 2021)
*See, more comprehensively, “Bottlenecks in the Supply Chain,” RSM Insight, (Sept. 8, 2021), at
https://rsmus.com/economics/rsm-middle-market-business-index-mmbi/middle-market-business-
index.html (visited 09-22-21)

15. 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 to manage adjustments due to changes in production capacity, split
shipments, dramatic rises in raw material costs

16. Players in International Trade Finance
•Importer, exporter, importer’s bank, exporter’s bank
• Freight forwarder, insurer, pre-shipment inspector,
•Export customs, document courier, shipper (multiple)
•Import customs, correspondent bank

17. 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

18. Letter of Credit
*An L/C is a promise by the Issuing Bank (on b/h of importer) to pay a certain
amount of money to the Negotiating Bank (for the benefit of the Exporter)
*The promise is conditional – payment occurs only if specified documents
are presented within specific time windows
*Documents to be presented may include the bill of lading, packing list,
inspection report, and commercial invoice [and more]
See Tim Nicolle, “Letters of Credit: when and how to use them,” PrimaDollar (n.d.) at
https://www.primadollar.com/letters-of-credit-when-and-how-to-use-them/

19. Trade Credit Insurance
*Insured party will get accounts receivable from its customer
*TCI company will analyze the creditworthiness and financial stability of the
Insured’s customers and assign them specific credit limit = amount TCI
company will indemnify the Insured if customer fails to pay
*TCI company monitors creditworthiness of Insured’s customers, proposes
changes if customer declines in rating
*Insured party must adhere to TCI’s policy re: timely reporting of claim and
of relevant information, and of maintaining regular commercial practices

20. Receivables Finance
*Financing party may purchase all of Seller’s accounts receivable (and underlying
instruments) and make immediate payment to Seller at discount
*Financing party may purchase some of Seller’s accounts receivable, pay Seller 70-
90% of face value, releasing that balance, less factoring fee, upon collection
*Financing party may create a borrowing base at 70-90% of qualified receivables,
charging a management fee against the outstanding amount, and charging interest
only on the amount advanced to borrower
*Often used to tide Seller over periods of reduced liquidity

21. Purchase Order Finance
*Asset-based Lender finances Company’s purchase of raw material from Supplier
*Lender pays Supplier directly
*Company sets up accounts receivable for its customers to pay Lender directly
*Lender, when paid back, deducts financing cost and fees and remits balance to
Company

22. The Promise of Blockchain: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

23. 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

24. Blockchain and Trade Projects Underway
•IBM and Maersk are developing TradeLens (shared visibility of each transaction, real-
time shipping data and documents; Hapag-Lloyd and Singapore-based Ocean Network
Express (ONE) Pte. Ltd. have integrated into TradeLens, joining CMA CGM, and MSC
Mediterranean Shipping Company
•FedEx, UPS, and DHL working together under Blockchain Transport Alliance (build
blockchain standards and urge blockchain-related shipping standards re counterfeit and
illegal goods)
•Sourcemap has developed comprehensive supply chain dashboard visualizations that
include data validation, chain-of-custody reporting, supplier benchmarking, risk heat
maps, and alerts

25. Blockchain and Trade Projects Underway (cont’d)
*EY and Guardtime have created a blockchain platform to make marine insurance
more transparent and more efficient.
See Shaun Crawford, “How Blockchain is reducing the fluidity of risk on marine insurance,”
EY Insurance (n.d.), at https://www.ey.com/en_us/blockchain/how-blockchain-is-reducing-
fluidity-of-risk-in-marine-insurance (visited 09-22-21)

26. Blockchain and Trade Projects Underway (cont’d)
*Global Shipping Business Network (shareholders include Cosco entities, Hapag-
Lloyd, Hutchison Ports, OOCL, SPC Qingdao Port, PSA International, and Shanghai
International Port Group) is developing a blockchain-based platform to enable
exchange of first party, real-time and trusted logistics data.
See “Global Shipping Business Network Successfully Incorporated to Accelerate the Digital
Transformation of Global Shipping and Trade, GSBN, (03-17-21), at
https://www.prnewswire.com/in/news-releases/global-shipping-business-network-successfully-
incorporated-to-accelerate-the-digital-transformation-of-global-shipping-and-trade-864958034.html
(visited 09-22-21)

27. Blockchain and Trade Projects Underway (cont’d)
*Consortium of major European banks founded we.trade platform built on IBM
Blockchain Platform.
See “Blockchain and Trade Finance,” Blockchain Pulse: IBM (03-08-21) at
https://www.ibm.com/blogs/blockchain/2021/03/blockchain-and-trade-finance/ (visited on 09-22-21)
*Swift is bringing MonetaGo’s Secure Financing platform onto Swift's API-enabled
infrastructure, contra double-financing fraud.
See “Exclusive: swift launches double-financing fraud solution pilot with Monetago,” Global Trade Review
(09-12-21) at https://www.gtreview.com/news/fintech/exclusive-swift-launches-double-financing-fraud-
solution-pilot-with-monetago/ (visited 09-22-21)

28. 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

29. 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

30. Types of Blockchains
• Public Blockchains (permission-less)
• Private Blockchains (permissioned)

31. 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)

32. How Does Blockchain 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

35. 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)

36. 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

37. 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

38. So, What is Gained From Going From a Centralized
Ledger 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

39. 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

40. 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

41. Resources
• “The IFTA Digital Negotiable Instruments Initiative,” International Trade and Forfaiting
Association (06/21)
• Deepesh Patel & Emmanuelle Gan, “Blockchain &DLT in Trade: A Reality Check,” Trade
Finance Global / World Trade Organization (Nov. 2019)
• Cole Callihan, “When Supply Chains Become Blockchains,” Industry Today (May 14,
2019)
• “The Convergence of Trade Finance and Trade Credit insurance,” PYMNTS.com (04-09-
18)
• *Emmanuelle Ganne, “Can Blockchain revolutionize international trade?” World Trade
Organization (2018)

42. About the Faculty
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43. About The Faculty
Dan Waterloo - dan@i-t.com
Dan is a native Chicagoan. He has a BS in Electrical Engineering from University of Illinois, Champaign-Urbana. He received
an MBA from Keller Graduate School of Business. He received a Masters of Project Management from Keller Graduate
School of Business in1991.
After college, Dan worked for Schlumberger Well Services, in the oil fields of West Texas. He moved back to Chicago in
1979, selling test equipment to Electrical Engineers (EEs) (Tektronix). Then he sold electronics components to EEs as a
Manufacturer's Representative (Dolin Sales). In 1984, started selling Computer Aided Design (CAD) tools to Electrical
Engineers (Cadence Design Systems). In 1993, he became a VAR (Value added reseller) of CAD software (self employed).
As an entrepreneur, Dan had to learn marketing, developed a direct mail company, and email marketing company, as well as
digital marketing service. In the early 2000’s, Dan created a 'private cloud'... currently consisting of about 50 servers that
provide digital marketing and communication services. In 2017, Dan started teaching 'Entrepreneurship in Industry' INTM 477
at IIT. That same year, he started co-chairing the Blockchain and Crypto currencies Special interest group at FinTank.org
(Chicago fintech incubator/accelerator) 2020. He taught IBM Skills Academy Blockchain for Business class at IIT. In 2021, he
is teaching MBA 534 (Blockchain) at Stuart School of Business. Dan truly has a diverse background in technology and
business. He is an E=entrepreneur, pivoting as business conditions evolved. He has a personal interest in Blockchain and
currency/cryptocurrency.
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44. About The Faculty
David Lopez-Kurtz - David.Lopez-Kurtz@dinsmore.com
David focuses his practice on corporate and securities matters with an emphasis on private and public securities transactions,
compliance, and disclosure obligations. He also represents both large and small companies on all aspects of business formation,
fundraising, commercial contracts, mergers and acquisitions, and regulatory compliance.
He represents clients in the digital currency and blockchain ecosystem, working as outside general counsel and drawing on the
firm’s national platform and comprehensive range of capabilities as he advises on a broad range of matters, including company
formation and financing, federal and state securities laws, token fundraising (ICOs and SAFTs), and alternative securities offering
options (Reg A+, Reg D/506(c), Reg S, and Equity Crowdfunding).
When counseling clients, including those navigating issues surrounding and arising from digital currencies and blockchain
technology, David maintains focus on building relationships based on trust, communication, and responsiveness.
David leverages his past professional experiences, whether working on the line as a cook and a chef in Cincinnati and New York
City or picking salmon out of a net in Alaska as a commercial fisherman, to relate to clients who are working hard to create new
and exciting possibilities for themselves and for the industries and markets they participate in.
44

45. About The Faculty
Andrew Kumiega - akumiega@iit.edu
Andrew Kumiega is Assistant Professor of Analytics at the Stuart School of Business.
Professor Kumiega is also currently serving as Director of Financial Engineering for Asset
Management and has worked for firms like Infinium Capital Management, Spectrum Global
Fund Administrator, and TD Waterhouse.
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48. Questions or Comments?
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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.
48

49. About Financial Poise
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