The Digital Alternatives Landscape: State of Play and Perceived Benefits

A report published by the Boston Consulting Group (‘BCG’) in 2017 observed that ‘[p]rocesses that currently support the global trade finance ecosystem are labour-intensive and predominantly paper-based.

              The presentation of data rather than documents in compliance with a letter of credit depends

on the availability of suitable avenues for the communication of those data. The Society for Worldwide Interbank Financial Telecommunication (‘SWIFT’) has taken various steps over recent years to facilitate trade finance. Besides being involved in the development and launch of the Bill of Lading Electronic Registry Organization (‘Bolero’),^[978] which is dis­cussed further below, it has developed a number of important tools that may be used in the processing of trade data, including the SWIFTNet Trade Services Utility (‘TSU’), a platform for the matching of data in bank payment obligation (‘BPO’) transactions.^[979]

10.09 ‘SWIFT for Corporates’ is a service that allows non- financial institutions (that is, banks’ cor­porate clients) to use the SWIFT network for communication with their banks. ‘SWIFT for Corporates’ provides a gateway, whereby businesses can communicate with multiple banks over a single platform by using a single personal digital signature.^[980] SWIFT runs a certifi­cation programme that assesses business applications and middleware against SWIFT re- quirements.^[981] It has also embraced ‘ISO 20022’, which is not only a message standard in itself using the international and widely used ‘extensible Markup Language’ (‘XML’) syntax, but also a methodology for creating consistent message standards across all of the financial industry's business processes.

In view of the fact that bills of lading and cargo insurance certificates are such crucial cogs in the trade-finance machinery, the focus of this section is to give some insight into the efforts made in recent decades to replace those documents with digital alternatives.

A. Digital Alternatives to Bills of Lading

At the time of writing, six electronic systems providing digital alternatives to paper bills of lading have been approved by the International Group of Protection and Indemnity Clubs (‘IGP&I'), making them acceptable alternatives for international cargo carriers.^[982] Of these six systems, Bolero and essDOCs' CargoDocs Document Exchange (‘CargoDocs'), which are discussed below, have been in operation for longest. A third system, e-Title', was ap­proved in 2015,^{size=1 color=black face="Times New Roman">[983]}5 and a fourth, ‘edoxOnline’,^[984] was approved in early June 20 1 9.^[985]7 Two fur­ther systems have been approved since then, namely the ‘WAVE Network' and ‘CargoX’.^[986] The last three systems to be approved are blockchain-based systems.^[987] While the multipar­tite contractual frameworks underpinning the blockchain-based systems have not all yet been placed in the public domain, the approval of these systems by the IGP&I would sug­gest that their legal underpinnings share essential features with those underlying the Bolero and CargoDocs systems, discussed further below.

Both Bolero and CargoDocs permit non-bank-to-bank communication.

 CargoDocs is an electronic shipping document exchange developed by a company called essDOCS Exchange Limited (‘essDOCS’) (previously Electronic Shipping Solutions (‘ESS’)).

supplying information and the carrier or his agent completing the issue of the bill. In the process, documents may be collaboratively reviewed, amended, or corrected where neces­sary. The system provides electronic options for dealing with documents, including ‘sign, ‘issue, ‘amend’ (with the consent of the shipper and the carrier), ‘send, ‘return’ (used when the intended indorsee rejects the documentation or if it is sent to the wrong party), ‘indorse, ‘print convert’ (used when it is necessary to convert the electronic document to paper),^[999] ‘produce, and ‘accomplish’ (a familiar phrase to users of paper bills issued in three sets, all of which carry the legend ‘one being accomplished the other to stand void’). The ability to use the different functionalities will depend on the user’s authority and capabilities with respect to the transaction in question. For example, only the user who is in control of the original bill of lading (whether because it was issued to it or subsequently transferred to it) will be able to indorse it to another user. Once the indorsement is effected, and unless the indorsee decides to return the documents, the indorser loses control and only retains access to an electronic document marked ‘copy’ for record-keeping purposes. The system may be used for the creation of the full set of documents required for shipments of con­tainer, energy, and bulk cargoes.^[1000] Creators of certificates of origin, quality, and quantity can be given access to the system, with authority to create, sign, and issue these documents in electronic form.

10.14

Since blockchain technology burst on the scene, its potential to be used in developing digital alternatives to bills of lading has been widely discussed and publicised. Indeed, there are a number of systems being piloted and trialled in the international transport community.^[1003] As was observed above, a number of blockchain-based platforms enabling the replacement of paper bills of lading with digital alternatives and performing the same (perhaps enhanced) functions have been approved by the IGP&I. There is every sign that more will be developed and launched in the wake of the coronavirus pandemic, which has highlighted the difficul­ties in moving bundles of paper documents around the world.^[1004] In the container-shipping space, the Digital Container Shipping Association (which, at the time of writing, consists of nine large liner carriers) has been set up with the remit of adopting common open-digital standards for the container shipping industry in order to facilitate these developments.^[1005]

B. Digital Cargo Insurance Certificates

10.15       Platforms enabling cargo insurance certificates to be issued electronically have been avail­able to the international business community for a number of years now. These certificates are usually issued pursuant to a declaration made under an open-cover agreement, whereby an insurer undertakes to cover all shipments declared by the assured that fall within the scope of the open-cover terms.^[1006] Accordingly, the assured, or its agent, simply needs to complete an online template, created on the basis of the open-cover terms, with details of the cargo and voyage in order for a certificate to be issued. The certificate, which is issued instantaneously and contains the authorised facsimile signature of the insurer, can then be presented to the bank under a letter of credit agreement.^[1007]

10.16       Significantly, none of the available platforms appears to possess the functionality to assign certificates, so if the bank requires an assignment of the assured's rights against the insurer, the certificate may need to be printed out and assigned in the usual way.^[1008] As the insurance industry looks to harness technologies, such as distributed-ledger technologies (^tDLTh), ‘smart contracts', IoT, and machine-learning, however, it may well become commercially expedient to integrate assignment functionalities into those platforms that enable the elec­tronic issue of certificates, thereby tokenising the rights against the insurer that are repre­sented by the certificate.^[1009]

name=bookmark1222>C.   Trade Finance Communication Networks and Platforms

10.17       At the time of writing, several solutions are being developed with the objective of harnessing DLT and ‘smart contracts' in developing trade and supply-chain finance solutions.^[1010] Of

alternatives as a result of restrictions resulting from the coronavirus pandemic. See also International Chamber of Commerce (‘ICC'), ‘ICC Memo to Governments and Central Banks on Essential Steps to Safeguard Trade Finance Operations' (3 April 2020) accessed 21 August 2020. particular note is ‘Contour, which is built using ‘Corda'^[1011] and which focuses on digitising letter of credit transactions. Under its previous name ‘Voltron, Contour was used in November 2018 to run a pilot transaction enabling the digital transfer of title to goods on the blockchain by integrating Bolero's solution.^[1012] It was rebranded as ‘Contour' in 2020 and has since been fully commercialised.^[1013] Also interesting are two platforms: ‘we.trade’,^[1014] a European digital trade finance platform, and eTradeConnect’^[1015] a similar platform based in Hong Kong and serving the Asian market, both of which are built using Hyperledger Fabric.^[1016] The two platforms joined forces through a memorandum of understanding on 31 October 2018, whereby they would become interconnected.^[1017] we.trade is focused on sup­porting open-account trades, rather than letters of credit,^[1018] but there is no reason why in fu­ture it could not be adapted to electronic presentation under a letter of credit in accordance with the eUCP. When using the we.trade platform, a financing bank enters into a legally binding Bank Payment Undertaking (‘BPU'), which is enforced through a ‘smart contract' upon satisfaction of the applicable settlement conditions defined therein,^[1019] among which could be the submission of bill of lading and cargo insurance certificate data, as well as the transfer of the rights necessary to put the bank in the position of pledgee and assignee. The BPU has similarities with the Bank Payment Obligation (‘BPO'),^[1020] except that in the BPU the issuing bank undertakes to make payment directly to the seller, rather than the seller's bank as in the BPO.^[1021] Finally, in response to the restrictions resulting from the corona­virus pandemic, the Bankers Association for Finance and Trade (‘BAFT') has developed the Distributed Ledger Payment Commitment (‘DLPC'), which is ‘a digital instrument to ensure that payment commitments in digital form on any platform or network are legally binding and enforceable in accordance with their terms, irrespective of the platform/net- work, or the trade finance instrument, out of which the payment commitment arises’.^[1022] This can be implemented using blockchain technology.

10.18       Thus, efforts to harness new technologies intended to replace paper can be observed across the various sectors engaged in international trade activity. In particular, the full digital­isation of the two types of document essential to the bank's status as secured creditor in a documentary credit transaction is now possible in technological terms. It is, therefore, worthwhile to examine the legal framework within which these developments have been occurring in order to gauge its readiness to accommodate those technological changes.

name=bookmark1232>IV.