Opportunities presented by AI and blockchain technology for enterprises in international business transactions
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Texte intégral
1Bitcoin, the first digital currency running on a Blockchain, was introduced in 2008. The coin remained largely a project for technology geeks and a couple of speculators until serious buying and selling began in 2012-13. As soon as this happened, and Bitcoin was valued in dollars rather than cents, various authorities took notice1. In spite of the collapse in 2014 of Mt. Gox, one of the largest digital currency exchanges, money continued to pour into the market. This was greatly accelerated by the creation of Ethereum, the first Blockchain with Smart Contract functionality, in 2015. By now, there are literally thousands of digital currencies and the total market capitalization on 1 November 2021 reached US $2,75 trillion. More importantly, investors keep pouring more than US $1 billion per month into the development of commercial Blockchain applications.
2This paper examines what we can do today with Blockchain technology in business and what we are going to be doing in the coming years by combining artificial intelligence (AI) and Blockchains. To some extent, the paper will also outline the limitations of the technology and make some predictions of the commercial and legal work that will remain “off chain”, i.e. the prerogative of traditional legal and commercial contracts and transactions.
I. Almost All Business Is International
3International business is different from national or domestic business in several ways. In domestic transactions, all participants normally speak the same language, belong to the same business culture, and are subject to the same legal system and rules. Courts and public authorities rarely discriminate between domestic parties. Changes in laws and regulations are equally accessible to everyone, and both in-house counsel and external lawyers have plenty of experience with this kind of transactions. This makes contracting relatively straightforward. Since payment, shipping and insurance is also domestic, the same benefits apply.
4In international business transactions, the participants normally do not speak the same language, do not belong to the same business culture, and are not subject to the same legal system and rules. Courts and public authorities in many countries cannot always be trusted to treat foreign parties equally. Foreign laws and regulations, and the latest changes to them, are not easily accessible to everyone, and neither in-house counsel nor external lawyers necessarily have sufficient experience with transactions with a particular party in a particular foreign country. Furthermore, international payment arrangements, shipping and insurance, customs processing, etc. add complexity, which makes contracting anything but straightforward.
5In spite of the complexity and the risks involved in international business and trade, the internationalization of business has been the defining characteristic of Western economies since World War II. Moreover, it continues unabated in spite of occasional economic recessions, political crises, or pandemics, and does not show any signs of slowing down or reversal. Even if the growth of international trade is no longer twice the growth rate of most developed economies2, and almost anything that can be made cheaper somewhere else is already being made cheaper somewhere else, lateral reorganization, like shifting production from China to Vietnam, as well as some re-shoring in parallel to further off-shoring, present new challenges for businesses and lawyers. Unfortunately, some components of the internationalization of business, in particular the legal and financial dimensions, have not seen the same efficiency gains as others, like the containerization of cargo. This limits the participation and opportunities for smaller and medium sized enterprises (SMEs) and those located in less developed economies.
II. In a Trustless Environment, Intermediation Is Expensive
6If a seller in China and a buyer in Europe have a long-standing business relationship and have built up a high level of trust in their relationship, the transactions between them can almost be based on a handshake. Furthermore, the seller will not mind shipping the goods even before the purchase price is transferred and the buyer will simply send an international wire transfer at a cost of US $/€20-50.
7Fortunately, there are quite many of those business relationships out there and they generally make international transactions easy, efficient and cheap. However, there are at least two types of business negotiations and transactions where such levels of trust do not exist or do not exist any more. First, there are tens of thousands of transactions initiated every day between parties who do not know each other at all or have only limited experience with each other. Second, even existing trust relationships can come under pressure in times of change, for example when the Trump administration imposed 20-30 % additional import duties on many Chinese goods, or when the Covid pandemic made it impossible for many manufacturers and suppliers to honor all previous commitments.
8When negotiations and transactions take place in a “trustless” environment, the parties typically have to bring in intermediaries that provide a measure of security to mitigate the risks. The first example are internationally experienced lawyers who will now be drafting sophisticated contracts, with highly detailed clauses for the respective rights and obligations of the parties, warranties, liabilities etc., as well as careful choices for the applicable law and the forum for the settlement of any disputes. The second example are the payment arrangements that will be implemented if the seller does not want to ship the goods before the buyer has paid and the buyer does not want to send payment before she is sure that the seller is actually willing and able to perform. The most commonly used device for the mitigation of this “counterparty risk” is the letter of credit (L/C).
9In a nutshell, the buyer requests the L/C from her bank to be sent to seller’s bank or a bank in seller’s country, with a promise that the bank – rather than the buyer – will make the payment if certain conditions have been met. Seller’s bank verifies the authenticity and passes the L/C on to the seller. If the seller wants to avoid not only the risk of having to chase the buyer for his money but also does not want the risk of having to chase buyer’s bank in buyer’s country for his money, the seller can ask for a “confirmation” of the L/C by seller’s bank or a large commercial bank in seller’s country. Confirmation means that seller’s bank promises to pay the seller as soon as the conditions are met, regardless of the question whether it will be reimbursed by buyer’s bank and ultimately by the buyer. The conditions stipulated in an L/C have to be met with submission of a series of documents, for example an inspection certificate from an independent third party, and a bill of lading, showing that the goods have been handed over to a shipping company and have left seller’s control3.
10In the absence of pandemics and other unusual circumstances, the rule of thumb for the cost of shipping from one developed nation to another is about 5 % of the value of manufactured goods. Similarly, in the absence of trade wars and sanctions, the average import duties for manufactured goods into a developed country are about 5 %. Therefore, the cost of bringing goods from China to the EU or the US – or similar transactions – is normally only about 5 + 5=10 % of the value of those goods, including shipping and insurance4. However, “legal” can easily add another 10 %, just for the contracts, and the banks securing the payment transactions. In plain English, when there is neither a trade war nor a pandemic, one million US dollars or Euros worth of goods could be brought from China or Vietnam to North America or Europe for about US $/€100,000, but the lawyers and banks can easily add another US $/€100,000 in expenses to the transaction every time! In particular in competitive markets, where profit margins are often only around 5-10 %, paying 10 % to “legal” is a major cost factor.
11Importantly, while international shipping and logistics have become hyper efficient and have trimmed costs to the bare essentials – at least when there is no trade war and no pandemic to mess up the supply chains – the “legal” aspects of international business transactions have barely changed over the last couple of centuries. Sales contracts are usually bulky and expensive, even if they follow fairly standardized models. Only a relatively small number of international commercial banks offer letters of credit, documentary collection, and related payment services, and they are not really competing to offer the best possible quality at the lowest possible price. And low and behold, if a dispute should arise, traders only have the choice between Scylla (unpredictable and lengthy transnational litigation) and Charybdis (expensive international commercial arbitration)5. Unsurprisingly, inefficient legal and financial services are exactly what has come into the cross-hairs of the emerging AI and Blockchain service providers.
III. AI and Blockchain Can Work Together toCut Out Some of the Middlemen
12When goods are sold and bought internationally, they typically have to be shipped from one country and legal system to another and a variety of export and import rules have to be respected and duties have to be paid. International shipping and customs processing are generally efficient, at least between major trading nations and contracting parties (member states) of the GATT and WTO.
13Whenever good or services are sold and bought internationally, the following additional issues have to be taken care of: The contract of sale for the rights and obligations of the parties, the processing of the payment from the buyer to the seller, and the settlement of any disputes that may arise between the seller and the buyer during or after the transactions is implemented. To take care of these issues, we resort to middlemen, just like we resort to shipping companies for the carriage of goods from one country to another, and to insurance companies to protect the owners if the cargo should get damaged or lost in transit.
14However, while the services of shipping and insurance companies are being tendered in highly competitive markets and customers can easily compare the prices of dozens of providers of fairly standardized and transparent services – e.g. carriage of a 20ft container from Guangzhou to Rotterdam in calendar week 27; cargo insurance at 110 % of CIF – the markets for legal services, financial services, and dispute settlement services are anything but transparent and competitive. As a result, larger international law firms, international commercial banks, and the lawyers and institutions providing dispute settlement services, are able to charge high fees for highly profitable services6.
15Moreover, their services are often not well suited and/or too expensive for small and medium size enterprises (SMEs)7.
16Specialized attorneys and other professional service providers have every right to charge appropriate fees for specialized services that fulfill a real need and prevent or solve real problems. However, if the same providers overcharge for fairly pedestrian, standard, and repetitive services, there is a clear case of market failure. The same is true if there are no quality services available at prices that are affordable to SMEs and, in particular, trading parties from less affluent, i.e. less developed nations.
17We can illustrate the evolution of contracting in international business transactions, with a focus on the contract of sale and the payment for the goods or services, as follows:
A. Traditional Paper-Based Contracting and Payments
18Figure 1 shows the entire four-corner model of a typical “documentary sale”, i.e. an export-import transaction in 25 steps for the sale of goods from one country to another, with the use of a letter of credit (L/C) to make the payment and secure the transaction.
Figure 1 Documentary Sale8

19For our purposes, the most relevant steps are broken down in Figure 2, namely a focus on the contract of sale and the payment transaction:
Figure 2 Simplified Illustration of a Traditional Paper-Based Transaction

20After the parties have communicated about the goods or services to be sold, the quantity and the price, they typically involve specialized lawyers to draw up the contract of sale. Since international transactions may require at least some basic knowledge of foreign and/or international sales law, as well as some experience with transnational litigation and/or international commercial arbitration, and since only external counsel can be held liable in case mistakes are made, the parties usually involve an external law firm to draw up the contract. Depending on the complexity and value of the transaction, the sales contract alone will easily cost between US $5,000 and US $50,000.
21In a trustless environment, the Buyer does not want to wire the purchase price until she can be sure that the Seller is actually shipping the goods or delivering the services. Conversely, the Seller does not want to let the goods leave his control until he has assurances that the Buyer is willing and able to pay the purchase price. However, the parties also do not want to travel and meet somewhere to physically exchange the goods for the money. The solution is provided by the letter of credit (L/C), as outlined above. Unfortunately, typical L/Cs also cost at least 1 % of the transaction value and confirmation by a local bank costs extra.
22The only efficiency we have seen in recent decades is the introduction of the SWIFT system for communications between banks. Rather than physically sending paper documents by expensive courier services, SWIFT is an electronic communication system that provides two layers of security. First, SWIFT uses the old telex communications network, which protects it against hackers and makes it far more secure than e-mail communication. Second, SWIFT relies on standardized messages that reduce the potential for misunderstandings between bankers from different countries with different languages and different business‒ and legal cultures. However, the communication between the Buyer and her bank and the Seller and his bank is still “old school” involving either a physical visit at the bank or relatively less secure communication via e-mail and online banking services.
23We can summarize the traditional system as paper intensive (the sales contract, the letter of credit, and the bill of lading, will be physically printed at some point in time, potentially even physically sent internationally)9, slow, and expensive (attorneys and banks charge high fees because of their specialized skills and lack of transparency and competition).
B. Conventional Electronic Contracting and Payments
24In international export/import trade, electronic document production and sharing systems are available for certain types of contracts, although they are not yet widely used outside of certain regions or industries. The problem can be illustrated as follows: The documents required for a documentary sale will be handled by a large number of different parties and organizations typically located in multiple different countries. These include sellers, also referred to as shippers or consignors, insurance companies, inspection companies, freight forwarders, warehouse operators, domestic and international carriers, banks, terminal operators, customs agents, customs authorities, other specialized service providers, as well as buyers, also referred to as consignees or importers. If goods are exported from country A, carried to country B by a carrier based in country C, transshipped from B to country D by a carrier based in country E on a ship flying the flag of country F, and covered by an insurance company from country G, we get an idea of the multiplicity of languages, legal systems and rules, as well as business cultures that may play a role. Furthermore, the details of a transaction may change as it evolves, for example if goods are sold while in transit or if congestion at a scheduled transit port requires the goods to be re-routed via a different and unplanned country or port.
25In general, electronic systems like SWIFT only work if all participants have signed on to them, have installed any required equipment and technology, and have trained their staff how to use the hard- and software correctly. Of course, there are also the fees to be paid. For example, in the case of bills of lading, the global logistics industry has been promoting electronic solutions for at least 25 years. However, even large platform providers like CargoDocs/essDOCS® have only managed to sign up some of the larger trading firms and logistics and service providers and no one system has achieved truly global recognition.
26Therefore, we shall use a different and more basic example to discuss the current strengths and weaknesses of electronic contracting. The American real estate market is one of the few industries, where electronic contracting has become the norm:
Figure 3 Conventional Electronic Contracts in U.S. Real Estate Transactions

27While this model simplifies transactions massively for the parties and, in particular, for the realtors who do not have to draw up contracts each time, with the potential of missing required information or entering terms that are potentially problematic, the benefits are very basic. First, the contracts are in essence contracts of adhesion and the parties can only initial certain terms and sign the bottom line. If a party disagrees with any of the terms, they have to contact the realtor who then creates a modified version of the contract on the platform. Second, the realtors do not pass the savings in time and effort on to the parties and, instead, continue to charge the legally permitted percentage of the value of the transaction, which can be in the tens of thousands of dollars. This may or may not be justified by their work in helping the client find the object in the first place. Third, even though the contract is made electronically, it is typically printed out as well by the parties. Fourth, security is not a huge concern because the parties will still have to meet in person and sign the final paper version of the contract in front of a notary public. Last but not least, payment is entirely made off-platform and still requires the involvement of banks with their fees for domestic or international transactions, although these may be marginal in a high value real estate transaction.
28While it is theoretically possible for the parties to a transaction to make direct contact with a platform provider such as DocuSign® and create their own contract, for example for a sale of goods or services, the benefits would also be small. The creation of the contract on the platform is complicated, which makes it uninteresting for one-off transactions. More importantly, legal advice is not provided, which means the parties would still need to work with lawyers as third party service providers when drawing up the substance of the contract. Last but not least, there is no way of including payment services on the platform. In the end, in this kind of transactions, the platform services would really only solve the problem of transmission of the document between seller and buyer, and possibly the identification of the parties, if “know your customer” (KYC) and/or anti money laundering (AML) services are offered. The market failures in the provision of legal and payment services are not resolved and competition is not enhanced.
C. The Arrival of Smart Contracts
29The main difference between an electronic contract by a platform provider like DocuSign® and a Smart Contract is the ability to lock value (= money) directly into the Smart Contract and have it automatically released if and when certain conditions are met. This eliminates the need for financial intermediaries (= banks) and makes payment in real time possible10. Furthermore, a platform provider like PrepayWay® in Switzerland11 is able to combine model contracts with the payment operation. This eliminates the need for legal intermediaries (= attorneys). As an added benefit, the platform provider can supply the same contract in many languages, allowing parties from different countries to work in their own language and fully understand their rights and commitments without having to guess the meaning of complicated legalese in a foreign language contract.
30The way such a transaction works is as follows:
Figure 4 Smart Contracts for International Sales of Goods

31Step 1: A platform provider like PrepayWay® develops model contracts for certain common business transactions, for example an international sale of goods. The model contracts are not merely contracts of adhesion. Instead of a pre-formulated contract that only allows the parties to enter their names, the quantity and quality of the goods, and the price, the contract offers a multitude of variables on matters such as inspection of the goods, time and place of delivery, INCOTERMS, liquidated liability for delay of delivery, payment terms, liquidated liability for late payment, retention of title, warranties, as well as choice of law and forum. The company uses a basic AI system which offers defined choices for the various contract clauses with detailed explanations of the respective consequences. After one choice is made, the system automatically adjusts the choices for other contract clauses as a function of the earlier choices. For example, if the parties agree on FOB as the applicable INCOTERM, only the buyer is reminded to purchase insurance (optional) and make arrangements for the international part of the carriage (mandatory). By contrast, if CIF is chosen as the INCOTERM, the seller is reminded that she has to purchase insurance at 110% of the CIF price12, and make the arrangements and prepay the international part of the carriage.
32Step 2: The parties reach a basic agreement about the 5 essentials of the international sales transaction and the use of the PrepayWay® platform. They access the platform and select the contract most suitable for their particular transaction. PrepayWay® is working on a multiplicity of contract for different business transactions, as well as multiple language options for the contracts. Medium term, the company plans to offer contracts on one language, e.g. English, with explanations in multiple other languages. In this way, a party from Brazil, with limited proficiency in legal English, could enter into a contract with a party from China, with similarly but differently limited proficiency in legal English, using an English language contract with each side receiving objective/neutral explanations in their own language.
33Step 3: Once the parties have achieved agreement on the terms of the contracts, i.e. the variables offered by the AI system on the platform for payment terms, shipping terms, choice of law and forum, etc., they activate the contract by uploading crypto funds in the amount of the transaction value plus an activation fee for the platform provider. The transaction funds will be locked into the contract until the parties signal that the transaction is complete and the funds should be released. The Smart Contract can be set up as a multi- signature or “multisig” contract where the release of the funds requires consent by two out of three signers. If the Seller and the Buyer agree that the transaction was successful, their two signatures release the funds to the Seller. If the Seller and the Buyer agree that the transaction failed, their two signatures release the funds back to the Buyer.
34Step 4: If the Seller and Buyer do not agree on the success or failure of the transaction and/or how the funds should be disbursed, the platform provides dispute settlement services by an arbitrator. For an additional fee, the arbitrator examines the facts, invites the parties to submit claims and explanations, and decides how the funds should be disbursed. If the arbitrator sides with the Seller, she gets the funds. If the arbitrator sides with the Buyer, the funds go back to him. One or both parties can also agree with the arbitrator on a different distribution of the funds, for example a 50:50 or 75:25 split. If the arbitrator cannot come up with a solution that is both supported by law and acceptable to at least one party, the funds remain in the Smart Contract until a full-blown arbitration procedure results in a final award.
35There are several important differences between the Smart Contract in this model and the traditional paper-based transactions of Figures 1 and 2 and even the conventional electronic contract shown in Figure 3. First, the services of banks are entirely eliminated. The parties hold their crypto funds in wallets accessed via their cell phones or other devices and can transact directly with each other. The cost of the payment transaction is either zero or negligible. Second, while the development of the model contracts by the platform provider requires input from highly qualified lawyers as well as competent software engineers, the cost are spread out over thousands of contracts. In this way, the platform provider can offer sophisticated legal agreements with fully functional payment procedures at a price comparable to the price of basic international wire transfers by conventional banks. Users will save thousands of Dollars or Euros in every single transaction and attorneys and law firms will no longer be able to overcharge clients in opaque markets for repetitive and pedestrian services.
36This will not be the end of international transactional lawyers and law firms, however. If transactions are non-standard, they will never be suitable for development as automated Smart Contracts as described here. The negotiations, legal analysis, and contract drafting have to go in whether or not the contract is automated. More importantly, the programming effort is simply too great. Since there are no economies of scale from using the same legal analysis and the same programming effort many times over, even well-funded and sophisticated platform providers will not be interested. There may still be a role for Smart Contracts to implement the payment side of the contract but the need for legal intermediaries remains. Thus, transactional lawyers can finally focus on the deals where their sophisticated knowledge and experience is both needed and appreciated.
37At the present time, very few Smart Contracts like the ones described in the preceding paragraphs are actually available for commercial purposes. However, dozens of companies are working on the development of these kind of contracts, stress and safety testing, deployment on multiple platforms and devices, and offers in multiple languages. For parties wishing to pay and receive fiat money, rather than crypto or digital funds, platform providers like PrepayWay® will offer intermediary services allowing users to transfer traditional money from their accounts to the platform. On arrival, the funds are immediately converted into a proven stable coin13 because the platform does not want to carry the currency exchange risk but needs a digital currency to hold the funds in the Smart Contract rather than a traditional escrow account. Once the transaction is complete and the funds are released to the Seller or returned to the Buyer, the stable coin amount is converted back into fiat money and transferred to the respective party. In this way, the party or parties receive whatever currency was locked into the Smart Contract and don’t have to worry about the volatility of some digital currencies or even use a digital currency in the first place to get the benefits of the system.
D. Examples of Business Applications of Smart Contracts on a Blockchain
38The first and most obvious application for Blockchain is the transfer of value from one wallet or person to another, i.e. the transfer of money without the use of banks or other intermediaries. Of course, this could be done by online providers without reliance on a Blockchain. One such example is Revolut®. The company provides money transfer services, among other financial services, that are instantaneous and cheaper than through traditional banks. Users, however, need to maintain accounts with Revolut, funds have to be paid in via credit card or wire transfer, and the company also holds banking licenses in the countries where it operates. Thus, it is more like a traditional bank, just without the brick-and-mortar components, and with lower fees and faster service. Similarly, Venmo® markets itself as a “peer-to-peer payment app” but it has to be connected to a credit card account or a checking account to work. Just like other online banking transactions, security is limited.
39One of the few applications that actually use a public or open Blockchain for (cross-border) payments, rather than a permissioned one14, is Stellar®15. The company can move digital currencies from one wallet to another but it also offers the transfer of fiat currency from one person to another without the need for traditional bank accounts. As outlined earlier, to activate a Smart Contract on a Blockchain, fiat funds can be deposited with “an anchor”16 associated with Stellar, converted into a stable coin, unless the user is ok with the currency exchange risk, and then transferred to another “anchor” in the recipient country where the recipient can pick up the funds after they are converted again into fiat. The main difference to Western Union® is that unbanked users, and others, can get the job done in minutes rather than days, the fees are much lower, and the operation is secure because it runs on a Blockchain. However, the benefits are still limited from the user’s point of view. Since Stellar needs “anchors” at both ends of the transaction and will often have to convert to and from stable coins along the way, providers like Revolut have a more direct and efficient structure. At present, one could at least ask whether it is necessary to use a Blockchain for a simple financial transfer of fiat money.
40The next example is record keeping, tracing, and sharing. The World’s largest diamond manufacturer De Beers® has created a system for “assuring provenance, traceability, and authenticity of natural diamonds”17 through the entire industry supply chain. The Tracr® system follows a diamond from the mining stage to the company that cuts and polishes it, the jewelry manufacturer, all the way to the retailer and end consumer. Thousands of diamonds every month are assigned an immutable Tracr ID and a connected certificate of authenticity. A similar system was created by Artory® for artwork and collectibles. Creators and collectors can register their valuables and records are kept on a Blockchain in perpetuity and perfect safety18. Similar platforms are being developed or already on the market for health data and records management19, the supply chain for certain pharmaceuticals20, registration of intellectual property rights21, tracking of certain perishable food products through the supply chain22, verification and tracking of high-end wines23, and several other products and services.
41By putting the information on a Blockchain, the companies can simultaneously provide widespread or even fully open access to the information while also protecting it from hackers and other forms of data corruption. As the examples demonstrate, however, this kind of record keeping and tracking systems are not cheap and mostly used, at least so far, for high-value goods and services24.
42Finally, BlockFi® provides an example of lending operations based on digital assets. Users of the platform can earn interest for holding crypto currencies in their BlockFi wallet. More interestingly, users with significant crypto assets can borrow against these at relatively low interest rates. This means that somebody could hold Bitcoin and other digital currencies in the hope that they will appreciate in value but also draw value from their holdings at an annual interest rate “as low as 4.5 %”25.
IV. The Future Role of AI, Blockchain and Distributed Ledger Technology
43The contracting model described in Figure 4 is a rather sophisticated Blockchain or Distributed Ledger Technology (DLT) application, a Smart Contract with a multisig function, able to entertain dozens of variables in the contract drafting, all the way to basic dispute settlement, and holding potentially millions of Dollars or Euros for the transaction itself. It enables the parties to eliminate the financial intermediaries and the legal intermediaries in certain types of (international) business transactions. And it can do so at a fraction of the cost of current contracting and payment procedures, at least if the transaction and the contract are fairly common and standard. However, there are a number of issues related to contract performance that remain unresolved.
44For example, in the area of international real estate transactions, there would be great opportunities for platform providers to bring more competitive and generally better solutions to market. The contracts for sale or rental of residential or commercial real estate themselves are usually relatively basic, with not too many options up for negotiation26. When existing buildings are sold or rented to a client from another country, the main obstacle is often the language barrier. These could be overcome quite easily by platform providers offering multilingual contracts, or at least explanations, and working with local notaries to ensure the validity of the specific model contract(s) in the specific jurisdiction. However, as long as land registers are not willing to implement changes of ownership directly on the basis of a Smart Contract, the utility of automating the contracts is again somewhat limited27. Moreover, the same is true for many rental agreements since many countries and legal systems require that any disputes over real estate contracts, including rental agreements, are subject to the exclusive jurisdiction of the courts where the real estate is located. This prevents, inter alia, disputes of purchase/sale and even rental of real estate, whether international or Blockchain or conventional, from being submitted to binding arbitration. As I have said elsewhere, while one can always find a qualified arbitrator for a particular type of contract with a particular set of applicable laws, litigating a Smart Contract in front of a judge who may still be trying to figure out two factor authentication for his e-mails may not be a very good idea28.
45In the area of international business transactions for the sale of goods, performance by the buyer, i.e. payment of the purchase price, can be quite easily secured via the Smart Contract. The performance by the Seller, however, is more complicated. In the model explained in Figure 4, the Seller has to show that she has “performed”. The time and place of performance is determined by the INCOTERM. For example, if FOB is selected as INCOTERM, the Seller has performed as soon as the goods are loaded onto the vessel for the international voyage, typically a ship for maritime carriage. From the moment when the goods cross the ship’s rail, the risk and responsibilities are on the Buyer. The Seller should not have to wait for the goods to arrive at the Buyer’s to get paid. Seller’s performance is proven by the Bill of Lading (BoL) handed to the Seller by the Master of the ship. The BoL has a triple function. First, it confirms that the goods have been handed over and are now under the custody of the carrier and no longer under the control of the Seller. Second, the BoL is the contract of carriage, documenting the terms of the carriage, including the price and whether the carriage is prepaid, as required under CIF. Third, the BoL is also a document of title to be presented upon arrival of the good by the Buyer or an authorized third party for the goods to be released by the carrier. Even if the BoL is issued electronically, the Seller would also have to show that she purchased the required insurance, with the Buyer as beneficiary, if CIF is used as the INCOTERM. Other documents, such as inspection certificates or export licenses, may also be required.
46We already discussed at the outset of our analysis the difficulties for the international commercial community to agree to one single system of electronic document exchange for all documents required for a documentary sale, or even just a single system of electronic bills of lading. Electronic platforms like SWIFT for financial institutions, or DocuSign for certain standardized contracts like real estate purchase agreements, are quite basic and neither require expensive technology nor very sophisticated training of users. If even these platforms struggle to expand their footprints and include more and more diverse players in the international shipping and logistics markets, the introduction of Smart Contracts on the Blockchain to a multitude of different players around the world will be even more challenging.
47The solution may very well lie in the elimination of certain documents altogether, rather than their replication in an electronic or even Blockchain system. For example, if an IoT enabled sensor is traveling with the goods, it can send signals automatically to the Smart Contract confirming that the goods have been loaded onto the vessel for the maritime voyage. A Bill of Lading as receipt for the goods and proof of transfer to the carrier would no longer be required. So called “geo-enabled devices” are offered by manufacturers like Samsara®29 and developers like Esri® have the geographic information system or GIS software30. Cargo tracking with multiple participants can be provided by Trackx®31 in the cloud, although it is still off-chain. The same is true for LaneAxis®32. Companies like Zerynth® claim to have at least some of the components already on a Blockchain33. As early as 2018, IBM® teamed up with Maersk®, the World’s largest shipping company, to create TradeLens Blockchain Shipping Solution and connect port and terminal operators, container shipping lines, customs authorities, cargo owners, freight forwarders and logistics companies, to give everyone realtime data about cargo conditions and movements34. Supposedly, the technology was tested successfully for the first time in 202035. However, the press releases do not show how the data was entered and how many data points were recorded by how many different participants36.
48For the time being, there are definitely more companies promising this kind of solutions on a Blockchain for some rather unspecified time in the future than there are companies who are able to provide them already now. Furthermore, there are many more companies offering the software solutions37 than companies able to manufacture and connect the IoT and other devices necessary to supply data in a way that is no longer subject to manipulation by interested parties38. Arguably, it does not make a lot of sense to store incorruptible records on a Blockchain when there is no way to make sure that the data does not arrive already corrupted. To give but one example, a traditional Bill of Lading confirms the receipt of the cargo at a specific time and place and in apparent good order and condition. A so-called “clean” BoL does not have any notations that the cargo was already late or improperly packaged or even damaged when it was handed over to the carrier. Therefore, if the cargo arrives damaged at the other end of the voyage, the change must have occurred while the cargo was in the custody of the carrier and an insurer might try to hold the carrier liable. In theory, the carrier should have a powerful interest in entering the data correctly in the BoL. However, the shipper needs a clean BoL and the shipper needs to show that the cargo was delivered in time to collect payment on the Letter of Credit39. Unfortunately, if there is a minor delay or some minor issue with the cargo, it is a time honored tradition for shippers to offer so-called letters of indemnity to carriers in exchange for a clean but fraudulent BoL. Unless we can create automated solutions, a trustless environment will never become a secure or trusted environment as long as we are dealing with a multitude of participants in different countries with different legal and business cultures and potentially conflicting interests40.
V. Conclusions
49Blockchain or Distributed Ledger Technology has outgrown the phase when it was largely the prerogative of gamers, geeks and gamblers. The genie is out of the bottle and it will not go back in, no matter what regulators in different markets try to decree. Volatility of digital currencies remains a concern but not an unmanageable one. Similarly, security of Blockchains is largely guaranteed but some of the developers and users are the weak links, as with all new types of business and all electronic platforms and communications. Snake oil salesmen are not unique to crypto markets and remain a concern in many industries. This is another problem that can be limited with appropriate regulation.
50Although at present the opportunities for enterprises presented by AI and Blockchain technology for international business transactions are still immature and limited, the industry and the market are developing rapidly. Given the sustained and substantial investments being made every month by thousands of businesses around the world, it is safe to assume that the breakthrough moment for fully functional and practically useful Smart Contracts for international business transactions is near. However, the large scale replacement of any and all paper contracts and documents, and the global adoption of fully automated technology along all points of our global supply chain for the establishment of a fully secure and trusted environment will still take a lot more time. As the proverb goes, we can now do the impossible but miracles still take a little longer.
Notes de bas de page
1 As early as 2013, the US Financial Crimes Enforcement Network (FinCEN) published a guidance notice for “decentralized virtual currencies”, warning miners and exchanges – but not individual users – that they would be classified as Money Service Businesses and subject to registration and Anti Money Laundering (AML) regulations (Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies, FIN-2013-G001, 18 March 2013). Shortly thereafter, in May 2013, the US Department of Homeland Security issued a seizure warrant for assets of the American subsidiary of the Japanese exchange Mt. Gox because it had failed to register with FinCEN. In June 2013, the US Drug Enforcement Administration (DEA) seized Bitcoin from an alleged drug buyer. And in October 2013, the FBI arrested Ross Ulbricht and seized some 26,000 Bitcoin from the dark web site Silk Road. An American law professor opined that “Bitcoin is a fantasy [... and] contains the seeds of its own destruction.” He admitted that it “may be useful for certain types of transactions, especially illegal ones” and mocked that “[B]itcoin unites futuristic left-wing Internet anarchism – the fantasy that the Web can provide the conditions for a governmentless society – with the cave-dwelling right-wing libertarianism of goldbugs who think a stable money supply can be established without government involvement [as] proof for both that government is not needed for much, or at all (E. POSNER, Fool’s Gold: Bitcoin is a Ponzi Scheme – The Internet’s Favorite Currency Will Collapse, Slate, 11 April 2013). Alan Greenspan, the former chairman of the US Board of Governors of the Federal Reserve System (“the Fed”), simply called it “a bubble without intrinsic currency value” (J. KEARNS, Bloomberg Personal Finance, 4 December 2013). The Bank of China prohibited the use of Bitcoin by Chinese financial institutions (BBC News, 18 December 2013). However, this did not stop various businesses, including Microsoft and Dell, from starting to accept payment in Bitcoin and it certainly did not stop other authorities, like the German tax authorities, from taking their share of the newfound wealth of some of its users.
2 For a high level summary see, e.g. M. Dean & M. Sebastia-Barriel, Why Has World Trade Grown Faster Than World Output?, in Bank of England Quarterly Bulletin, Autumn 2004, pp. 310-320.
3 For a detailed discussion – with multiple model documents and hands-on guidance for their completion – see F. Emmert, International Business Transactions – Text, Cases, and Materials, Durham, Carolina Academic Press, 2021.
4 To be sure, these numbers were quite different at the time when this was written. The US was still imposing punitive tariffs on most Chinese goods in the average amount of 19.3 %, with some goods being charged 25 or even 30 %, for a total additional burden of more the $51 billion (see e.g. https://www.americanactionforum.org/research/the-total-cost-of-tariffs/, with data as of 2 August 2021). At the same time, because of the pandemic and a number of other supply chain issues, the cost of bringing a container from China to the US or Europe has gone up by as much as 400 %. However, it is unlikely that these extreme additional cost elements will continue for much longer.
5 In classical mythology, Scylla and Charybdis were the sea monster and the whirlpool on opposite sides of the Strait of Messina, forcing Odysseus to choose the lesser of two evils as he tried to pass with his ship.
6 The administrative fees and arbitrator honoraria at the major international arbitration centers for arbitration of a dispute over US $10 million will range from about US$120,000 to US$620,000; see F. Emmert, International Business Transactions – Text, Cases, and Materials, Carolina Academic Press, 2nd ed. 2021, at pp. 1039-1040 (comparing the ICC, Stockholm Chamber of Commerce, Singapore Int’l Arbitration Centre, and Cairo Regional Centre for Int’l Commercial Arbitration). These fees do not include costs of external counsel, advisers, witnesses, in-house counsel, expenses for travel, translation and interpretation, rental of facilities, contingency fees and expenses for third-party funding, as well as any ancillary judicial procedures.
7 To give but one example, the International Chamber of Commerce (ICC), in many respects the gold standard for providers of international arbitration services, does not normally accept disputes under US$3 million for its regular procedures and channels them automatically to an expedited procedure with a sole arbitrator; see ICC (ed.), Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration Under the ICC Rules of Arbitration, 1 January 2021, at p. 19. The Note is available on the website of the ICC.
8 Figure 1 is taken from F. Emmert, International Business Transactions – Text, Cases, and Materials, Carolina Academic Press, 2nd ed. 2021, at p. 74. Detailed explanations of all 25 steps in the transaction are provided on pp. 72-76.
9 Vector®, an app developer for electronic bills of lading introduces its services by stating that “[I]n logistics, every delivery of freight involves paperwork. So, if logistics makes the world go round, then paperwork is the logistics of logistics. Paperwork runs the world of logistics. And of all the paperwork, the most important piece is the bill of lading (BOL).” See https://www.withvector.com/blog/post/electronic-bill-of-lading (last visited 16 October 2021). Much the same can be said for the other documents in the documentary sale.
10 Winnesota, a U.S. based provider of refrigerated transportation services, claims that “every day, there are $140 billion tied up in disputes for payment in the transportation industry” and that transportation companies have to wait an average of 42 days for payment once an invoice is issued; see https://www.winnesota.com/blockchain. While it is hard to verify these numbers, they only cover the transportation part of the business. Problems with late payments all across a variety of industries have grown for decades and exacerbated in recent years. The EU Commission found that “[e]ach year across Europe thousands of small and medium-sized enterprises (SMEs) go bankrupt waiting for their invoices to be paid” (https://ec.europa.eu/growth/smes/sme-strategy/late-payment-directive_en) and adopted Directive 2011/7 on Combating Late Payment in Commercial Transactions (OJ 2011 L 48, pp. 1-10). The Directive requires public authorities of the EU Member States to pay for goods and services within 30 days and private enterprises to pay their invoices within 60 days and for Member States to provide for automatic entitlement to interest at 8 % or more above the European Central Bank’s reference rate for late payment in their national implementation legislation (Articles 3 and 4). Although this Directive had to be implemented by 2013, not much has changed. In 2020, the EU Commission is still claiming that “[o]nly 40 % of businesses are paid on time in the EU. Late payments account for 1 out of 4 bankruptcies. ‘Late payment’ is the most pressing item of concern for SMEs and start-ups, after administrative burden and red tape. Very often, paying late is an intentional practice, rather than an unfortunate incident.” (See https://eu-latepaymentobservatory.tw.events/).
11 See https://prepayway.com/. Full disclosure: the author is a co-founder and equity partner of PrepayWay.
12 Insurance can also be developed with the help of a Smart Contract on a Blockchain. For example, if a traveler is purchasing insurance in case his flight is delayed or cancelled, the Smart Contract can be programmed to receive the premium and an activation fee from the customer and the potential payout from the insurance company. If the airport confirms that the flight left as planned, the insurance company automatically receives the premium. If the flight is late or cancelled, the traveler automatically receives the payout. A similar system for cargo insurance could cover a full or constructive loss. However, a partial payout for limited damage to the cargo would require an intermediate step with input from an insurance adjuster. Premium and payout could be held in the Smart Contract until the customer and the insurance agree on the sum to be paid or, in the absence of agreement, until an arbitrator can take that decision.
13 Bashir distinguishes four types of stable coins: i) fiat collateralized, i.e. pegged to a traditional fiat currency like the US dollar or the Euro (e.g. Tether Fiat or USD Coin); ii) commodity collateralized, i.e. pegged to or backed up by commodities like gold or oil (e.g. Tether Gold); iii) crypto collateralized, i.e. backed up by one or more other crypto or digital currencies (e.g. Dai Stablecoin); and iv) algorithmically stable, i.e. not pegged against any one other asset but stabilized by algorithms that track supply and demand of a basket of assets or an index (e.g. Basecoin). See I. Bashir, Mastering Blockchain, Packt Publishing, 3rd ed. 2020, at p. 573. While other digital currencies have experienced significant volatility, sometimes gaining or losing 10 % or more of their value within 24 hours, stable coins are supposed to maintain their peg even under attack by speculators. Whether the stable coins can always maintain their peg may depend on the size of the off-chain reserve of the target asset. Tether, for example, claimed to hold US $ in a 1:1 ratio to the distributed digital coins. As of October 2021, this would require Tether to hold US $69 billion in reserves. This would make Tether one of America’s larger banks. However, nobody has seen these assets and Tether is not subject to audits like a bank. At least some critics have called it “a high risk offshore hedge fund” and, if it were a Ponzi scheme, it would be larger than Bernie Madoff’s (see Z. Faux, Anyone Seen Tether’s Billions?, Bloomberg Business Week, 7 October 2021). USD Coin, by contrast, is regularly audited. One solution for the volatility problem could be the offering of stable coins backed by central banks. For more information see, e.g. C. Long, Ten Stablecoin Predictions and Their Monetary Policy Implications, The Cato Journal, Vol. 41, No. 2, 2021, pp. 307-319; as well as E. Prasad, The Case for Central Bank Digital Currencies, in E. Prasad, The Future of Money – How the Digital Revolution Is Transforming Currencies and Finance, Belknap Press 2021, pp. 193-238.
14 A permissioned Blockchain only allows certain pre-approved parties to conduct transactions. By contrast, an open or public Blockchain can, at least in theory, be accessed by anyone. The permission requirement provides an added layer of security and limits access to the data.
16 Stellar’s website explains that “Anchors are licensed and regulated financial institutions, money service businesses, or fintech companies that provide fiat on/off ramps to the anchor country’s banking system. [...] Anchors handle local regulatory processes such as KYC/AML.” See https://www.stellar.org/learn/stellar-for-remittances.
17 See https://www.debeersgroup.com/sustainability-and-ethics/leading-ethical-practices-across-the-industry/tracr.
19 See, for example, https://trustgrid.com/personal-medical-records/
20 Winnesota claims that “8.5 % of sensitive pharmaceutical shipments experience temperature deviations” during carriage that prevent their importation or use. In hot climates like the Middle East, “that number rises to 15-20 %” (https://www.winnesota.com/block- chain). If pharmaceutical companies were able to track the ingredients, manufacture, packaging, labelling, shipping, and distribution of medications through the international supply chain and secure the data on a Blockchain to make sure that data is always attributable and incorruptible, they could at least attribute fault and put pressure on the different partners to take better care of the products while in their custody in the supply chain. AWS, an Amazon company, provides this service as part of its “Track and Trace on Amazon Managed Blockchain” (https://aws.amazon.com/blockchain/blockchain-for-supply-chain-track-and-trace/), although the data entry still has to be done manually by the participating companies.
21 For more information see, for example, C. Heer & S. Halkyard, How Blockchain Can Help to Protect Intellectual Property in the Age of the Internet of Things, IoT for All, 18 November 2020.
22 See, for example, https://aptean.com/en-US. For further analysis see E. Baxter, Blockchain’s Application in the Food Supply Chain: Moving Towards End-to-End Traceability, Jurimetrics, Vol. 61, No. 4, 2021, pp. 443-468.
23 P. Danese, R. Mocellin & P. Romano, Designing Blockchain Systems to Prevent Counterfeiting in Wine Supply Chains: A Multi-Case Study, International Journal of Operations & Production Management, Vol. 41, No. 2, 2021, pp. 1-33.
24 See also C. Schmidt, M. Klöckner & S. Wagner, Blockchain for Supply Chain Traceability: Case Examples for Luxury Goods, in K-I. Voigt & J.M. Müller (eds), Digital Business Models in Industrial Ecosystems, Springer 2021, pp. 187-197.
25 See https://www.blockfi.com/crypto-loans.
26 The exception are contracts involving the development or construction of the property. Like non-standardized sales transactions in the previous example, these will always require negotiations between buyers and developers with sophisticated legal and other professional advice.
27 An example for a relatively modest but useful application was developed by Slock®. Among other “smart devices”, the company provides smart locks that can be installed in rental properties and unlocked remotely when a new tenant arrives. See https://www.blockchains.com/.
28 See F. Emmert, Blockchain Disputes, presentation at Tec de Monterrey, January 2021, available at https://www.research- gate.net/publication/354249500_BLOCKCHAIN_DISPUTES.
29 See https://www.samsara.com/. See also SensLynx, https://www.senslynx.com/.
30 See https://www.esri.com/en-us/home
33 https://www.zerynth.com/customers/case-studies/blockchain-enabled-iot-shipment-tracking-system/
34 https://newsroom.ibm.com/2018-08-09-Maersk-and-IBM-Introduce-TradeLens-Blockchain-Shipping-Solution
35 See https://supplychaindigital.com/technology-4/maersk-and-ibm-are-bringing-blockchain-tech-shipping-industry
36 At least some of the other shipping and logistics companies have expressed concerns about participating in a system controlled by their largest competitor. See https://shippingwatch.com/carriers/container/article10602520.ece
37 This includes Palantir, one of the best established companies in the market, see https://www.palantir.com/
38 TagItSmart is a project funded by the European Union and aimed at the development of smart tags that can be attached to virtually anything, even mass-market articles like a carton of milk or a package of meat. Printed bar codes or QR codes on the products are generic for the type of product and static, i.e. unable to change with the location or with changes in the environment of the product, such as temperature changes. Smart tags, by contrast, would be able to record and transmit this kind of information dynamically. For more information see https://tagitsmart.eu/
39 Compare Article 27 of the Uniform Customs and Practice for Documentary Credits (UCP 600).
40 Suitable IoT devices will not be cheap if they need to operate over longer periods of time, have access to the Internet from virtually anywhere, collect and transmit various types of data, and do so while being tamper-safe. One way of incentivizing the different service providers along an international supply chain to acquire the necessary technology and enable data entry directly into a Smart Contract on a Blockchain with their private/public or hardware keys could be to reward them with additional crypto coins and tokens beyond the regular price of their services.
Auteur
Professor of Law and Director of the Center for Int’l and Comparative Law
Indiana University Robert H. McKinney School of Law
Le texte seul est utilisable sous licence Licence OpenEdition Books. Les autres éléments (illustrations, fichiers annexes importés) sont « Tous droits réservés », sauf mention contraire.
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