Blockchain Technology Implementation in the U.S. Customs Environment

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Svetlana Angert

EXECUTIVE SUMMARY

Blockchain technology has been surrounded by hype: first lauded for enabling the creation of cryptocurrencies and starting conversations about digital identity, blockchain technology now promises to revolutionize supply chain management. New blockchain technology applications in international supply chain management are gaining momentum; if these applications are successful, the next step will be to apply them toward the currently paper-heavy customs processing—a key element of international trade. The U.S. government has an opportunity to take an active role in the development of this technology to influence trade industry implementation in a way that supports U.S. interests, encourages global standards, and promotes economic growth and fair trade practices. Because blockchain technology is still developing, the government also has a rare opportunity to come together with the trade industry to explore the technology’s capabilities and possibilities. Joining the blockchain revolution early on provides both private and government entities with an invaluable opportunity to drive the change rather than to react and adapt to systems established by others.
Customs agencies worldwide have begun testing blockchain technology. The U.S. Department of Homeland Security (DHS) Science and Technology Directorate (S&T) and the U.S. Customs and Border Protection (CBP) partnered in exploring blockchain technology implementation in proof-of-concept (POC) projects to determine the technology’s effectiveness in the U.S. customs environment. This thesis examined the first POC blockchain implementation by CBP, including its execution and results, and provides recommendations for DHS and CBP’s future involvement in the implementation of blockchain technology in the U.S. customs environment. The research revealed that CBP’s first blockchain POC proved that blockchain technology can be implemented in the U.S. customs environment. The POC revealed that utilization of emerging blockchain interoperability specifications and standards allows multiple trade partners to seamlessly communicate with CBP via blockchain platforms. Furthermore, blockchain technology can improve the processing and tracking of trade-related documents, facilitate interaction with multiple private entities via multiple blockchains, enable better auditability, and expedite CBP processing.
In addition to reviewing the POC, this thesis provides background on blockchain technology and examines its ongoing—and growing—implementation in the international trade environment. The research involved interviews of stakeholders from the trade industry and government who worked on the POC, as well as analysis of background information, blockchain standardization and interoperability efforts, fraud vulnerabilities, the POC, and ongoing blockchain implementation efforts following the POC.
While blockchain technology promises to improve numerous processes in supply chain management and international trade, the technology is still developing and issues such as key management, digitization of physical assets, lack of standards, and lack of interoperability remain key for future implementation. By continuing to demand interoperability in all implementations, the government can direct trade industry toward creating an environment that fosters global standards, promotes innovation, and precludes vendor-locking or monopolization.
Ultimately, this research led to the following recommendations for S&T, CBP, and Homeland Security Investigations (HSI):
• S&T should continue research and development work related to blockchain technology, interoperability standards, and potential implementations by DHS components. S&T should continue engaging various DHS components in blockchain implementation.
• CBP should continue working with the trade industry to explore potential applications of blockchain technology in the U.S. customs environment and to identify processes that can benefit from blockchain technology implementation. CBP should prioritize implementation of blockchain technology in a manner compatible and interoperable with the existing Automated Commercial Environment (ACE).
• CBP and S&T should continue maintaining the demand for interoperability standards within all DHS-sponsored POCs, pilots, and blockchain applications to foster technological development and guide private industry in a joint effort to build interoperable systems.
• CBP should consider expanding blockchain technology implementation efforts to include other U.S. partner government agencies, the World Customs Organization, and international customs agencies. Joint efforts among government agencies should enable future coordination, effective implementation, and—most importantly—the creation of global blockchain standards necessary in the international trade environment.
• CBP and HSI should consider joining efforts in analyzing fraud potential and reviewing the legal ramifications of blockchain technology implementation. Both agencies should involve policy and legal experts in all future blockchain implementation efforts. Both agencies should consider issuing new policies and regulations to enable effective and compliant blockchain technology implementation in the U.S. customs environment.
The international trade industry sees blockchain technology as a tool that may affect every aspect of international trade—from manufacturing to shipping and distribution, and even customs clearance. Wide-scale blockchain implementation is years away, but when it comes to the international trade environment, the U.S. government should actively engage in such implementation now in order to endorse systems that adhere to global standards and promote economic growth and fair trade practices worldwide. Blockchain technology is promising to revolutionize supply chain management; with proper government and industry support, this technology may also improve the international trade environment as well as compliance and enforcement capabilities.

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