B2B Payments

Is Digital The Best Defense Against Trade Finance Fraud?

There are trillions of dollars at stake when it comes to trade finance fraud, and a senior OCBC Bank MD urges firms to go digital to stop fake documentation. Elsewhere, Kraft Heinz finds several varieties of procurement fraud.

To take a bite out of trade finance fraud, bit by bit, go toward bits and bytes. Trade finance is worth as much as $9 trillion across the globe, and fraudsters, with the aid of fake documentation, have been bilking companies.

As The Straits Times reported, Ng Chuey Peng, managing director and head of global commodities finance at Singapore's OCBC Bank, the country’s second-biggest lender and second-biggest bank by asset, said one way to beat the bad apples is through digitization.

"Trade finance is due for a transformation," said Ng. "Going paperless has to happen."

The fact remains that paper-based and manual processes are inefficient. In the midst of an elevated fraud risk, though, blockchain and other digital efforts are arrows in the quiver of the fight against fraud.

There’s a lot of room for digital methods to overtake paper, where dead trees dominate everything from bills of lading to invoices. Amid the paper, the forgeries are "so good that you can't tell the difference," Ng said. "The color, the watermark, is exactly like the original."

By way of example, in one sizable fraud case, Standard Chartered and Citigroup lost millions of dollars a few years ago amid forged warehouse receipts for deliveries at a Chinese port. In another example of distributed ledger technology (DLT) used in trade finance, Mercuria Energy Group and Gunvor Group have linked with, among others, Royal Dutch Shell and several banks to create Komgo, which uses blockchain to monitor and follow transactions.

Elsewhere, Yahoo Finance reported that Kraft Heinz has two subpoenas in hand tied to procurement practices, and, among its own findings, has evidence that employee “misconduct” boosted the cost of products that were sold. Thus, there are restatements in the offing for the years 2016, 2017 and part of 2018, as supplier rebates and the impact of other misstatements are reflected. The misconduct does not extend to senior management, and impacts results by less than 2 percent in each of the aforementioned periods to a cumulative $244 million.

“During the course of a thorough internal investigation, some discrepancies were uncovered, which affected the way earnings were calculated between periods,” Kraft Heinz said in a regulatory filing earlier in the week. As had been previously reported, earlier this year, the company took a $15.4 billion write-down and disclosed an SEC subpoena. In the most recent round of subpoenas, it had been asked for documents tied to procurements.

Separately, in Western Australia, the Consumer Protection Department has warned small businesses (SMBs) of a payment scam on wheels — literally. A food truck and van seller have bilked firms out of as much as $70,000, and did not supply the SMBs with the vehicles they had ostensibly purchased. The scam involved getting a hold of deposits and full payments for the vehicles. The seller has been identified as the CLC Group, trading as CLC Fabrications, as reported by SmartCompany.

“The seller had been prosecuted by Consumer Protection in the past after carrying out unregistered painting work, and demanding excessive deposits for the work, with a $20,000 fine issued for the offenses in 2016. The department has issued three warnings relating to the seller in the past,” reported the site.



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.