Trade finance involves cross border transactions, both financial and physical, along with diverse players, languages, jurisdictions and other variables. This makes it attractive to fraudsters and financial criminals. Therefore, it is the duty of every responsible trade finance provider to take necessary steps to mitigate the risk of fraud. At Euro Exim Bank, we take fraud very seriously and have implemented reliable mechanisms to combat such activity including robust KYC and AML policies along with other risk assessment measures and standardized procedures.
Types of Fraud
Fraud in trade finance may present itself in various forms:
Money Laundering – This is where international trade transactions are used to help with concealing the criminal origin of funds, usually as part of a larger scheme to “launder” the proceeds of crime and make them appear to be from a legitimate source.
Authenticity – Goods being traded may be stolen or being sold illegally. A little probing helps ensure that such activity is detected easily.
Impersonation – Are the transacting parties who they say they are? This ties in with money laundering and illegal trading activity as the true beneficiaries will want to conceal their identities.
Fake Trades – Is the transaction real? Many kinds of financial fraud involve trades appearing on the books, but which never take place in reality.
Outright Cheating – What is the risk that the supplier will openly cheat the buyer, in terms of described vs. supplied goods, quantities or authenticity?
Bank Accounts Involved – Are both parties using bank accounts where they are explicitly the beneficiaries. A 3rd party bank account being involved is a big red flag.
Mitigating Fraud Risk
At Euro Exim Bank, we are constantly working to mitigate the risk of fraud by relying on our experienced teams of professionals, robust monitoring and reporting systems and strong, standardized procedures.
While trade finance is attractive to fraudsters, it is also an area in which it is significantly easier to detect and stop fraud as all transactions complete and end in a short time; usually no more than 90 days. Any irregularities are thus quickly exposed. Furthermore, as there is no opportunity to “extend and pretend” by refinancing or rollovers, it is possible to quickly identify problems and take swift and immediate action.
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