Commodity trading is the backbone of the local and global economy. In the modern era, its evolution and movement have become even more critical, being the deciding factor for globalisation, and more recently the success of developing nations in their attempts to catch up with the West. Recent years have seen a curtailment in financing from banks into commodity trading, as well as the number of banks even willing to facilitate transactions. The team at Complidata take a look at the reasons behind this phenomenon and what the future holds for the industry.


Commodity trading: A risky industry

Commodity trading is a capital-intensive activity, generating lucrative outcomes, attracting easy financing and allowing for heavy leveraging. With little capital backing up speculative transactions, commodity traders are lured into taking important positions. Speculation regularly turns into loss-making, tempting lightly capitalised traders into committing credit fraud. Fraud, even though relatively small compared to the total value of trades, once it happens, can have devastating effects on the financiers, and the market as a whole.

In terms of fraud, the main risks faced by banks looking into financing commodity trades is the forgery of documents. In the notorious case of Hin Leong Singapore in 2020, where such fraud occurred, the firm was charged with abetment of forgery for the purpose of cheating, with the fabricated documents including but not limited to bank statements, bills of lading, sales contracts, invoices and deal settlement slips. These in turn helped to secure the firm more than US$56mn in trade financing from financial institutions. To make the frauds more convincing, Hin Leong was also involved in fabricating documents to derivatives trade losses, with evidence suggesting that the concealed loss had accumulated to around US$808mn in over 10 years, as well as accounting cover-ups, which helped to show a misleading picture of the firm’s financial health. At the time of the investigation, Hin Leong’s total liabilities came to US$3.5bn, while its assets only amounted to US$257mn, according to the report laid out by the firm’s interim judicial managers.

Hin Leong also acquired financing using schemes such as the sale and repurchasing of cargo at a loss, non-existent inventory, the use of “control accounts” to make bank transfers, giving the false impression of payments, the sale of the same inventory to multiple parties, or double financing, which is when two or more institutions claim to have financed the same commodity. For example, this can happen when a trading firm fraudulently pledges the same warehouse receipt(s) to multiple banks, which in turn can lead to substantial losses for one or more of those banks. Considering the scale of the firm and its fraudulent gains from banks and trading partners, it is not an understatement to say that the Hin Leong scandal has rocked not only the Singapore trading community but also the global commodity trade market, prompting banks to tiptoe around financing of commodity transactions.

Aside from the risk of document forgery, banks are faced with other risks when associating themselves with commodity trades, namely offtaker conspiracy. Offtaker conspiracy refers to when the supplier and the buyer conspire together to defraud the bank. This can involve inflation of price and quantity, as well as documentation of sham transactions. This does not only put the bank at risk of loss, but it also makes it vulnerable to being a passive part of criminal activity such as money laundering, bribery and corruption. Unlike the case of fraud where banks are deemed innocent victims, these financial crimes potentially carry direct legal charges for the financier.

The reasons behind the risks

The reason why commodity frauds are so hard to detect is that commodity pricing is extremely sensitive to global events that could affect supply and demand. The most recent is the Russia-Ukraine war, which has dramatically driven up the oil price.

Commodity trade is also usually associated with two prices, the spot price, which is the actual price of the commodity at this moment in time, and the future price, which as its name suggests, is the predicted price of the commodity in the future. The market price shown in the media is the future price. Traders usually trade in future contracts, which obligate the holder to buy or sell a commodity at a predetermined price on a delivery date in the future. This method of pricing and trading means that the commodity price is harder to validate on trading documents.

Some commodity trades are also known to be accompanied by a large amount of paperwork, which document examiners in banks have to go through manually. An average examination of documents can take between 20 to 45 minutes per set of documents, whereas each document examiner is often expected to go through an average of 15 to 20 sets per day. This can mean that there is not enough time to look at the documents as thoroughly as they may wish. In some cases, the document examiners may lack knowledge of the specific commodity and associated industry trends. Taking this into account, banks can have a tough time spotting anomalies. This is why at the moment, there are only a handful of banks in the world with enough trained and knowledgeable staff to securely facilitate commodity trade financing.

Digitisation: The future of the industry

Considering the nature of commodity trading, and the issues within the community, experts believe that digitisation is the future of the industry. For instance, issuance and presentation of electronic documents via platforms such as Bolero and essDocs can help to reduce the opportunity for fraud in the document issuance down to almost zero. They also make facilitating the endorsement process much easier, thereby avoiding the charter party bills of lading potentially moving around the world for a series of manual endorsements.

Another digital solution is the processing of trade documents using AI to reduce human errors and better spot anomalies.

TradeSpeed NLP, powered by Complidata, is a solution that uses automated intelligent data extraction to provide trade information encapsulated in trade documents. By OCR-ing the documents, TradeSpeed isable to use AI, enhanced by machine learning, to extract the required data from the potentially dozens of pages of documents, using it for documentary examination checks, to highlight discrepancies, screen against sanctions lists and risk calculation based on potential red flags identified in the data. At the moment, the system can correctly extract more than 99% of the data from the documents the first time a document is viewed. Not only that, currently our proprietary Natural Language Processing (NLP) algorithms also correctly classify and label that data 65% to 95% of the time, depending on the document type.

By digitising and automating the capture of data from trade documents, we can facilitate the provision of crucial information which allows banks to get to grips with what is really going on in the trading firm, as well as on the other side of the trade. TradeSpeed is the solution to identifying a bad trade even before it happens.

Alongside using AI to aid in the processing of trade documents, some other notable digital solutions can include distributed ledger technology, which allows traders and parties to be connected within a single, secure network, where they can share information such as invoices, and other transactional documents. This can help with financial crime risks such as fake invoices, double financing and offtaker conspiracy. Another way to ensure safer trade could be Internet of Things (IoT), which is a technology that can track the commodity and report back related information. IoT could help in monitoring the cargo’s whereabouts and in the future, it might also be used to ensure that the goods truly exist.


Financing a commodity trade can be risky, especially considering the recent events in the industry. However, thanks to the development of modern technology such as those mentioned in this article, with the right tools, banks can now better protect themselves against fraud and other financial crime risks that could have a devastating impact not only on the bank but also on the market as a whole when dealing with an industry as versatile and unpredictable as commodity trading.