Fraudulent commodities traders impersonated oil majors BP and Total in order to obtain financing from the National Bank of Oman (NBO), according to a first-of-its-kind ruling in Singapore’s High Court.

Defendants were able to exploit an invoice discounting credit facility offered by the NBO’s Dubai branch by establishing new companies with similar names and email addresses to existing trading giants active in Singapore, says the ruling handed down in late September.

Once trade credit facilities had been obtained, fictitious transaction documents were generated in order to draw down funds. The defendants then moved that cash into other entities they controlled and used it to purchase gold bars worth millions of dollars.

The first three fraudulent transactions relate to a company founded by the defendants named British Petroleum Company Pte Ltd, or BPCPL, in November 2016.

The ruling says it is “undisputed that BPCPL was incorporated to impersonate BP Singapore, the real McCoy, which is a multinational oil trader”.

The bank agreed to discount three invoices totalling just under US$10mn for transactions issued by Kismat International FZC – the trading company managed by the defendants – to BPCPL.

Kismat’s directors also established other companies including Total Singapore Pte Ltd and Universal Lubricants FZE, also deemed by the court to be impersonations of real companies.

These two entities were also involved in fraudulent transactions totalling a further US$4.7mn, with the bank agreeing to issue a letter of credit based on an invoice from ‘Universal’ to Kismat, and a loan against a trust receipt for Kismat invoice issued to ‘Total’.

After the fraudulent transactions were carried out, Kismat used the proceeds to purchase gold bars. The gold was quickly sold to another Kismat-controlled company and stored in safe deposit boxes.

The defendants did not deny that companies they set up were intended as impersonations of real traders, but claimed that they had in fact colluded with NBO senior officers to carry out the fraud.

They argued bank staff “suggested incorporating fake companies… so that the credit facilities could be fully utilised for prohibited trades in Iranian oil”.

The court rejected that argument, however, saying there was not “a single shred of evidence” to support the “spurious allegations”. The bank staff named also had “no control or influence” over the trade finance department involved in the case, the ruling adds.

Unusually, the court also imposed a remedial constructive trust (RCT), a seldom-used legal instrument that allows the NBO to reclaim assets it lost as a result of the defendants’ fraud scheme.

“An RCT is a proprietary remedy which gives the plaintiff an interest in assets that represent the traceable proceeds of fraud,” says Lionel Chan, a partner at Oon & Bazul – the Singapore law firm representing the bank.

“An advantage of this remedy is that even in the case of an insolvency of a defendant, the plaintiff would have priority over the defendant’s other creditors.”

However, for victims of other fraud cases in Singapore’s oil trading sector, a similar remedy is unlikely. Chan tells GTR that case law suggests an RCT can only be imposed if the recipient of funds is aware they are receiving the proceeds of fraud.

“That was possible in this case, because the assets being claimed are traceable to the monies disbursed by the bank and were in the hands of the individuals and companies found to have knowingly perpetrated fraud,” he says.

“This does not apply to other fraud cases we have seen, where the recipients of the proceeds are generally other creditors who may not be aware of the fraud perpetrated by the company. In such cases, a court might not be minded to impose an RCT.”

Bazul Ashhab, senior partner at the same firm and head of its litigation and international arbitration practice, describes it as “a unique case”.

Because the perpetrators moved fraudulent proceeds into other accounts, used it to purchase gold then stored that gold in a safe place, the court could trace the funds from the initial disbursement through to its final location.

“We also found that the company that was holding the gold was related to the original perpetrators of the fraud,” he says. “In the other fraud cases, it is very difficult to trace where the money has gone, and that’s the difference.”

That said, for trade finance lenders looking to minimise their exposure to fraud – particularly in a market nervous about further losses – there are still lessons to be learned.

Ashhab suggests banks call the parties involved in a transaction before providing finance. “This would inevitably increase costs, but banks need that ability to have a conversation, to get in touch with whoever they need to in order to verify whether a transaction is kosher or not, and not just rely on documents,” he says.

“To prevent trade finance fraud, banks can also consider getting the directors to file statutory declarations on a quarterly basis to confirm that they have not taken financing over the same cargo,” he adds.

“The threat of criminal sanction may deter would-be fraudsters. It would help if this information is then shared with the banks the borrower has raised finance with.”