The International Trade and Forfaiting Association (ITFA) will lead efforts to cut out double financing fraud, identify technology vendors and produce best practice guidelines, as part of fresh plans to fight illicit activity in the sector. 

In an announcement today, ITFA says it is convening a working group to tackle fraud in the trade finance market, which it says remains “a significant risk issue in our industry”. 

“Fraud remains pervasive and impacts both lending institutions and the people, companies and societies they serve,” the association says. 

The group will be co-chaired by a global trade bank, which has not yet been named, and fraud detection and prevention company MonetaGo. 

It plans to develop best practice guidelines for financial institutions involved in trade and working capital finance, as well as create a taxonomy of fraud risk typologies and raise awareness of the risks within the industry. 

ITFA says the group will also lead a cross-border effort to cut out double financing – where fraudsters obtain financing more than once for a single trade transaction – and identify suitable technology vendors for members to work with. 

“Trade finance is a crucial enabler for the global economy, but fraud has been a persistent and pervasive risk that affects everyone involved,” Neil Shonhard, chief executive of MonetaGo, tells GTR. 

“Tackling this issue benefits from collaboration and standardisation on a global scale, and as such we welcome this industry-wide effort, which represents a significant step forward in the fight against financial crime.” 

Trade and working capital finance fraud have blighted the industry over the past three years. 

In 2020, a string of company collapses in the commodity trading sector exposed widespread use of double financing, as well as obtaining letters of credit based on forged documents or related-party trades. 

The collapses of several Singapore-based traders, including Hin Leong, Agritrade and ZenRock – along with the downfall of UAE-based Phoenix Commodities and GP Global – have resulted in bank losses totalling billions of dollars. 

In the working capital finance sector, the UK’s Serious Fraud Office continues to investigate Greensill and the GFG Alliance, a network of companies linked to metals tycoon Sanjeev Gupta, over accusations that invoices underlying receivables finance arrangements were not legitimate. 

Since then, industry efforts in Switzerland, Singapore and the UAE have sought to minimise the likelihood of similar events occurring again. However, those initiatives have not incorporated collaboration across national borders. 

More recently, trading giant Trafigura has revealed it could lose more than half a billion dollars to an alleged fraud scheme carried out by metals traders linked to businessman Prateek Gupta. 

The ITFA working group will form part of the association’s fintech committee, chaired by André Casterman. 

Industry-wide collaboration is highly complex, Casterman says, and the committee will draw on its experience in standardising distribution within the sector, as well as a 2020 initiative on digital negotiable instruments. 

“We are now applying our proven approach to drive collaboration amongst fintechs involved in helping banks prevent fraud,” Casterman says. “Here too, banks will be the ultimate beneficiaries of such an effort and are invited to join the new working group.” 

GTR understands that a list of bank participants is expected to be ready in mid-April.