UK banks to tackle trade finance scams in ICC-led initiative

Tackling duplicative trade finance scams to boost willingness to lend loans.

February 15, 2023
UK banks to tackle trade finance scams in ICC-led initiative
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Matt Crabtree

Written By

Matt Crabtree

 

UK financial institutions join ICC-led program: ICC UK and UK banks and trade finance institutions combat “duplicate funding fraud” worth billions. This comes as UK businesses report low optimism and clarity for being able to obtain new loans, amid increasing bank reluctance. 

The duplicate funding fraud, which it alleges has syphoned off “billions of pounds” from the international financial services industry, is being combated by the International Chamber of Commerce United Kingdom (ICC UK) in collaboration with the UK's banks and trade finance institutions.

The Centre for Digital Trade and Innovation (C4DTI) spearheads the initiative. The ICC UK will bring together bank and non-bank financiers to implement the recommendations detailed in a 2022 whitepaper. 

The Initiative

This news comes as the BoE fights inflation. Under this initiative, ICC UK is working with MonetaGo, a financial technology provider that supports the Trade Financing Validation Service through the global Swift network and the Association of Banks in Singapore's Trade Finance Registry.

The MonetaGo service was initially made available in India in 2018 and has since been operating at full capacity. According to the company, it has handled more than 4 million transactions and stopped double financing fraud in all types of trade finance.

Cases of “duplicate financing fraud”, in which a borrower takes advantage of banks' unwillingness to share information in order to acquire financing for the same cargo twice, have shook the trade finance industry in recent years.

After high-profile scandals like the practise uncovered by the 2020 collapses of Singapore-based dealers Hin Leong, Agritrade, and Zenrock, banks have fought, sometimes unsuccessfully, to recoup multimillion-dollar losses.

Because of this, some financial institutions that are already fighting an uphill battle have stopped offering trade financing altogether or have limited their loans to the market segments that offer the highest yields, making it difficult for smaller businesses to obtain sufficient funding.

Despite banks' statements that the industry is largely risk-free, which are corroborated by figures from the ICC Trade Register, a regular stream of high-profile instances erode public trust in trade financing.

For instance, the UK's Serious Fraud Office just last week found two former Balli Steel executives guilty of defrauding banks by providing them with “false shipping documents, misleading information, and forged signatures on counterfeit contracts of sale” to obtain financing facilities, causing losses of US$150 million.

These instances might only be the tip of the iceberg, though, as trade finance fraud frequently goes unnoticed until a company cannot meet its financial obligations. The ICC UK has acted because more fraud cases may surface as a bleak macroeconomic outlook strains the financial stability of an increasing number of organisations internationally.

History of ICC Anti-Fraud Initiative

According to Chris Southworth, secretary general of the ICC UK, the problem has been present for a time, and businesses already facing a recession are picking up the price.

He recognises that banks have put a lot of effort into preventing trade finance fraud, but he also points out that the current regulatory system, which forbids banks from sharing information on the transactions they have backed, has stymied their efforts.

With the Electronic Trade Documents Bill's anticipated passage, the risky paper-based trading system might be modernised. Now that we have access to technology that wasn't previously possible, we can finally address this issue.

By allowing financiers to create electronic fingerprints of trade documents using a hashing method and upload them to the company's secure data vault, MonetaGo's approach gets past the issue of sharing sensitive data.

Other lenders can determine whether the transaction has already been funded once the financier has given the document a specific status, such as “registered” or “financed”.

However, for it to be effective, it must be widely used by potential buyers and funders of invoices and purchase orders. Only then will it be valuable as a utility.

The C4DTI-led initiative to solve this issue, according to the ICC UK, has the participation of the vast majority of UK trade financing institutions.

Southwared cites the eradication of duplicate financing fraud as a good example of a current solution that will have a significant impact in the near future. This was done in partnership with MonetaGo. He believes that the problem isn't that we can't come up with a solution.

The market simply isn't collaborating enough to put our practical solution into practise. What we can do is help organise a meeting. The banks have indicated their interest, and we are in the process of formalising the work plan that will result from those casual discussions.

What Does ICC Mean in Banking?

International Chamber of Commerce. In 1994, ICICI founded ICICI Bank as a completely owned subsidiary in Vadodara. Before being known as ICICI Bank, the institution was the Industrial Credit and Investment Corporation of India Bank. The bank eventually amalgamated with the holding business.

What does ICC bank do?

Regardless of the condition of the economy, globally recognised norms and principles developed by ICC make it easier for businesses, especially SMEs, to get the funding they need to expand.

To ensure the safe and efficient transport of products and services throughout the world, banks and other financial institutions assist businesses in engaging in international commerce.

When it comes to importing and exporting expensive commodities, trade financing is particularly important for small and medium-sized businesses (SMEs) that may not have the capital on hand to advance the cash themselves.

Documentary credits, demand assurances, forfeiting, bank payment obligations, and dispute resolution are some areas where the ICC has issued optional norms and recommendations to ensure that businesses everywhere have access to the finance they need.

By creating this standard, ICC ensures that businesses and governments all across the globe are on the same page with their regulatory requirements, without stifling banks with unnecessary bureaucracy that may prevent them from funding promising trade deals.

What is Duplicate Financing?

The fraudulent practice known as “duplicate financing”, a type of cloning, occurs when con artists use different sets of funding for the same purchase many times. Current practices allow a fraudster to visit many banks to get funding for a single transaction without alerting any of the other institutions to the scheme or requiring them to do a cross-check.

Do banks refund scammed money UK?

Your bank must return any funds that were fraudulently taken from you. As soon as possible after you report the issue; at the latest, by the end of the following business day.

How common is bank fraud UK?

Unauthorized fraud reports decreased by 7%, reaching a little under 1.4 million. With £583.9 million in fraudulent transactions averted by banks in H1 2022, the value of fraud avoided fell by 20%.

How long does a bank investigation take?

In response, financial institutions should track out appropriate paperwork to back up suspicious transactions. Existing rules provide that banks must spend 30–90 days to review, react to, and resolve questionable transactions. In extreme cases of fraud or identity theft, authorities may be notified.

Takeaway

According to CEO Neil Shonhard of MonetaGo, regardless of the booking systems, platforms, or workflow tools they use to provide financing to customers, all UK banks and non-bank lenders will be able to implement the Secure Financing system to make their financing more secure.

Shonhard also asserts that to prevent duplicate funding fraud, MonetaGo has created and made available to lenders privacy-protecting technology.

By preventing fraudsters from entering the ecosystem, the ICC UK, C4DTI, and the trade finance community in the United Kingdom can increase trust in lending, enabling more funds to be granted to promote trade and boost economic development.

The initiative is expected to be finished by the end of 2023. At this point, the UK will become the first G7 economy to apply this issue and will have saved “hundreds of millions of pounds” that may be used to facilitate genuine trade transactions.

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