Joining the data dots to combat trade finance fraud

Manoj Saxena, our Chief Product Officer, spoke at the London Institute of Banking & Finance’s Annual Trade Finance Compliance Conference earlier this month. In his first blog, he shares his post-event thoughts on why technology will be vital in joining the dots in trade compliance.

Banks and other stakeholders in trade finance have found themselves wondering whether technology will live up to its potential in preventing illicit trading activities and financial crime.

The good news is that current technology will continue to be very useful – it has already facilitated interventions and will further enable the fight against fraud. Banks are adopting solutions that use OCR, NLP and ML among others, to improve their compliance functions.

The bad news, however, is that disparate islands of data, both manual and digital, have emerged, leading to data fragmentation and sub-optimal insights. These islands have formed because trade finance involves multiple stakeholders working across physical and financial supply chains that are geographically and technically diverse, thereby causing multiple points of intervention and hindering exchange of data.

For instance, each stakeholder in a supply chain has a partial view of trade data. Banks see underlying financial transaction information, customs agencies have access to commercial details, logistics providers have the goods data, while maritime agencies can view vessel ownership and movements.

From a technology perspective, bringing together these data islands with a cohesive framework for data sharing is crucial in combatting fraud such as duplicate financing, illicit maritime activity and mispricing.

The absence of a universal data standard for trade finance is a major obstacle in effective information sharing between stakeholders. There are other challenges to creating such frameworks: data security and privacy concerns, and historical data remaining scattered in varying non-standard formats.

In an effort to address these challenges, industry and governments are rolling out initiatives and introducing legislation.

The International Chamber of Commerce (ICC) last year formalized the Digital Standards Initiative, a cross-industry effort to enable the standardization of digital trade. The ICC’s digitalization working group is also in the process of finalizing a report on recent digital advances in trade and their expected benefits.

Elsewhere, Singapore has adopted the UNCITRAL Model Law on Electronic Transferable Records, or MLETR, into domestic law, giving electronic bills of lading the same legal footing as their paper counterparts. The G7 leadership has also called for rapid adoption of digital standards in trade.

When it comes to the privacy concerns of parties in trade, maturing technology such as confidential computing and distributed ledger technology will help provide the discretion needed to better share information without fear of it being compromised.

Last year, banks in Singapore unveiled a blockchain-based registry project for cross-checking trade finance deals in an effort to tackle illicit practices following high-profile frauds in the commodities sector.

As we look towards technologies of the future, we must also consider the huge opportunity of artificial intelligence. AI will be the technology to take the effectiveness of existing solutions in compliance to the next level.

AI is already supporting maritime tracking to better identify red flags based on deviations in vessel movement and change of ownership patterns. Another application is in boosting the accuracy of trade finance data extraction and automated document checking – an area that the Financial Action Task Force highlighted in March as needing more effective scrutiny.

While steps are being taken by the industry to combat financial crime, there remains no single fix-all answer. However, if stakeholders in trade are to more accurately identify warning signs of fraud, they must further collaborate with their technology partners.

Fintech companies that are working on specific solutions to problems facing trade will only become more important in tackling fraud as criminals become more technologically capable.

Crucially, fintech firms can also bring together different solutions needed for compliance intervention. TradeSun’s proprietary data extraction engine, finely tuned for trade finance documents, includes integration with third-party data providers to give clients a comprehensive solution for automated document examination and compliance.

It is clear that technology companies will play a significant role in connecting the various technology capabilities and leveraging existing Big Data stores to deliver more complete compliance solutions that enable effective detection and intervention in financial crime.

Connect with Manoj on LinkedIn

May 28, 2021

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