TradeSun Blog

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Criminals are getting smarter – and banks must be on high alert

Criminals are getting smarter – and banks must be on high alert

High-profile scandals have rocked global trade over the last year – and as criminals become more technologically capable, stakeholders in trade finance transactions need to be vigilant.

Global banks are facing pressure to roll out compliance systems that effectively detect and assess warning signs of fraud in trade. That pressure has been amplified in the last year as several large fraud scandals unravelled and regulators pushed banks to act.

In one high-profile case, Hin Leong, a former top oil trader in Singapore, was accused of fabricating documents and faking trades in order to obtain financing from an array of international lenders.

In total, more than 20 banks are reported to have a combined exposure of at least $3.85bn from the scandal, according to news agency Reuters.

Meanwhile in the Middle East, there have been failures on the part of banks to comply with anti-money laundering rules. In January, the UAE’s central bank fined 11 lenders $12.5mn for AML failings, prompting worries about the country’s ability as an international trade hub to tackle fraudulent practices.

These are just two of many recent examples that show banks around the globe need more effective compliance functions, else they are risking consequences in the form of large losses, reputational damage, and penalties from regulators.

Lenders must be vigilant

Alexander Resch of Interpol, the global policing organization, said at the London Institute of Banking & Finance’s Annual Trade Finance Compliance Conference last month that financial institutions must further scrutinize trade documents and deals for any warning signs of fraud.

He explained clients typically exhibit a similar pattern in their transactions and any changes to this pattern – such as the destination of transfers and discrepancies in the name of beneficiaries – must be thoroughly reviewed.

“It’s really back on the trade finance employees to do these kinds of checks. Maybe also checking the name of the beneficiary with open company registration databases – is it just a new company set up or maybe there is some suspicion of a shell company.”

He pointed to a scam in which employees in a bank premise in Asia of a global European bank were sent a fake invoice. The invoice had the logo of a client of the bank but was sent by criminals targeting the lender and imitating the real client.

“The trade finance employee of this bank didn’t realise that it was a fake invoice, initiated the transaction worth 300,000 US dollars to a nominated bank account. So, in this case, it was the bank suffering the financial damage.”

Trade can be complicated, reflecting the nature of supply chains that stretch around the world. This complexity is exploited by organized crime groups and money launderers to facilitate illicit financial flows.

For instance, earlier this month in a global sting involving authorities in 92 countries, Interpol shut down a web of fake online pharmacies targeting the trade of counterfeit and illicit medicines. It resulted in 113,020 web links including websites and online marketplaces being closed.

Crypto in the mix

Resch added that one of Interpol’s most pressing concerns now is asset tracing. “Criminals are smart enough that they do not let the money sit in the first beneficiary account for days or weeks,” he said. “It’s quickly dissipated and transferred to the next layer accounts, and this is just what happens on the conventional banking system.”

With the rise of cryptocurrencies and virtual assets, criminals are depositing stolen money into crypto exchanges from the beneficiary account after a short period of time, converting fiat currency into cryptocurrencies such as Bitcoin, Ethereum and Ripple.

“Then they send this to a [crypto] wallet under their control, or they even convert it into tokens via decentralised finance. There are so many possibilities, which makes it very hard to trace money and to intercept it,” he said.

However, emerging technologies are also being used to fight white collar crime. Financial institutions in Singapore last year unveiled a blockchain-based registry project for cross-checking trade finance deals in an effort to root out illicit practices following a string of commodity frauds.

Meanwhile artificial intelligence is boosting the accuracy of trade finance data extraction and automated document checking, as well as supporting vessel tracking in the maritime industry.

As criminal groups continue to exploit the complexity of trade and use emerging technologies to further their illicit agenda, banks must enhance their compliance to tackle new methods used by criminals and reduce the risk of fraud in trade.

Follow TradeSun for analysis of key trade finance topics

June 17, 2021 

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Joining the data dots to combat trade finance fraud

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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Governments Called on to Respond to Trade Finance Barriers

Governments Called on to Respond to Trade Finance Barriers

By Nigel Hook, TradeSun Founder and CEO

In a recent article in the Global Trade Review, Eleanor Wragg reports on a recent plea to the government by the International Chamber of Commerce (ICC) to “enable an immediate transition to paperless trading.” The article addresses the current challenges of COVID-19 in the processing of trade finance transactions amidst stay-at-home orders around the world. It is suggested that the government should remove requirements for “key trade documents such as bills of lading, bills of exchange, promissory notes and commercial invoices to be presented in paper format” as many banks are currently unable to handle trade finance paper documents in person.

Paperless trade is a concept that banks have been working towards for years, but have so far found challenging to make a reality. As the article explains, “unless you get every shipowner, every customs authority to agree to accept, for example, the electronic bill of lading, it still doesn’t work…Bringing all actors in the world’s supply chains together to agree on the validity of electronic documents simply isn’t feasible.”

That’s where TradeSun comes in. Our philosophy is to let artificial intelligence (AI) understand any document, and then normalize it into a common standard rather than requiring everyone to conform to the same standard. As humans, we can’t even agree on miles or kilometers, let alone an entire documentation system. With TradeSun, a uniform e-document is not a necessity. The TradeSun platform can process any document, regardless of format. Using state-of-the-art AI, TradeSun’s patent-pending Astra algorithm harnesses image recognition, natural language processing (NLP) and propriety technology to read and transform any document into a transaction. With the highest accuracy rate in the market, TradeSun gets exponentially smarter with the more documents it processes.

In this new world, perhaps government emergency response is the catalyst to finally leaving behind paper and postal systems. At TradeSun we are currently seeing an increase in interest from banks in re-thinking their internal restrictions to allow for the future of work: an accessible from anywhere, scalable solution that elevates humans from menial to meaningful work and accelerates digitalization of trade finance.

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Coronavirus May Get Trade Finance Banks Thinking about the Future of Work

Coronavirus May Get Trade Finance Banks Thinking
about the Future of Work

By Wyn James, Senior Vice President of TradeSun, Inc.

From collapsing stock markets to suspended flights and lockdowns, the effects of the COVID-19 outbreak are being felt worldwide. As one response to this global pandemic, attempts are being made to “flatten the curve” by allowing employees to work from home.

In a few months’ time when banks conduct a post-mortem on the outbreak, a major point on the agenda will be their future preparedness in the case of a similar global pandemic. As they have now set the groundwork for this remote solution, why would they stop this trend once the emergency is gone? Could this outbreak be the event that lays solid ground for a conversation around the future of work and the idea of remote trade finance office workers?

Remote working – a test

Technology is touching everything we do, and trade finance document processing is no exception. So what can remote work look like for such a heavily paper-based industry? In my role working with the TradeSun platform, I often describe it as a collaboration between man and machine. Until trade finance becomes 100% digital, provided there are team members onsite to receive, scan, and dispatch the original shipping documents, the remaining processes can be managed both automatically and remotely using a cloud-based platform like TradeSun.

Although it has been argued that people are more productive when working remotely, the fact that remote workers are not visible except when meetings are called is something that most seasoned managers struggle with. In this case something like TradeSun’s analytics module becomes helpful. The banks decide what they wish to measure by way of user activity, and the data delivers the answers. The positives of a lower cost base, increased productivity and more accurate compliance checking that is available anytime, anywhere to the banks is clear.

Implications of a digital future

What will come of employees under this new structure?  Well for starters they get to spend more time with their families as they don’t have to commute to and from work. They can choose when and how to work as long as the job gets done.

In this digital future, tens of millions of workers may be working from home, albeit consuming electricity but not producing substantial fumes from combustion engines. According to a recent survey, 118 metric tonnes of CO2 can be saved every year by flexible workspaces that require less commuting. “There’s no quicker, easier, cheaper way to reduce your carbon footprint than not drive,” said Kate Lister, president of Global Workplace Analytics, a U.S.-based firm that helps companies plan for the future of work.

In the longer term, of course, emissions savings can be even greater, as telework policies allow banks to reduce the amount of office space they must heat, power and equip. Some of this will be offset by home workers using home electricity, but the global implications of remote work are still strikingly positive.

And what about the local communities world-wide? Workers will get used to visiting their local restaurant, local gym, local theatre, local pub or local cinema. The makers and checkers will work more and more from laptops through cloud-based workflow automation, fully connected to their bank employers but participating more actively in their local communities.

Food for thought

Once the dust has settled, there will be much more to ponder. We’ll need to consider not only the cost of this outbreak, but how to prevent future ramifications in case a global catastrophe strikes again. Some banking departments have performed exceedingly well for a while with remote workers. The coronavirus outbreak, for all its disruption to the global economy and stability, could be the catalyst for the future of remote and distributed workers in the trade finance space.

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A Bright Future for Trade Finance

A Bright Future for Trade Finance

by Dan Scanlan

Published on April 26, 2019

I remember as if it were yesterday. I was sitting in my office doing what countless others were probably doing at the time: I was on a conference call. This call was with ten or twelve BAFT members representing their respective banks listening to a presentation from a company whose name I can no longer recall. They were telling us how they were going to be the first ones to do the equivalent in Trade Finance of boiling the ocean. It wasn’t easy to pay attention after they described how they were in the process of negotiating with all the major shipping companies, the key governments from the WTO, the major insurance companies, most of the fortune 500, a number of freight forwarders and on and on and on.

What were they negotiating, you ask? They were attempting to devise standards for mapping all the pertinent data related to a trade transaction. Their idea was nothing less than the complete automation of trade transactions. Their theory went like this: No matter the type of transaction, a letter of credit, a documentary collection, an open account transaction, once we have agreed on the data standards for all the potential documents in a trade transaction we will be able to have the machines take over (think of Hal in 2001 Space Odyssey… “Are you comfortable Dave?”) . All the data would be sent electronically to the banks and it would be easy peasy for the banks’ systems to take that data, do automatic checking of the documents against the L/C, compare the data in the doc collection or compare the P.O. to the invoice in the case of an open account transaction. Viola! All trade processing is automated! Nirvana reached; we can all go home!!!

All of us on the call knew that getting all the potential players in trade transactions to agree on data standards would never happen. Easier to boil the ocean, right? But today there is a way to create the same affect without all the fuss. TradeSun has invented a way to capture all this divergent data through intelligent scanning and machine learning so that they are indifferent to the format of the documents. An ‘anything goes’ approach to automation. TradeSun’s technology has eliminated the need for standardization because it captures the pertinent data regardless of where it sits in the documents.

Over the years many companies and banks have tried to automate trade processing. Some tried the data standardization approach (think Bolero). Others tried the simplification approach. Once when I was running trade operations at a major West Coast bank my boss, a very bright lady, came to me and asked me, in so many words, to invent a simplified L/C. Her view was that the L/C process was too complicated and we could significantly cut the cost of processing if we could just make it more simple. Well the bad news is I failed to invent the simplified commercial L/C; but the good news is that she didn’t fire me. In my defense I believe that the reason banks have not significantly simplified the L/C is that by even thinking that way we have committed a major marketing faux pas. We have failed to listen to our clients.

As Kirk Lundburg, the CEO of Trade Technologies, recently said, “Contracts between importers and exporters are not simple or standardized because trade is complex. For trade to happen, agreements must be reached across legal systems, cultures and languages for an infinite number of parties, products and services. These agreements cannot be made, and trade cannot happen, without trust, experience and nuance. Creating a simplified, minimized or digitized transaction format makes banks happy because it is cheap and easy to process, but if it fails to support the complexity required to complete trade transactions, what good is it? Instead of dumbing down trade payments, tomorrow’s trade finance solutions will be rigorous and flexible enough to support exporters and importers in the complex environment where global trade happens.”

Lundburg is definitely on to something, and I’m proud to say that I’m part of this new solution, as I’ve recently joined TradeSun. With TradeSun, instead of making everyone conform to globally agreed upon standards (the impossible dream), we start with the documents themselves. Whether it’s an invoice, a SWIFT formatted L/C, an inspection cert, an insurance certificate, a B/L from a major shipping company… Whether it’s the carbon copy of the airway bill from a package delivery company, some rarely heard of freight forwarder, or that rare case of an onion skin document still smelling of curry, it doesn’t matter. Our software uses AI and machine learning that can read those documents. Is it 100% accurate the first time through? No, but it starts around 80% and quickly (with the help of a knowledge worker (read: bank document checker)) and the system’s AI capabilities, it jumps to a near perfect accuracy range.

“A miracle,” you say? No, not a miracle, but a proven technology from TradeSun. This small but powerful company has created this technology that uses image recognitionand natural language processing to read and automatically create document templates that replicate every document it sees. That means that the next time it sees that document, bingo! There’s a match. And any time it sees a close approximation it presents that document and its data to our friend ‘the knowledge worker’ who confirms or corrects the system, thereby solidifying TradeSun’s knowledge.

Imagine, a number of banks using this system every day, feeding their documents (i.e., scanning, uploading word or PDF docs, etc.) into TradeSun. Each of those banks has a secure space for their data while having the benefit of sharing the system learnings, so that when Bank A feeds a new doc into the system and the next day Bank B uploads a similar document, Bank B benefits from the system learning from Bank A and receives a template match thereby extracting all of the pertinent data. And therein lies one of the many beautiful components of the TradeSun system. It operates on the cloud and supports multi-tenancy and multi bank document learning. However, if you’d prefer to opt out of the multi bank learning or have an in-house version, that’s perfectly ok as well.

Once the system has all the correct data from the documents, the real magic begins. At the click of a button it compares all the data against the original L/C and any amendments. That comparison is displayed in a user friendly matrix, dubbed the “K Matrix” by the geniuses at TradeSun. The K Matrix shows the data comparison and highlights in green the matches; orange, the potential discrepancies; and in red, identified discrepancies. The document checker reviews the highlighted fields, makes a call on the orange and red fields and then completes the document exam. Ok, not quite Nirvana but pretty close and a lot easier than boiling the ocean. In fact some would argue that it’s a different way of boiling the ocean. Same effect, but without all the headaches associated with trying to reach universal agreement on data standards.

In addition to this automated checking process, the TradeSun technology has the ability to do a compliance check against either external or internal databases. So, yes, it can check the SDN list, the sanctions list, and any internal or other external list your bank may use. It can also be programed to review your red flags, i.e., things like under- or over-invoicing, dual use goods, etc. And the beauty is that it does all this in record time. TradeSun says that its technology can speed up the processing of letters of credit from 3 to 7 times.

The system is operating today in a major Asian bank after TradeSun won a global RFP against a half dozen competitor AI companies and although they are not willing to share their results publicly (contractual concerns) I have heard from a reliable third party that the bank in question is very happy with the results they are achieving and they are currently implementing the system globally.

Again, the beauty of this process is that the importers and exporters can continue to be as nuanced and detailed as they want; and the banks can significantly increase their margins in the business by adopting a fast and efficient technology that automates most of the process, speeds up the exporter’s cash conversion cycle and still leaves the banks in control of how they service their customers. Yes indeed, a way to boil the ocean without ever lighting a match. But don’t take my word for it, contact TradeSun and see for yourself.

Originally published on LinkedIn


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