Today MonetaGo announced an international proof of concept (PoC) with SWIFT for its blockchain fraud mitigation solution for trade finance. In 2018 MonetaGo launched a similar domestic solution in India, in which SWIFT India is a partner.
The solution uses APIs and aims to prevent fraudulent trade finance through the double financing of invoices, purchase orders, bills of lading and warehouse receipts.
In the first half of this year, MonetaGo ran a PoC in Singapore with 25 organizations that included the International Chamber of Commerce (ICC), ITFA, Citi, HSBC, SMBC, Stanchart, Bolero and blockchain platforms Tradeix (Marco Polo) and Contour.
MonetaGo proposes that interconnecting multiple domestic anti-fraud platforms is overly complex and an international platform is the answer. If the SWIFT PoC proves successful, it could enable connectivity to SWIFT’s 11,000 members and beyond.
“Finance fraud in cross-border trade cannot be fully mitigated with local registries, so it makes perfect sense to leverage SWIFT’s global reach to help institutions around the world to solve this problem,” said Louise Taylor-Digby, Global Head of Trade Strategy, SWIFT.
“By bringing global API standards, identity and security, SWIFT can help to mitigate against the growing challenge of digital islands.”
The big problem
2020 wasn’t just a bad year because of the pandemic. Multiple substantial trade finance frauds came to light, several of them in Singapore, the major international trade hub. And in many cases, the alleged fraud involved double financing.
Hin Leong Trading collapsed with $3.85 billion in debt. Its founder has been charged with “instigating” someone to forge a document saying it transferred 1.05 million barrels of gasoil, and the paper was used for a $56 million trade financing.
Agritrade collapsed with $1.5 billion in debt. ING has alleged that Agritrade issued “overlapping” bills of lading to secure trade finance multiple times for the same goods. And allegedly, Commerzbank believes that shipments of coal it financed don’t actually exist.
In the case of the smaller collapsed energy trader ZenRock (owes $600 million), HSBC has alleged ZenRock issued duplicate commercial invoices to raise finance for the same oil cargo.
Blockchain enables financiers around the world to share data without revealing confidential information. MonetaGo’s solution uses a digital fingerprint, technically a hash of the document. The instruments can be invoices, purchase orders, bills of lading and warehouse receipts. Each document fingerprint is marked as either “registered” (logged) or “financed”. But who financed the trade is not available.
If a bank plans to finance a document and it’s flagged as financed, they know something is amiss. However, the platform allows for nuances. For example, it’s legitimate for the supplier to raise finance on an invoice and the buyer also to secure funding to pay the invoice. And in some cases, the financing may only be partial, so the invoice can be used to raise finance for the balance.
Fraudsters use various tactics and they could, for example, submit a second invoice which changes a zero in an invoice number to a capital O. MonetaGo’s solution doesn’t just hash the entire document. It also hashes key fields. So if multiple fields are the same but some are different, it will flag a transaction as needing further investigation as opposed to a straight rejection. The platform has already been battle-tested for nuances through the Indian solution, which has been in production for three years.
Most alternatives to MonetaGo’s international solution are not as broad. For example, multiple blockchain trade finance solutions will prevent double financing, but only for participants in the platform.
India is not the only country to launch a domestic anti-fraud solution. Singapore launched one in late 2020, and the UAE has multiple solutions. For example, UAE Trade Connect addresses duplicate invoicing. And DMCC TradeFlow centralizes title transfer for commodities pledged as collateral. DMCC TradeFlow warrants are turned into negotiable instruments using blockchain.