The ancient curse of “…may you live in interesting times…” could well have been uttered about international trade after the 2008 Credit Crunch (a.k.a. The Great Recession). Companies trading goods and services across borders have had to establish strategies for volatile currencies, degraded credit ratings, squeezed margins and financial crime.
The subject of financial crime is not limited to those who have achieved global notoriety. For every Bernard L. Madoff, there are thousands of fraudsters who operate on a smaller scale. Many international trading firms and banks would rather write off the cost of financial crime, rather than pursue the perpetrators in the damaging glare of negative publicity.
Reputational risk is, after all, the most pressing concern for senior management. As a result, reported incidents of financial crime are undoubtedly less than published statistics.
There are a bewildering number of fraud variants possible within international trade. Exporters, importers, middlemen, logistics companies and their respective banks can all be defrauded of some or all of the underlying goods or purchasing funds / proceeds from the sale. Exporters can ship fraudulent goods or arrange for payment of goods that never existed. At the other end, importers can claim goods in exchange for fraudulent documents or fake payments to exporters. Issuing, negotiating, confirming and reimbursement banks all contend with fraud as a reality of their traditional trade finance businesses. Fraudulent documentation, ghost companies, doctored bills of lading, counterfeit bills of exchange and stolen or fabricated identities can all lend legitimacy to the claim that the transaction is genuine.
As supply chain finance dominates trading relationships between large vendors and buyers, certain prudent elements of risk management are exchanged for straight-through-processing and shorter cash flow cycles, scenarios ripe for exploitation by criminal elements if left unguarded.
The financial costs of fraud are painfully real to firms who incurred such losses. When coupled with foreign jurisdictions or opaque offshore financial centres, such cases can become irretrievable and simply show up in company accounts as write-offs.
Source: Manchester CF