What’s trending in trade finance fraud?

Despite the shift to digital in export finance, patterns of fraud have remained largely unchanged over the last two decades. Operators should therefore be cautious about relying solely on digital or remote oversight of transactions.

‘Plus ça change, plus c’est la même chose.’ Proponents of digitalising trade often cite the reduction in fraud risk as an ancillary benefit. A review of current news articles, industry journals, and prominent court decisions, however, indicates that fraud in export finance follows predictable patterns that may not necessarily be mitigated by the move to digital trade.

These patterns include misrepresentations, the presentation of false documentation, collusion between exporter and buyer, and fictitious trades. Falsification of balance sheet entries and the mixing of illegitimate and legitimate transactions also feature prominently. These trends are likewise reflected in the Berne Union’s survey of Export Credit Agencies in May 2025, which reported incidents of fraud involving the same features.

Case studies in fraud litigation

Let’s review a few relevant court cases from the last 25 years, particularly those arising out of the April 2020 drop in the price of crude oil futures to negative USD 37 per barrel. With the low demand, the cost of storage was higher than the price buyers would pay. In this market, frauds by oil traders Hin Leong Trading and Zenrock were exposed and numerous court cases arose.

In Banque De Commerce et De Placements S.A. (BCP) v. China Aviation Oil (Singapore) Corp [2024] SGHC 145, [2025], SCA 33, BCP bank raised a claim of fraud against China Aviation, the beneficiary on a letter of credit (LC) that BCP had issued and paid to China Aviation. The LC had been issued to support the purchase of gasoil by Zenrock from China Aviation.

The LC presentation required the beneficiary, China Aviation, to present commercial invoices and original bills of lading (B/Ls). In the event the original B/Ls and other documents were unavailable, China Aviation could present a letter of indemnity (LOI) in the form required by the LC.

The LOI that was presented to BCP by China Aviation was addressed to Zenrock (following typical practice) and included representations and warranties from China Aviation to Zenrock about the validity of the sale and China Aviation’s title to the gasoil.

In claiming fraud, BCP alleged that China Aviation’s contract with Zenrock was a fraudulent transaction that did not involve a true sale of gasoil or transfer of title. Additionally, China Aviation had breached the representations and warranties in the LOI and so, based upon the fraud exception, BCP was entitled to withhold or recover payment from China Aviation.

The Singapore High Court considered evidence of fraud, particularly with the representations in the LOI regarding the validity of the sale transactions. The Court declined to find a fraud, in part because China Aviation’s LOI and the representations therein were addressed to Zenrock, not the bank.

In Winson Oil Trading v. Oversea-Chinese Banking Corp & Standard Chartered Bank (SCB) [2023] SGHC 220, [2024] SGCA 31, Winson sold gasoil to Hin Leong Trading via circular trades that took place on the same afternoon. To support Hin Leong’s purchase of the oil from Winson, Hin Leong instructed Overseas Chinese Banking Corporation (OCBC) to issue an LC to the benefit of Winson. Standard Chartered Bank (SCB) was the second issuing bank.

Winson made demands under the LCs on both banks, presenting LOIs to each bank along with the required B/Ls. Hin Leong was concurrently becoming insolvent and frauds were being exposed. Realising they might never recover from Hin Leong for any payment made to Winson, the banks examined both transaction and demand and refused to pay, asserting the fraud exception.

Winson sued the banks, which defended on the basis that the transaction was fictitious: there was no oil purchased as represented in the LOIs, and the B/Ls presented and relied upon in the LOI were forgeries; they had been used in other transactions.

The judge found that the banks had established the fraud exception and payment could thus be withheld. The Appeal Court dismissed Winson’s appeal.

In 2023, the UK Serious Fraud Office investigated Balli Steel plc, which had collapsed owing more than GBP 328 million to creditors globally. The investigation determined that after decades of profitable trading, the company faced a growing deficit and in 2012 resorted to concocting fake trades. To obtain continued financing, they fabricated evidence of a healthy business, presenting falsified shipping documents and accounts to their banks. When they were unable to keep up the pretence, the lenders withdrew the credit lines. All three directors were found guilty of fraud and sentenced to prison terms and asset confiscation orders.

Looking back, it is clear that the same types of fraud were being committed – misrepresentations, fake trades, and false documents.

In 2010, British Seafoods (reputed to be the UK’s largest importer of fish from Asia) was sued by lenders and investors, including 3i and Deloitte, who had invested in or financed British Seafoods on the basis of misrepresentations as to the value of real or fake trades, thereby inflating the value of the company. The claimants alleged that the suppliers were fictional and that the fish had not been purchased at all.

Likewise, in 1999, it was discovered that Solo Industries UK Ltd had, over five years, built up an almost totally fictitious business of exporting metals from India via Dubai, persuading multiple global banks to lend funds. Financial statements had been audited by one of the big five accounting firms without concerns; but in reality 80% of transactions were fraudulent. The fraud was exposed only when the Indian internal revenue service investigated tax irregularities.

Several common trends persist into the present. These include misrepresentations and false documents; companies that are initially legitimate and begin to engage in fraud when finances become stretched; fraud that remains hidden for years, until a triggering event exposes it; and collusion between corporations or between directors. All these forms of fraud are marked by a degree of social engineering.

Fraud detection and prevention

Digital transactions and data monitoring have evolved over the last 15 years. Lenders and traders now benefit from effective digitally based systems that screen transactions and provide intelligence. As the cost of these systems decreases, it is imperative they be used as part of organisations’ fraud detection toolkits.

It would, however, be careless to rely exclusively on digital tools. If we look at the features of persisting forms of fraud, digital systems may help in early detection, but they are of limited use if operators fail to review customers’ financial and social behaviour in sufficient depth.

What is needed is regular review, including an understanding of red flags and triggering events. When identified, there should be a required structure for on-site due diligence, online checks, and an overall investigation.

Red flags that may indicate a fraud include the following:

• Customer attributes and behaviour
  • Poor visibility of business or transactions, or inconsistent information;
  • Poor visibility of financials, especially for closely held companies;
  • Review details of customer documents: has banking information on the customer invoices changed?
  • Is the customer reluctant to change relationship manager?
• Cash flow, credit risk, and turnover
  • Sudden or dramatic increase in sales or cash flow;
  • No evidence of profit but significant fees paid to the financial institution;
  • Credit risk downgrading (although fraudsters often prefer low credit risk products with minimal review).
• Transactions attributes
  • Transactions that do not fit with the description of the business or with past transactions;
  • Transactions do not seem to make business sense or are too complex to understand (watch out for social engineering);
  • Significant discrepancies between goods and description of goods, inconsistent shipment locations;
  • Non-arm’s length transactions (check directors and officers, emails, addresses, and telephone numbers).

Triggering events may include adverse media coverage (negative news checks), third-party proceedings or allegations (such as court orders or complaints), regulatory or compliance investigations, disruptions involving customer counterparties, and sudden market adjustments (for example, the oil price shock in April 2020).

Customer and industry knowledge

Know Your Customer and Know Your Customer’s Customer remain essential, including understanding your financial product design and policies. What customer documents do you need to review and why?

Consider organisational design and your work environment. Can you admit that you do not understand a transaction? Is there collaboration between colleagues? Never assume a business or structure is too complex to understand. If it does not make sense, it likely does not make sense!

Key takeaways

While digital transactions can make initial transaction review easier, in-person and hands-on review remains critical to detect and prevent fraud. Both digital and analogue transactions are susceptible to the persistent features of fraud: misrepresentations, collusion, falsification of documents, and the mixing of legitimate with illegitimate activity. Lenders should therefore continue to look to historic safeguards and avoid the temptation to rely exclusively on digital or remote oversight.