Trade digitisation – reduce unsecure messaging and TF fraud

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Author: Jacco De Jong, sales leader for Bolero International, part of WiseTech group

Fraud is ever-present in international trade, but opportunities have arguably increased with the permanent adoption of remote working, allied to use of unsecure messaging channels.

These unorthodox channels include emails, instant messenger services, WhatsApp, WeChat, Facebook Messenger, Telegram or Signal.

With less regard for security, employees use these messaging platforms to exchange highly sensitive documentation and information, whether they work for exporters, importers, banks or carriers.

Initially, this was tolerated because of the drastic restrictions necessitated by the pandemic. But the ease of exchange, especially via email, has made some users reluctant to give them up, exposing their organisations to significant levels of risk.

When it comes to stealing credentials or hacking into networks that only have domestic standards of security the level of skill possessed by cyber-criminals is ever increasing.

They are hugely adept at using stolen identity or credentials to dupe employees into exchanging messages covering every aspect of business between buyers, traders, sellers, banks, carriers and forwarders.

In this year’s IBM Ponemon Cost of a Data Breach Report, stolen or compromised credentials were the most common cause of a data breach and had an average cost of $4.5 million.

Compromised attachments… dire consequences

If an important document (data) such as a bill of lading, letter of credit or bank guarantee is attached in a compromised email, the fraudsters day is made.

Unencrypted trade documents in common file-types such as Word documents or PDFs are easily stolen, amended or duplicated, being no more than digital images of paper.

Criminals or internal employees can easily use them to commit fraud – sometimes multiple frauds with the same document.

Bills of lading can be used by fraudsters who can use it or amend it to steal cargo. They may use a bill as collateral in a fraudulent loan or even hold a bill of lading to ransom, thereby preventing the entire transaction from proceeding until a ransom payment is made.

Criminals in the trade finance world know how to use trade documents to obtain payments or to secure credit and loans, or have remittances diverted into accounts they control.

A bill of lading has so many uses, including as a document of title, that the potential range of frauds is very wide.

Reverting to paper is no better

There are many frustrations, vulnerabilities and inefficiencies in the use of paper trade documentation, but the solution is not to convert highly important trade documents and information into file attachments sent on domestic IT.

Paper documents are, of course, very time-consuming to draft, courier and check. They often arrive after cargoes, cause costly delays and demurrage charges, telex releases, or generate the need for letters of indemnity.

Paper documents can be stolen in transit, parties can lose them or route them incorrectly and when they disappear from sight with a courier, bad actors can forge or fraudulently amend them.

The fraud alleged in the Agritrade International case involved duplicate bills of lading, for example. The Hin Leong case, meanwhile, hinges on allegedly fraudulent use of dozens of import letters of credit, as well as bank statements, bills of lading, sales contracts and invoices.

Letters of indemnity are also used in cases because the original bills were unavailable.

Time to reduce fraud with true digitisation

What corporates and banks working in international trade need is a shift to digitise trade properly rather than using vulnerable messaging services and phone apps. Digitisation removes trade documentation from the physical flows and aligns it more directly with financial institutions and key counterparties to vastly reduce the kind of delays and vulnerabilities that are all too familiar. 

Bills of lading, for example, when converted into electronic formats are stored and transferred from secure cloud storage across purpose-built trade digitisation platforms. This allows them to be digitally signed and encrypted eliminating the justifiable concerns about forgery, manipulation, loss or theft.

Constant visibility, an automated audit trail and two-factor authentication ensure nobody who is unauthorised tampers with documents. With all trade documents in one secure place and accessed from the same interface or directly interfaced, organisations can also transfer them to authenticated counterparties and banks with a simple series of clicks. 

With bills of lading, since this is a digital document there only needs to be one original rather than the usual three paper originals further reducing risk. And given the speed advantages of being digital even after short voyages, cargoes are released without the need of a letter of indemnity resulting in shorter payment cycles, efficient cash flow management and improved working capital.

Transacting parties adopting trade digitisation can easily track and manage the document process. For an electronic bill of lading, that includes all regular functions such as title transfer, endorsement, amendment, surrender and any reversion to paper.

Questions of ownership are resolved through a dedicated title registry that requires layers of approval. This all makes for a far more secure system than the crude exchange of documents or their copies by (e)mail.

Trade digitisation platforms enable all legitimate parties in a transaction to exchange messages securely, knowing who they are dealing with. For banks, the great advantage is being able to know exactly where and from who a transaction has come from throughout the entire lifecycle.

It also brings huge efficiencies when scaled to handling thousands of transactions every month or year. Everyone gains from genuine digitisation that encompasses encryption, authentication, and constant visibility.

A trade digitisation platform approach will accelerate processes and significantly reduce organised and opportunistic fraud by keeping critical trade documents out of the hands of criminals.

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