Today Standard Chartered and DBS Bank announced a successful blockchain proof of concept for a Singapore Trade Finance Registry (TFR) supported by the banking industry, aimed at tackling fraud.
The goal is to prevent the same document that shows title to goods, being used for trade finance more than once.
To get the platform up and running quickly, government body Enterprise Singapore sponsored the initiative and appointed dltledgers, which has a successful trade finance solution, to implement the platform. In total 14 banks are involved together with the Association Banks of Singapore (ABS).
The motivation is clear and urgent, and as a result, the development and testing was completed in just three months.
“By working with dltledgers, a local company specialising in blockchain technology, the industry workgroup was able to accelerate the development of a neutral and secure platform to ease the flow of information between banks and prevent duplicate financing,” said Satvinder Singh, Assistant CEO, Enterprise Singapore.
This year alone, three high profile commodities traders have failed in Singapore, and in all three cases, banks have alleged fraud in connection with trade finance.
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, HSBC has alleged ZenRock issued duplicate commercial invoices to raise finance for the same oil cargo.
“The Trade Finance Registry marks an important step towards fostering greater transparency through collaboration and strengthening lending practices in Singapore’s banking sector while ensuring a secure operating environment for the industry as we progress towards an increasingly digital trade future,” said Sriram Muthukrishnan, Global Head of Trade Product Management, DBS Bank.
After the testing is complete, DBS and Standard Chartered will work with the Association of Banks to create an industry utility. Once that’s in place the aim is to roll it out globally.
While it may be quick to market, it isn’t the only solution with the same aim. Two years ago, Monetago created a platform with similar goals that has been rolled out in India with the support of the Reserve Bank of India and SWIFT India. Many of the trade finance blockchains also aim to provide anti-fraud solutions, but the problem is that each network only has a subset of banks. So a fraudster can still find gaps where they can raise duplicate finance.
In terms of how it works, each bank has its own blockchain node on the dltledgers platform, which uses enterprise blockchain Hyperledger Fabric. Details of the trade are not kept on the blockchain, but hashes or fingerprints of certain documents are stored. The initial types of documents include Bills of Lading (BL), Letters of Indemnity (LOI), and Charter Party Bills of Lading (CPBL).
The hashes of the documents are stored on the bank’s own node. Although the data never leaves the bank’s node, it is used for validation. If a document is submitted to a bank it can validate whether the instrument has been financed, accepted by a bank for processing, or not financed. And alarm bells can be raised accordingly.
The other participating banks are ABN AMRO, ANZ, CIMB, Deutsche Bank, ICICI, Lloyds, Maybank, Natixis, OCBC, Rabobank, SMBC and UOB.
