Trade finance facilitates around 80% of global trade, underpinning $25tn in annual transactions by enabling secure, cross-border deals between buyers and sellers. But while it’s designed to reduce risk in global trade, the system is not immune to abuse.
According to the International Chamber of Commerce, up to 1% of all trade finance deals—worth more than $50bn—may be fraudulent. For banks and financial institutions acting as intermediaries, this poses a significant and often underestimated threat, claimed Resistant AI, in a recent thorough guide to trade finance fraud by the company.
Trade finance fraud typically involves the use of fake, forged, or manipulated documents to illicitly secure funding under the guise of legitimate international trade. As one of the most document-intensive areas of finance, trade transactions are particularly vulnerable to this type of fraud. Malicious actors exploit outdated verification processes using fake templates and increasingly sophisticated tools—including generative AI—to forge bills of lading, invoices, and customs paperwork. The annual losses from such frauds are estimated to reach $5bn.
The nature of trade finance—complex, paper-based, and heavily reliant on trust—makes it a prime target for fraud. The Balli Steel Plc case serves as a prominent example, where fabricated documents helped the firm rack up $500m in debt across more than 20 financial institutions. Fraudsters manipulate transaction records, misstate cargo details, and even duplicate deals across multiple banks to extract illicit funds from unsuspecting lenders.
Criminals typically follow a clear pattern: they submit loan applications with forged trade documents, trick banks into approving funds, and then rapidly move the money through shell companies or offshore accounts. By the time discrepancies surface, the fraudsters have vanished, and recovery becomes nearly impossible.
Responsibility for trade finance fraud lies across a network of bad actors—fraudulent exporters, complicit logistics agents, corrupt officials, and insiders at financial institutions. The victims, however, are almost always banks, insurers, and legitimate businesses. Cross-border cooperation, swift detection, and account freezes can help, but often the damage is done long before fraud is uncovered.
One key vulnerability is the sector’s continued reliance on manual processes and paper documentation. Trade finance transactions frequently span multiple jurisdictions, institutions, and intermediaries, making it difficult to verify authenticity at every stage. Many banks still lack integrated digital tools and robust compliance systems, leaving them exposed to increasingly complex schemes.
The impact of trade finance fraud is far-reaching. Beyond individual losses, it erodes trust in the entire system. Major scandals—such as the Hin Leong case in Singapore—have driven global banks like ABN Amro and BNP Paribas to exit parts of the trade finance market entirely, with losses exceeding $600m in some cases. These exits have triggered a broader withdrawal from commodity trade financing.
Fraud doesn’t just hit the balance sheet—it can sour diplomatic relations, delay shipments, and destabilise supply chains. In regions with weak governance or conflict, repeated fraud incidents often result in “de-risking,” where banks stop offering trade finance altogether to reduce AML/CTF exposure. Unfortunately, this leaves many small and medium-sized businesses in emerging markets without access to much-needed capital.
The cost of fraud is also felt in the form of rising trade insurance premiums—some climbing by 30%—and more expensive compliance requirements for every legitimate transaction. These costs are passed on throughout the supply chain, making global trade more expensive and less accessible.
Perhaps the most troubling consequence is the widening trade finance gap. As institutions pull back, legitimate exporters and importers—especially in the Global South—are left with fewer funding options. This has stalled progress toward closing the $2.5tn trade finance shortfall, limiting economic growth and widening the divide between established markets and developing economies.
Ultimately, trade finance fraud is more than a financial crime—it’s a systemic risk. Without modern defences like AI-driven document verification tools and better global coordination, fraudsters will continue to exploit the weakest points in global trade. The cost of inaction will only rise.
Read the full blog here.
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