Commodity-finance risks back in focus amid Radiant World scrutiny
Singapore has strengthened digital checks, but gaps remain in verifying if underlying trades are genuine
Recent scrutiny of iron ore trader Radiant World has reignited concerns over risks in commodity finance, despite Singapore's recent efforts to strengthen its digital checks. The collapse of commodity traders like Hin Leong and Zenrock in 2020, which left banks facing billions in exposure, prompted Singapore to implement new safeguards such as enhanced checks for detecting duplicate financing.
However, industry experts warn that while digital tools have improved the ability to spot duplicate invoices, they fall short in verifying the authenticity of the underlying transactions.
Baldev Bhinder, a disputes lawyer specializing in commodities and trade, explains that verifying an invoice's validity is challenging, as it only represents a piece of paper, not the actual trade that generated it. He emphasizes that the critical question is whether a genuine trade took place, which can only be determined through independent verification, physical or documentary controls, data transparency, and an understanding of the commercial reality of the trade.
The 2020 commodity-trading scandals highlighted two main issues: duplication and fabrication. In the Zenrock case, allegations of multiple financing were raised, while Hin Leong was accused of forging documents for oil sales to China Aviation Oil and Unipec that never materialized. Common frauds in commodity finance include duplicate financing, fictitious or inflated invoices, round-tripping, and misrepresentations about cargo existence, ownership, or value.
To address duplicate financing, the Association of Banks in Singapore launched the Trade Finance Registry's Duplicate Financing Check in 2023, which has processed over 18,000 queries by February 2025. The registry recently expanded to include a Bill of Lading Genuineness Check, which uses data from SGTraDex, a carrier data aggregator, to verify shipping documents. This tool is expected to be adopted by around 70% of participant banks, replacing the need for email and phone verification with shipping lines.
While these digital platforms are effective in tackling specific issues, they cannot fully address the broader vulnerabilities in commodity finance. The remaining gap lies in receivables and invoice financing, as there is no physical cargo movement or carrier record to verify claims against. Lenders must rely solely on the borrower's representation of what a counterparty owes, making due diligence and independent verification crucial in combating sophisticated fraud.
Blackstone & Gold's Baldev Bhinder stresses that no single platform or software can eliminate trade fraud, especially in the global nature of trade. He highlights that as long as one trader or lender operates outside the existing systems, risks will persist. Nevertheless, Bhinder believes these initiatives represent a positive step towards improving the integrity of commodity finance.
Written by urgent.news from The Business Times - Companies & Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
