Bloomberg say AMDK trade systems has a big big lobang to Huat Big big deal woh

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4 Billion Pieces of Paper Keep Global Trade Afloat but Fraud Fuels Push to Digitize​

October 4, 2023 by Archie Hunter

They are relatively easy to fake. Frequently get lost. And can add huge amounts of time to any journey. Yet paper documents still rule in the $25 trillion global cargo trade with four billion of them in circulation at any one time.

It is a system that has barely changed since the nineteenth century. But that dependence on bits of paper being flown from one party to another has become a vulnerability for companies which move and finance the world’s resources around the globe.

In one high profile case, banks including ING Groep NV discovered in 2020 that they had been given falsified bills of lading — shipping documents that designate a cargo’s details and assign ownership — in return for issuing credit to Singapore’s Agritrade Resources. In another dispute, HSBC Holdings Plc and other banks have spent three years in legal wrangling to recover around $3.5 billion from collapsed fuel trader Hin Leong, which is accused by prosecutors of using “forged or fabricated documentation,” when applying for credit.

 

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The International Chamber of Commerce estimates that at least 1% of transactions in the global trade financing market, or around $50 billion per year, are fraudulent. Banks, traders and other parties have lost at least $9 billion through falsified documents in the commodities industry alone over the past decade, according to data compiled by Bloomberg.

It’s the easiest type of fraud to commit,” said Neil Shonhard, chief executive officer of anti-fraud platform MonetaGo, “either falsifying a document or sending duplicates to banks ‘A’ ‘B’ and ‘C’ without them speaking to each other.”

The ICC said in a 2022 report, co-authored by MonetaGo, that as much as $2.5 billion of those annual fraud costs ended up realized as losses for financiers — unearthed by commodity price shocks or other external events.

 

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Advocates say online platforms already exist that can secure, store and transfer documents, making it much less likely that banks would be presented with doctored bills of lading or other documents, such as invoices for cargoes which might not even exist or which are full of stones masquerading as valuable precious metal. Online hacking remains a risk, but one that is far more difficult to pull off than photocopying pieces of paper, they argue.

Digitization also offers a potential boost for business. A McKinsey study based on industry interviews and data from carriers estimated that adopting electronic bills of lading would enable as much as $40 billion in additional global trade volume through reduced trade friction, particularly for emerging markets.

The theory is that banks could in future be more amenable to finance trade for smaller, potentially riskier, counterparts if they did things digitally. The main container shipping lines, McKinsey added, could save as much as $6.5 billion a year in direct costs if they moved to full adoption of digital bills of lading.

“We believe that with just a couple of small efforts everybody across this ecosystem can go out there and reap these benefits,” said David Dierker, McKinsey senior expert and co-author of the report.

He argues that there is little or no downside beyond the initial investment to change processes: “Freight forwarders and shippers will need to adapt, but everyone benefits at least as much as they would have to invest. And the carriers benefit much more.”

 

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Less than 2% of global trade is transacted via digital means, but that is set to change. Of the world’s top 10 container shipping lines, nine — which account for over 70% of global container freight — have committed to digitizing 50% of their bills of lading within five years, and 100% by 2030. Some of the world’s biggest mining companies including BHP Group Ltd., Rio Tinto Group, Vale SA and Anglo American Plc have voiced their support for a similar campaign in the bulk shipping industry.

The greatest barrier to that expansion has been legal. Banks, traders, insurers and shipping companies have had the means to go digital, but up to now a paper bill of lading has been the only document recognized by English law that gives the holder title ownership to a cargo. A bank or insurer won’t cover a deal that isn’t legally secure, and without financing, deals are unlikely to happen.

To address that, the UK passed the Electronic Trade Documents Act in July which enshrines digital documents with the same legal powers as paper ones. English law on trade documents goes back centuries. It underpins around 90% of global commodities and other trade contracts. So the UK law change represents a big step. Singapore, another center for maritime law, created a similar legal framework in 2021 conducting its first electronic bill of lading transactions in 2022. Similar legislation is expected in France later this year.

The next challenge will be getting companies to change processes that have been in place for hundreds of years. For all its faults, paper is something that everyone understands and while businesses are happy to join a critical mass of digital trade, few are keen to be the first to take steps in that direction.

“For this to work, it requires all of us to adopt the same data standards so that we can communicate more effectively to enable verification in a truly interoperable manner,” said Lynn Ng, Global Lead for Sustainable Value Chains at ING, the biggest bank in commodity finance.

 

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It’s not a panacea for the electronic bill of lading and we’ve got a way to go, but I’m massively energized by this change, and I think it will make a significant difference to how the industry views these digital instruments, said Marina Comninos, co-head of the paperless trade management company, ICE Digital Trade. “We’re still at such a nascent point in international trade, with only a small fraction of global trade being digitized — we need oxygen, and this is oxygen.”

As a newly qualified lawyer working in the Singapore office of Holman Fenwick Willan in the late 2000s, Michael Buisset remembers flying 5,000 kilometers to Hong Kong and back in a day, briefcase in hand, to get a last-minute bill of lading signed off by a client.

“My rate was much cheaper than it is now, but it’s just a testament to the waste of time and money that paper documents can create,” Buisset, now head of the firm’s office in the commodities trading hub of Geneva, said. “And, of course, there was the risk of it getting lost.”

Such trips still happen, even though that transfer of documents could feasibly be executed in minutes via an online platform. The full documentation process on a 2022 deal to ship nickel in containers from miner BHP Group Ltd. in Australia to Chinese buyer Jinchuan, financed by banks from each country, took under 48 hours over the ICE Digital Trade platform, the company said.

For now, when a cargo of coffee is shipped from Brazil to a roaster like Illycaffe SpA in Europe it sets off a flurry of printing. Three identical bills of lading need to be produced and gradually make their way between sellers, banks and buyers, stopping off at law firms and consultants in order to guarantee the rights to the cargo across its 20-day journey. There are also paper invoices, certificates of analysis, and additional documents to measure weight, origin, packing, and moisture content if it is ores that are being shipped.

It is impossible to accurately calculate how many documents are printed for a given trade route but Brazil exports over 900,000 tons of coffee to the European Union every year. And that represents a lot of paper — McKinsey estimated that at least 28,000 trees a year could be saved by reduced friction in the container trade.

 

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https://www.insurancejournal.com/ne...ill rule,changed since the nineteenth century.

 

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https://fortune.com/2023/10/02/glob...k-document-act-law-finance-geraldine-mcbride/

 

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Global trade still depends on 4 billion paper documents daily. The U.K. is trying to change that​

BYGERALDINE MCBRIDE
October 2, 2023 at 7:09 PM GMT+8

Digitalizing international trade would result in significant efficiency gains.
GETTY IMAGES

The U.K.’s Electronic Trade Documents Act of 2023 came into effect on Sep. 20–and it will send shock waves through the international trade system. At first glance, the bill looks perfunctory: It makes it legal to conduct trade using digital documents in place of physical paper. However, it’s significant, making the U.K. the first major economy to tackle a hurdle that has long made international trade a needless slog ahead of the U.S. where, in the absence of federal legislation, the choice to make trade paperless is currently left up to individual states.

Governments and businesses have long used electronic documents–but international trade has been a holdout. Trade laws require one to serve as a “holder” or have possession of essential forms like invoices, bank drafts, and bills of lading.

Many of those laws date back centuries, and they haven’t recognized the holding or possessing of digital documents. With no other choice, international trade has run on paper–heaps and heaps of it. When exporting a frying pan takes a four-page customs form, it’s no shock the International Chamber of Commerce estimates that 4 billion documents move through the global trade system on any given day.

Thus, it’s hard to overstate the potential benefits of trade going digital–and experts have extolled the new legislation. The U.K.-based Centre for Digital Trade and Innovation, a project of the ICC, has projected a 75% reduction in transaction costs for U.K. businesses, with deals processing in a quarter of the time. And because English law is used in international trade more than any other law, the new bill adds fuel to the global push toward paperless trade.

 

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Consider what should be the simple process of identifying buyers and sellers. In order to secure the letters of credit that finance 80 to 90% of international trade, banks have to verify the identities of businesses involved in a transaction. The Legal Entity Identifier system is a global standard set up in 2014 to simplify the process. It gives businesses their own unique alphanumeric code, enabling banks to automatically verify buyers and sellers.


The problem is only 4% of U.K. businesses use LEI. In the U.S., only 277,391 businesses are registered, out of millions. So while the new law permits identification forms to exist and be shared digitally, until more businesses opt into the system, most trade will still require bankers to manually search databases for businesses by name–a tedious, time-consuming task that undercuts the efficiency and savings that digitalization can provide.

The law’s cost savings also must be harnessed intentionally before trade even becomes an option for many businesses. Small and medium enterprises are the economy’s backbone.

However, the regime of trade finance favors bigger companies. One of the key findings of the 2023 global trade finance survey, published this month by the Asian Development Bank, is that directing a greater share of trade finance to SMEs is crucial for building a more resilient global economy.

Trade finance institutions should use some of the savings gained from digitalization to develop scalable products and services that better cater to SMEs. This would fuel more trade while aiding post-pandemic recovery.

 

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But to truly digitalize the trade system, its connectivity problem must be solved. A 2019 analysis by the OECD found that poor connectivity was the greatest barrier to countries engaging in digitally enabled trade.

Beyond finance, every trade transaction involves a crowd of actors including transport, insurance, legal, and logistics. In recent years, it’s taken two to three months to produce and distribute among these multiple actors the roughly 27 documents required for a typical transaction.

Improving connectivity can streamline that process and, crucially, unlock the potential of generative AI applications across these industries. As platforms become connected, generative AI can gather relevant information from across the system to digitally produce and distribute the documentation that facilitates trade and drives innovation.

It’s rare that a single law transforms a system as sweeping and vital as international trade. Legal frameworks that enable trade digitalization hold the promise to do just that. With some additional work, governments, banks, and technology companies can help businesses thrive and usher in a new era of global commerce.

 

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https://fortune.com/2023/10/02/glob...k-document-act-law-finance-geraldine-mcbride/

 

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https://www.straitstimes.com/busine...asset-blockchain-race-as-firms-look-to-expand