The losses to the global financial ecosystem caused by fraud and non-payment are immense, but pain points are most acutely felt in emerging markets. This makes the need to increase transparency and data-sharing all the more urgent.

Transforming Trade Finance, a collaborative workshop hosted by ITFA, FCI, and EBRD, took place on Tuesday, 13 May, in London. The conference brought together experts to examine how funding solutions and new technologies are transforming the industry, and ended with a standout panel addressing just this: focusing on securing supply chains and addressing fraud and non-payment risks in emerging markets. 

The panellists weighed up different mitigation strategies such as blockchains, artificial intelligence (AI), government initiatives and the role of international organisations, as well as the growing importance of education regarding fraud. 

Data-sharing and urgency 

The World Economic Forum (WEF) has found that trade-based financial crime costs the global economy an estimated $1.6 trillion annually, outlining the urgent need for improved oversight and data sharing. Deutsche Bank has also revealed that rising fraud cases have led major banks to withdraw from trade finance markets, removing over $20 billion in available liquidity. However, in spite of the evident prevalence and severe implications of fraud, data on it is not shared across the industry. 

The panel, led by Betül Kurtuluş, Director of Strategic Marketing and Business Development at FCI, highlighted this silence surrounding fraud and framed the urgency of its resolution. 

Ian Miller, Senior Consultant at Lenvi, summarised the industry’s paradox and where the urgency for increased transparency and actionable learning comes from. “With this industry, there’s always a panel on risk, [but] when it actually happens, no one talks about it.”

Miller outlined a 2023 report presenting over 200 decision-makers in the European receivables finance industry, where 89% reported rising fraud levels, with 81% expecting the trend to continue. Despite this, he revealed that 9% admitted to having no formal fraud prevention strategy in place. 

The role and limitations of blockchains 

Blockchain was discussed during the panel as a promising tool against fraud and non-payment risks. According to the WEF, blockchain technologies have the potential to transform traditional trade. Blockchain provides a decentralised database and increases transparency and traceability, while simultaneously employing cryptographic techniques that maintain privacy. By improving efficiency and reducing costs, they may increase global trade by up to $1 trillion in the next decade. 

“Blockchain is an obvious, awesome way to reduce fraud and non-payment risk,” said Sam Curtis, Director of Trade Finance and FCC Solutions at Complidata. The technology requires a high degree of sophistication, making it a challenge to integrate falsified data onto a blockchain. 

However, there remain significant challenges to blockchain’s extensive implementation. The key ones are varying regulatory and legal difficulties, integration issues with existing systems, scalability and technical considerations, and hesitant stakeholders when it comes to adopting new technologies. 

Oftentimes, blockchain also slows transactions and increases long-term costs; while its security and transparency suit larger, fixed assets, the technology proves less efficient and cost-effective for smaller, fast-turning assets.

Fighting fire with fire: or, AI-led fraud with AI 

AI can detect subtle document fraud, which may be invisible to the naked eye, anywhere from font inconsistencies to mismatched trade data. “AI is ready to deliver results,” said Curtis. “It’s ready for whoever’s willing to pick up the tools and start working with it.” 

While it remains underutilised by the trade finance industry, AI is already transforming fraud detection by enabling financial institutions to analyse vast datasets in real time, identifying anomalies that traditional systems might miss. 

Warning that fraudsters will soon begin to weaponise AI, automating fraud attempts across institutions, Oswald Kuyler, Senior Digital Trade Advisor at Asian Development Bank (ADB), amplified the increasing importance of fighting this modern strategy with a mitigating force of the same level of technological advancement. 

“A fraudster no longer has to manually go to 25 different financial institutions and request financing or payment. It can actually all be automated,” emphasised Kuyler. “The only way to counter that is to use it to detect it.” 

This is already seen in banks and payment providers, which are investing billions in AI-driven fraud detection technologies. Visa, Mastercard, and other major players have already begun employing AI as a means to protect transactions, and it is crucial that the same is done to secure supply chains in emerging markets.

The types of fraud committed, like fake invoices, are the same as always. What has shifted is the ease with which they are committed, how they can be carried out at scale using everyday technology. Combatting fraud now means combining modern tools with old-school risk management strategies. 

Government and multilateral leadership 

While technological advancements like AI are instrumental in detecting and preventing fraud, robust government policies and the leadership of international organisations are equally important in securing supply chains. 

India, a key member of the BRICS, launched a mandatory e-invoicing system under the Goods and Services Tax (GST) framework, which means that every invoice above a certain threshold has to be validated in real-time by the tax authority. This not only creates an official, tamper-proof record of the transaction, but it also simplifies tax declaration and standardises the communication between companies. 

Türkiye, too, was an early adopter of e-invoicing, making it mandatory for most businesses and public entities, and integrating it with national tax systems. This creates a digital audit trail and minimises the risk of double financing and tax evasion. 

“Türkiye detects millions of fraud cases every year,” said moderator Kurtuluş. “It is very successful and is very supportive for small- and medium-sized enterprises (SMEs)  financing.” 

With multilateral leadership in mind, international organisations can further support countries in upgrading their business registries and identity infrastructure. 

“What we won’t do is innovate, because we think that that’s where the market comes in,” said Kuyler of the ADB. He underscored the significance of ecosystem-level challenges, highlighting how international organisations can play a critical role in helping emerging economies build the foundations that enable innovation when it comes to fraud and non-payment detection.  

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But even the most advanced tools and systems rely on the people who use them, making education and capacity-building a crucial pillar in the fight against trade finance fraud. 

“The risk and compliance departments are quite advanced in their understanding of how AI works and what it can do for them. I don’t think the same can yet be said about trade finance and supply chain finance,” said Curtis, stressing the necessity to train staff on how to effectively use AI tools. 

When it comes to larger-scale industry-wide initiatives, organisations such as FCI and the International Trade and Forfaiting Association’s (ITFA) Financial Crime Compliance Initiative (FCCI) regularly host webinars and in-person events on topics such as fraud typologies, sanctions, and export controls. 

This sharing of knowledge, as well as efforts to preserve institutional memory through maintaining experienced professionals, proves crucial in building collective resilience against fraud. 

“It really comes down to my first point about sharing information,” said Curtis. “The most valuable element of education is learning from people’s experience.”