Warehouse Financing – Internal And External Fraud

Trade finance is often structured as self-liquidating financial transactions, with trust receipts and sale and repurchase agreements being the common staples of the industry. Such structures confer title to the goods on the Bank, while simultaneously transferring the risks attendant on these goods to the Bank. Banks are therefore vulnerable to the risk of fraud that may be perpetuated by its direct or indirect counterparties, or other third parties. The heavy reliance on paper documentation in the trade and financing of such goods makes it open to abuse by fraudsters. To ameliorate the risk of fraud, a Bank should seek legal advice to ensure that its financing structure, due diligence and legal documentation are sufficiently robust to reduce its risk exposure, and that prompt remedial steps are taken to contain any losses.