The deal builds on an oversubscribed US$1.45bn facility agreed by the oil trading giant in October last year. This year’s facility consists of a US$1.28bn one-year tranche, a US$320mn two-year tranche and a US$500mn accordion feature. 

The funds will support working capital financing for trading activities as well as general corporate purposes, Gunvor USA says. 

As with last year’s facility, Rabobank and Société Générale are joint lead arrangers and active bookrunners, with the Dutch lender serving as administrative agent, co-ordinator and left lead. 

ING Capital again participates as joint lead arranger as well as passive bookrunner. Fellow joint lead arrangers Natixis, MUFG and Crédit Agricole CIB – not named as a participant last year – also take on co-syndication duties. 

SMBC, Citibank and Industrial and Commercial Bank of China act as co-documentation agents. The other nine lenders are not named by Gunvor. 

Gunvor USA managing director David Garza hails the deal as a demonstration of the company’s resilience “during times of market stress”. 

Thomas Smith, regional chief financial officer for the Americas, adds: “Despite a challenging credit market, the facility benefitted from the strong support of our 18 new and existing lenders, being oversubscribed in syndication and subsequently increased to US$1.6bn.” 

Smith adds Gunvor’s banking partners “remain supportive of the company’s strategy for continued participation in traditional energy markets while pursuing its energy transition goals”. 

The facility is the latest of several syndicated deals secured by the trader in recent months. In July, Geneva-headquartered Gunvor significantly expanded the size of its revolving credit facility for the issuance of off-balance sheet instruments, attracting 30 participants to a transaction totalling US$1.37bn. 

The same month, its Singapore entity closed a US$1.12bn revolving credit facility backed by 26 lenders, just two months after securing a US$600mn borrowing base facility in support of its oil business in the region. 

The post Gunvor grows US borrowing base with US$1.6bn facility appeared first on Global Trade Review (GTR).

In a further update to their guidance, two regulators have put financial institutions on notice to look for indications of export control violations in their customers’ activity in trade finance documentation.

US export control laws, largely overseen by the Bureau of Industry and Security (BIS), are designed to prevent US exports from contributing to the manufacture of weapons of mass destruction or the arms stockpiles and sensitive military technology of its rivals, such as China and Russia.

A joint alert published on November 6 by BIS and the Financial Crimes Enforcement Network (FinCEN), the US financial crime regulator, includes a list of red flags that may indicate attempts to export sensitive US goods and technology – or even foreign goods containing US inputs – to unauthorised end users.

“Financial institutions directly involved in providing trade financing for exporters also may have access to information relevant to identifying potentially suspicious activity,” the regulators say.

“This may include the financial institutions’ customers’ end-use certificates, export documents, contracts, or other documentation, such as those associated with letters of credit-based trade financing”.

The first red flag in the alert is “purchases under a letter of credit [LC] that are consigned to the issuing bank, not to the actual end-user” and “supporting documents, such as a commercial invoice, do not list the actual end-user”.

Neil Chantry, a specialist trade finance consultant, points out that some countries require imports to be consigned to a bank, so that red flag will not always be an indication of suspicious activity.

Banks would not typically be able to identify the end user of goods from an LC unless it is the applicant, he adds, meaning the negotiating bank would have to rely on due diligence on the customer and its counterparties.

Chantry expects banks will insist on exporting customers providing the necessary information to satisfy the requirements in the notice, but that “the problem is how effective is a bank’s ability to determine the ‘true end user’ when they have to rely on the information provided by their customer and the applicant of the LC”.

Other possible indicators of attempts to skirt export controls include companies that refuse to provide end-use and ownership information to banks; transactions where consignees appear to be mail centres or logistics companies; addresses of companies shared with military facilities; and goods being shipped by common transshipment routes.

Chantry, a former HSBC global trade and compliance executive, says most of the red flags should already be part of banks’ risk assessment models and due diligence reviews.

Since Russia’s invasion of Ukraine in February 2022, the US has put renewed attention on export controls as a way of stymying Moscow’s efforts to replenish its war machine.

BIS and FinCEN have previously issued alerts to banks, seeking their help to detect violations. Earlier this year the regulators said those efforts had yielded significant data on common transaction structures and transshipment methods being used by Russian importers.

“In the abstract, the guidance makes a lot of sense,” says Dj Wolff, a partner with law firm Crowell & Moring. “Banks will be in the middle of virtually all export transactions globally and are therefore a logical focus for BIS to identify potential export control evasion.”

But it may mean banks have to probe further than the documents presented as part of a trade transaction, he adds.

“If a bank provides trade financing via letters of credit then it might have access to some of that information in the underlying trade documents. If, however, a bank’s financing is processed via a wire, that classification information is not included in the Swift payment message, unless voluntarily included by the remitter in the notes field.”

He says unless Swift messages are altered to include fields where this information can be catered for, banks will have to focus on controls at the on-boarding or post-payment stage.

While banks are currently being “deputised” by regulators to help detect suspicious activity, they are also exposed to enforcement activity, Wolff says.

“BIS could directly pursue an enforcement action under a theory that processing a payment related to an export control violation could itself be an export control violation, though it has yet to do so, while FinCEN could pursue an enforcement action” for failing to report suspicious activity, he says.

“Many banks are also worried about their prudential banking regulators at either a state or federal level who may now begin including questions related to what controls a bank is implementing in their regular examinations.”

The post US deepens banks’ role in detecting export control violations appeared first on Global Trade Review (GTR).

The round was led by QED Investors, with the participation of new investor Nazca and existing investors Quona, Flybridge, Maya Capital and One VC.

Founded in Colombia in 2021 by Santiago Molina, Andres Ferrer, and Tomas Shuk, Finkargo aims to accelerate and fund international trade operations for SMEs in Latin America, with a focus on import finance. The company’s platform offers an automated credit scoring model, access to capital and logistics and financing processes, enabling small and medium-sized importers to boost sales and control logistics.

In April 2022 it received a US$7.5mn seed investment in which Quona, Flybridge, Maya Capital and One VC participated, followed by a US$75mn structured credit line from impact investment fund Community Investment Management in November.

So far, Finkargo is focused on the Colombian and Mexican markets, where it says it has “empowered over 250 customers to partake in global commerce”, extending financial support to over 2,000 import operations valued at US$200mn across a network of 430 suppliers spanning 40 countries.

“Because these are SME importers, they often don’t have credit terms with their suppliers because they don’t have any negotiating power,” Molina, the company’s CEO, tells GTR. “We give them the working capital to execute purchases, optimise their supply chains, negotiate better conditions, meet minimum order quantities and achieve a better negotiating position with suppliers all around the world.”

He adds that Finkargo provides lending directly, rather than acting as a broker, although it also offers third-party cargo insurance to importers through the platform, as well as additional services such as verifying suppliers and shipments.

“We have the merchandise as collateral, and we understand each one of the transactions and the logistics behind them because, unlike other specialty lenders, we’re logistics experts. We’ve brought together these two worlds to offer everything an importer really needs in order to operate efficiently,” he says, adding: “These are also not just net importers. In fact, 30% of our importers transform and export again, so we’re basically providing the oxygen to keep them connected to global value chains.”

With the new capital raised in this round, Finkargo now plans to further expand its operations in Colombia and scale up in Mexico.

Discussing the investment, QED Investors principal Camila Key Saruhashi points out that SMEs in Colombia and Mexico import over US$30bn in volume from Asia yearly but struggle to access capital to manage the 60- to 120-day gap it takes from payments to shipment arrival.

“The limited number of banks that have trade finance practices almost exclusively focus on large traders, given the historically manual processes associated with underwriting these types of loans,” she says. “Finkargo is bridging the gap by leveraging data and technology to offer an essential import financing product.”

“Demand is huge,” Molina says. “Mexico represents almost half of international trade for Latin America, but eventually we want to create an ecosystem for the entire region. There’s a lot to do beyond just giving access to capital, which is where we are starting to focus. Beyond insurance, we have business intelligence and data so that SMEs can make better decisions, and we are starting to partner with other players in the ecosystem like freight forwarders and customs agencies, to better optimise the flow of money and data.”

The post Finkargo eyes financing boost for LatAm importers following US$20mn round appeared first on Global Trade Review (GTR).

The New York-headquartered International Investment Group (IIG), founded in 1994, originated and securitised trade finance loans to corporates in Latin America. Following an investigation by US authorities in 2018, it emerged that many of IIG’s loans were fictitious or wildly inflated in value, and its two co-founders were later jailed.

Asset managers KKR, BlueMountain Capital Management, Tennenbaum Capital Partners and Elanus Capital Management invested in US$220mn of notes issued by a collateralised loan obligation (CLO) offered by IIG in 2013. Deutsche Bank acted as the CLO’s trustee, collateral manager and cash management bank.

The noteholders were paid US$169.6mn in mid-2017 when the loans were sold to three new investors – Finnish asset manager Aktia, the UK’s AGC Equity Partners and the LAM Enhanced Trade Finance Fund I LP. The liquidators are now trying to recover the money, arguing the sale proceeds were “actual or constructive fraudulent transfers”.

The Cayman Island liquidators of IIG in September filed a lawsuit against the noteholders and Deutsche Bank, accusing them of ignoring red flags in IIG’s conduct and helping market the fraud-addled loan book to the new investors, who lost their entire investment when IIG collapsed.

The liquidators, Christopher Kennedy and Alexander Lawson of Alvarez & Marsal, allege in a complaint filed in a New York court that Deutsche Bank “knew that those loans were fictitious and that IIG was misappropriating the proceeds. It had access to an abundance of information making that clear”.

The complaint alleges Deutsche Bank opened repayment accounts for companies that were purported to be commodity producers but all had the same address in an office building in Panama associated with company registration agents. The bank allegedly misrepresented the location of the borrowers as being in other countries in order to circumvent geographic risk controls in the CLO.

The complaint says the lender transferred proceeds of loans not to borrowers, but to IIG itself, which then used the funds to pay off other investors and hide losses on ailing loans. The liquidators allege the bank was aware that principal and interest on many loans was being repaid by IIG, instead of directly from the purported borrowers or offtakers.

In a motion to dismiss the liquidators’ case, filed this week, Deutsche Bank says the liquidators have failed to prove that it knew or was in a position to know of IIG’s fraud.

“The liquidators simply fail to set forth a plausible scenario that Deutsche Bank aided, abetted, or otherwise had a reason to conspire with IIG”, the response says. The bank says the complaint “lacks [the] substance, plausibility and the particularity required of valid fraud claims”.

Deutsche Bank says it was a “mere conduit” for the movement of funds associated with the CLO and “had no discretion or control over those funds”. The bank says it “had no independent authority beyond following the direction of IIG and the noteholders”.

Referring to the liquidators’ allegations that the bank helped structure IIG accounts to avoid know-your-customer checks, Deutsche Bank says it is not obligated to run those checks on IIG’s borrowers.

‘Forced sale’ of underperforming loans

The liquidators allege that when it became clear that the CLO was woefully underperforming and would not be able to repay the notes, the original noteholders sought to help IIG repackage and sell the loans to new investors.

The loans in the CLO were due to mature in October 2016, however at that time only US$600,000 of principal had been repaid against an outstanding balance of just over US$210mn, according to the liquidators’ filing.

After failing to clinch new financing, IIG began efforts to solicit new investors. In early 2017 it created a teaser for potential investors, shared with the noteholders and Deutsche Bank, which falsely depicted the loans as strong and secure assets.

“Instead of exposing the material misrepresentations they had learned of, each of the noteholders and [Deutsche Bank] responded to the ‘teaser’ by forcing IIG to proceed with the solicitation of potential new investors,” the liquidators allege, and “offered suggestions, guidance, and direction on how IIG should go about approaching potential investors”.

A former executive of IIG is quoted as saying that the noteholders “wanted to make sure they got their money out of the CLO and got taken out by new investors”.

Employees of KKR and BlueMountain – later bought by Assured Asset Management – joked about the teaser in emails, redacted excerpts from which are included in the complaint. “Can’t believe [IIG] asked us if we want in,” remarked a KKR credit analyst.

In a joint response submitted to court, the noteholders say the liquidators have failed to allege that they “were involved in reviewing any materials provided to the actual new investors in the actual investment vehicles that occurred… or were involved in any other way in the solicitation of those new investors”. The noteholders say they were never shown the teaser that was ultimately circulated to potential investors.

The noteholders have also asked the court to throw out the liquidators’ claim, arguing that it fails to make out specific claims against each company and does not meet any of the tests required under relevant laws.

“The paucity of any allegations tying any of the noteholder managers to IIG’s underlying fraud” leaves the investors and liquidators “with nothing but a blank canvas”, the noteholders say in a November 6 filing.

Deal awry from the outset

The filings show that the noteholders quickly grew worried about the quality of lending underpinning the CLO.

The complaint said overdue loans were a common theme of the trustee reports provided by Deutsche Bank from “early on”, which particularly worried the noteholders because the loans were supposed to be short-term transactional lending repaid by blue-chip offtakers.

A KKR credit analyst quoted in the complaint said that Deutsche Bank and IIG “had difficulty producing accurate trustee reports,” as ”there were times where numbers wouldn’t match up to previous reports”.

A Tennenbaum employee wrote in a March 2015 email, also cited in the complaint: “what’s frightening is that neither [Deutsche Bank] or IIG understands the deal to which they signed up just a few months ago!”

In June last year IIG’s founder David Hu, who pleaded guilty, was sentenced to 12 years in prison while his co-founder Martin Silver received a 13-month sentence in February this year.

IIG’s liquidators have also launched several lawsuits against recipients of IIG loans who allegedly failed to repay the proceeds after the company’s demise.

All parties in the case were contacted for comment but either declined or did not respond.

The post Liquidators of “Ponzi-like” trade finance firm target asset managers, Deutsche Bank appeared first on Global Trade Review (GTR).

Roundtable participants:

• Ozgur Akdeniz, North American trade sales head, Citi
• Geoff Brady, global head of trade and supply chain finance, Bank of America (host and chair)
• João Galvão, head of trade finance sales, Americas, Standard Chartered
• Joon Kim, global head of trade finance, working capital and portfolio management, BNY Mellon Treasury Services
• Glenn Ransier, global standby and demand guarantee product manager, Wells Fargo
• Jonathan Richman, head of US trade finance and working capital, Santander
• Anubhav Shrivastava, commercial bank trade head, JP Morgan
• Michael Stitt, head of supply chain finance origination, US Bank
• Maureen Sullivan, head of supply chain finance, MUFG

[From left to right: Geoff Brady, Michael Stitt, João Galvão, Anubhav Shrivastava, Maureen Sullivan, Glenn Ransier, Joon Kim, Ozgur Akdeniz]

Brady: How would you assess the trade and supply chain landscape over the course of the last year? What have been some of the major trends driving demand, appetite and capacity?

Richman: We continue to see increasing overall demand, and the fundamental trend of corporate clients wanting to have good working capital management continues unabated. But demand has increased in different ways. A lot of corporates now are emphasising operational efficiency and new ways to support their trading partners. They are reshoring, and that requires different types of trade finance; they need more resilience in their supply chains, and that also requires more trade finance. They’ve got ESG goals, which can be better met with more use of trade finance.

Overall, I’m very bullish. I think there are a lot of reasons to be optimistic that we’ll continue to see more growth and new products.

Sullivan: We’re not witnessing a slowdown in demand. Despite the jump in interest expense, our clients are laser-focused on working capital solutions and trying to find more low-cost financing alternatives. We’ve witnessed suppliers who were not interested in some of our programmes two years ago, but who then came back and found them much more attractive – not only because it’s a lower cost all-in, but because it’s a potential alternative source of liquidity. Additionally, we have a very large book of receivables programmes, and our clients want to cash out their receivables earlier. That’s because they want to deploy that cash, either to pay down costlier debt, or to get ahead of some future purchases in light of some inflationary pricing pressure they may see on those products. We are focused on large corporates, which has been a fairly stable marketplace for us. I agree with Jonathan – we’re pretty bullish on how this product will continue to perform into the near future.

Galvão: The big topic that we see is the geopolitical tension shifting a little bit. We see in intra-Asia trade, where Standard Chartered has a strong footprint, how markets like Vietnam and India are becoming more important. If you tie in electric vehicles, these markets are becoming even more important for the financing of mining and refining of nickel and copper, for example. That’s a trend that’s going to stay. The CHIPS Act is pushing some companies from Asia to set up plants in the US. This is all leading to a shift in the landscape in terms of who we finance and how we finance them.

Shrivastava: In my 10 to 15 years in trade, I don’t think I’ve ever seen the kind of demand pickup in working capital solutions and trade that we’ve seen over the last six to nine months. And I think part of the reason for the demand uplift is that after the Covid-19 pandemic, corporate management teams have had time to sit down and consider their capital strategy, and one of the things that they converged upon is supply chain resiliency and how they can make their trading partners more stable. But also, how do you generate capital in an environment where capital cost has gone up? Interest rates have been a major driver. Four years ago, who cared about the next incremental dollar? And now the interest rate is 5%. If you could deploy that capital, you could maybe get 10%. It’s a similar reason that dynamic discounting took off big time in that period. Now when people consider supply chain finance, they see you can generate capital within your supply chain.

Brady: What do you think is driving the increased demand? Do you think it’s interest rate concerns? Is it globalisation, or reshoring and nearshoring? Is it working capital management? Or something else entirely?

Akdeniz: I think the key realisation we’ve observed over the last 24 months, but that has really taken hold in the last 12 months, is that the age of free money is over. If you’re not considering your working capital as a source of cheaper liquidity for your own business, you’re already behind the eight ball and, as Maureen has said, we’re speaking to clients now who previously never entertained the idea of a working capital solution. That’s been a clear market change. Interestingly, during 2020 and 2021, we would have probably had around 10 requests for proposals from clients to bid for their business, but since the start of the year, we’ve had over 20. So, clients are not only thinking about it but also approaching this business in a way they probably weren’t in years gone by. I think supply chain finance is more prevalent and the fact that all companies are getting in on it shows that it’s an important discussion.

Kim: The recent supply chain finance disclosure rule changes by the Financial Accounting Standards Board (FASB) have likely contributed to an increase in how people are approaching supply chain finance. We’re probably onboarding more obligor names this year than any other year – the pace is picking up, particularly on the receivables side as well.

Ransier: I think the FASB rules actually help banks because companies have started disclosing supply chain finance programmes and we’re seeing the big corporates all getting involved much more than they ever would have dreamed of some two or three years ago. On the corporate side, our clients are starting to mention that they’d prefer less reporting for these programs. They’re a little bit worried about FASB trying to drill down further and enhance reporting requirements.

The de-globalisation drive in different markets has meant de-risking for companies. I find it interesting that instead of looking for new suppliers, some of our clients are looking to shore up their existing suppliers. They’re not looking to take any risks with new companies. Generally, companies say if it’s cheaper to build a gadget in a certain country, we will go there, but I don’t see that as much anymore. They are really looking to support their supply chain with financing. It’s been a very interesting couple of years.

Brady: To what extent have the adjustments to physical supply chains – such as nearshoring, onshoring and the demand for sustainable suppliers – impacted what banks are doing from a financing perspective? Has it broadened the landscape for us, or has it made it more challenging? Has it brought us to new jurisdictions?

Stitt: For us, there have been a couple of counterintuitive developments. As a working capital shop, we’ve been primarily domestically focused, so providing for suppliers in different jurisdictions is challenging. But one of the things that we’ve seen clients do is move from a supply chain finance or open account structure and back to an import letter of credit (LC) with discounting. All the original gangster trade finance solutions, which were not particularly attractive three or four years ago, are now becoming more attractive if you can get the economics to work for both the supplier and the buyer. It’s a solution that all the banks know and are willing to participate in. Even though it’s documentary and it’s a little clunky, or at least is perceived to be, it works every time. We’re seeing a resurgence of interest in those solutions to access markets that would be more difficult from a financing standpoint. As an old trade guy, I love that.

Sullivan: I don’t see that trend. I think for institutions that have invested heavily in making sure that they can cover global suppliers – we have probably 50 different countries we can embrace suppliers in – our clients aren’t asking us to look at documentary trade, because it is clunky and expensive.

Ransier: I agree, because I haven’t seen an uptick in import LCs at all, but certainly standby LCs have done well to support ongoing shipments or sales. Banks that have closed recently have brought that product back into focus, and there’s an effort by corporates to move to larger banks to ensure that their banks are supporting their underlying contracts.

Richman: I think there’s a tremendous broadening going on with our product set and the audience for it. It goes way beyond just the traditional trade finance products; a lot of our clients’ trading partners need to build new plants, for example, that require different types of trade finance instruments. The old ways of doing supply chain finance where we all zeroed in on the bigger suppliers are less applicable now that we are able to capture the wider supply chain of our clients and their smaller suppliers. This is the focus now for a lot of clients, and it’s the way that we win new business and the way that our clients take the next step forward.

Sullivan: One of the things we’ve been monitoring pretty heavily is the impact that working capital has on inventories. All of us in the room have been fairly competent at managing and coming up with solutions that address our clients’ days sales outstanding, or days payable outstanding. But when it comes to days inventory outstanding, the hidden third leg, we all struggle. For a variety of reasons, including regulatory issues, that’s not something that many of us can embrace. But that to me is where an opportunity really lies in the future to truly address a company’s cash conversion cycle – if we can hit all three of those measures.

Brady: Maureen has raised an interesting topic. I think we would all agree that many of our clients are asking about inventory, especially given the changes some of them are making to physical supply chain management. What are the key challenges and hurdles with inventory financing? Do we need to scale in order to get closer to some ubiquitous inventory solutions? And how far along that path do you think we are?

Shrivastava: Just like how in the early days of supply chain finance we really had to educate clients about the benefits of the product and how it works, we are now at a similar stage with inventory finance. We’ve talked to a lot of clients about inventory, and I feel like clients are not ready yet. It will take us as a group to consistently educate clients. I think that’s where we are in the cycle of inventory finance; it’s going to take some kind of event for inventory finance solutions to get standardised, and only then will we see it pick up. We’re definitely seeing deals, but I’d say only around one in 100 clients are willing to go there, and that’s if they are under stress and have no choice. But if you present it as an efficiency play, the enthusiasm isn’t there yet.

Akdeniz: My experience is that once there’s a million-dollar-plus structuring fee that clients have to pay, or 8% or 9% margin, it’s an immediate non-starter for the companies that we actually want to implement this solution. In the highly leveraged, sub-investment-grade space, that sort of margin might work. But when you put it all together and incorporate the need for third parties to make it work, I’m just not sure if it’s something that the industry wants to move towards. I’m uncertain if, after careful examination, this will be anything more than an occasional exceptional event due to potential limitations in scale.

Kim: A key question is how do we broaden inventory finance? One thing that we’re reviewing is what are we trying to solve. Typically, when we do supply chain financing, we are interested in investment grade or better; we want to do post shipment, post acceptance, and this is how we can improve firms’ working capital. The supplier side becomes essentially an onboarding type of task; more of an implementation issue. Not all banks can play everywhere, so we don’t necessarily want to establish commercial banking just for the sake of onboarding suppliers across the globe. Domestic onboarding we can handle ourselves. Why don’t we think about leveraging the financial institutions that have a very strong presence in markets where they have the onboarding capability? Those banks may be able to offer pre-shipment financing for those clients who are the suppliers, meaning you essentially can create a holistic solution.

Ransier: I haven’t seen client demand for inventory financing, at least in my personal experience. Repo products have existed for quite some time now, but there’s not a lot of trust in the US for warehouses, and there are costs to vetting them. Repos are a very viable product and considered very safe, but as some of us know, they have their own set of challenges, and frankly, I don’t see companies in the US wanting to hold inventory to begin with. So, at least for our market, I think Joon hit on the real issue with supply chain finance, which is that a lot of companies have wanted to support their local suppliers’ needs for pre-shipment finance and that’s something that banks haven’t solved. But it’s something that businesses in America really want.

Richman: I agree we’re at a very early stage with inventory finance, but I’m very optimistic that it will develop. It took a very long time for supply chain finance to become pervasive in the market, and the same challenges in terms of lengthy sales and complex processes, the number of people involved, the accounting treatment – all of these things are issues just like they were in supply chain finance in the early days.

But the prize is big for our clients. It’s not just a metric on a balance sheet, it’s helping clients maintain resilient and efficient inventory levels and reaping the significant benefits of being able to support trading partners, get bulk purchase discounts and secure vital supply. A lot of clients are in the early-stage process and evaluating and piloting these solutions. I think they’ll develop, whether as a form of inventory finance, as a pre-shipment component of the supply chain finance programme, or as prepayment finance as we do in the commodity sector. I think there are many ways to get clients to reap those benefits, and they will evolve over time.

Galvão: My view is that the solution that should prevail is the one that adds value in terms of logistics and warehousing. Otherwise, you’re going to have form over substance. For large clients, this is going to be an issue; if it’s just window-dressing inventory finance it won’t be well received by an accounting team at a large corporate, who will say it’s not an off-balance sheet item. I think it’s early days, but a solution will have some element of helping on the logistics side.

Brady: What do you think the biggest game-changer could be in the industry in the next three to five years? I’ll throw one out to start: the power of data and how it can be used to facilitate, improve and expand trade financing. 

Sullivan: I echo that view on data transparency. It really speaks to the idea of the capability to finance earlier in the cycle. We’ve all been limited in that sense because what we have is data that tells us about an approved invoice. But if you had the analytics, and you had AI to support it, perhaps to predict behaviour between a buyer and supplier, you could consider the in-transit phase. Then if you had more data, you could go back to the pre-shipment phase, where you could have some level of predictability of performance between buyer and supplier. Right now, we do it based on financial statements and that has a very limited effect. The data is out there. The question is, how do we harness the data to help us make better decisions? We haven’t come up with the tools yet.

Shrivastava: I think the challenge with that is even if you get the data transparency, even if you create solutions, the problem is the bank adoption. A lot of institutions are not even comfortable with plain vanilla supply chain finance. So, I agree completely with data being on the agenda. It’s a great theoretical idea, but I don’t see our risk organisations adopting that. To make it an industry standard will take a lot of work to get risk teams really comfortable because it’s not going to be a single source of truth until everything is implemented on blockchain.

Richman: I think data has a few parts to it that can be transformational. One is making ourselves accessible to our clients, and that means our clients and our counterparties being able to connect with us in an automated and efficient way. If you’re not able to do that, then you’ll be out of the business. We need to embed our product offerings into our clients’ systems. Then the game-changer aspect of it is being able to use that data intelligently. We talked about it from a credit concept perspective, but we need to be able to adapt our capital models in order to be able to deliver real value to clients, and those capital models need to reflect the value that the data brings to us. That always takes banks a lot of time. But if we don’t do it, then probably non-banks will do it for us. We are making a lot of progress on this front.

Galvão: AI is going to be a game-changer for us. For example, look at the potential to save costs on know-your-customer (KYC). Often, we look at the cost of KYC and it’s an impediment. AI can help banks automate the whole bureaucracy of KYC. Also, AI is going to be crucial for helping to connect the dots between various data points that are collected.

Ransier: I see access to finance as an emerging issue, with different governments tightening monetary policy. The larger clients have no issues getting their loans, but I’m already seeing the smaller and the midsize corporations having some issues obtaining financing; even if they want to pay 7% to 9%, they’re having challenges. That’s going to slow growth over the next couple of years if we don’t figure that out.

Brady: How much progress have banks made on the trade finance digitalisation journey?

Sullivan: Everyone has their own journey in terms of how they’ve introduced it into their back office. I think that’s where it was first concentrated to bring operational efficiency – using OCR, AI, etc. It has helped reduce operational costs. Really, the challenge is the rails have never been established on a global basis that we all can leverage in terms of how to transfer that data from one institution to the next. We still rely on Swift, which was launched 60 years ago and its messages have a lot of limitations. We’re on the journey, but there’s a lot more that needs to be accomplished. I think there are improvements in how quickly you can onboard clients. But then to make this a meaningful experience there needs to be a uniform set of rails, and blockchain hasn’t done that. It’s still out there, but who’s using it?

Brady: What comes first – collaboration on the part of the transactors, or the technology rails? Do you think if the technology is there, the ecosystem will adopt it? Or do you think that collaboration needs to be there in order for the rails to be established?

Sullivan: I think in a way it has to be a collaborative event. And I don’t know who’s going to lead that.

Ransier: Actually, I think Swift is that trusted middle ground. Currently, there is no central repository that everyone trusts and can access. You have all these individual system players, and each one has its software and rules, but there’s no desire by the banks or their clients to purchase 10 different systems and understand the individual consortium rule sets. I think Swift needs to take the lead and somehow create a trusted repository because we all have different technologies, but banks and corporations all talk to Swift.

Kim: For me, it’s definitely collaboration first. In documentary trade, Swift created a wonderful proof of concept where two banks can exchange paper documents in a digital way and can treat those as original documents. So the technology is there, but there hasn’t been a collaborative process to commercialise these sorts of technological breakthroughs.

Akdeniz: Currently there isn’t a need or a desire to do more than one transaction or to go past the proof-of-concept stage. Not all banks have an unlimited appetite to do all the things that their clients want to do. Something which I think could change that is the further development of an ecosystem around asset sales between the banks, which will actually get lenders speaking a lot more and developing relationships because they have to, as opposed to just for making a proof of concept. That’s what could get the industry to take the next step.

Brady: That’s a good topic for discussion: the capital that comes into trade finance. Is that better served by the banks or the capital markets? Or perhaps a blend?

Stitt: The more we can adopt structures similar to capital markets, the higher the velocity of the transactions and the scalability is going to be. We need to think about how to adopt those sorts of things, otherwise, the capital markets may figure it out and leave the transactor and settlement guys like us out if we’re not careful.

Shrivastava: I think it depends on the risk and return of what you’re getting into. If you think about the high-investment-grade asset class and the pricing that we will see compared to when you get into more non-investment or even speculative grades, it has a completely different market which can yield much higher returns, but then the risk is also much higher. Eventually, I think a lot of this book will remain on the bank’s capital; I don’t see this moving much towards the capital market.

Sullivan: I don’t think the market is big enough yet to support capital market sizes, but it may get there. Looking at the trajectory of supply chain finance assets in the last 10 years, it’s still a pretty small market. But the trajectory is positive, we see continued growth, but I think it’s a little premature right now.

Brady: In the context of an increased focus on greenwashing, have you seen the appetite for ESG and sustainable transactions increase, stay the same or decrease over the last 18 months? Is there still the same level of interest from the market on this topic? 

Stitt: For us, there’s less interest. That period of clients driving the discussion has kind of tapered, and I think that companies are trying to figure out what they want to do, as opposed to diving into a conversation on this topic with their bank. There’s still a lot of interest, there just haven’t been a lot of actual deal closures around those solutions.

Richman: I think interest in ESG is actually increasing a lot. Maybe it’s because I work for a European bank, but I think it’s coming to a theatre near you in the US as well. There may be new rules that require a large list of corporates to report on their supply chain emissions, and our clients are looking for tools that will help them get the data they need from their suppliers in order to be able to report and measure their progress against their supply chain emissions targets. Even US corporates today already have these targets, and more and more will likely have them in the future. Supply chain finance in particular can be a real enabler for clients in meeting these goals.

Sullivan: I don’t know if our phone has been ringing as much as we’ve been ringing our clients’ phones to try to have these conversations. There is obviously interest, but every company is trying to understand what the metric and the KPIs are. Will it really drive behaviour? Is it too big of a hill to climb, even though they know it’s the right hill to be on? One of the challenges that we’ve seen in our client conversations is alignment between procurement and the sustainability group within those companies – do they have the same goals? I think until that gets to be part of the DNA at companies, we’re still going to be out there educating, still looking to help them drive the behaviour that we think can be improving suppliers. Being able to embrace a broader swath of diverse suppliers is also something that we work on. I think it’s still a concept that’s in motion and we are advocates for it. But there still needs to be some adoption at companies in terms of this being a strategic initiative that we want to move forward.

The post GTR Americas roundtable: Banking leaders chart future of trade finance appeared first on Global Trade Review (GTR).

Released last week by German climate policy think tank Perspectives Climate Group and Oxfam, the report looks at how well aligned US Exim is with the country’s climate and development policies.

It calls on US Congress “to explicitly prohibit Exim from supporting fossil fuel projects, including companies with value chains that significantly rely on fossil fuels”.

Although US Exim is required to use at least 5% of its annual financing to support renewable energy, energy efficiency and storage, the report shows that just 1.25% of its new authorisations were deemed environmentally beneficial in 2021, while 0.2% were for renewable energies. Oil and gas made up over 25% of US Exim’s portfolio that year.

“Exim has long dragged its feet on shifting its portfolio to support the energy transition that the US needs, both to remain competitive in the global economy and to stop locking in dirty fossil fuel infrastructure propelling the world to climate catastrophe,” says Daniel Mulé, Oxfam America’s policy and programme manager for just energy transition and extractives.

The US is one of the signatories to the 2021 Glasgow statement – which aimed to end new direct public support for unabated fossil fuels by the end of 2022 – but the government has not yet released policy guidance.

Campaign groups have criticised US Exim for its support of oil and gas, including a liquefied natural gas (LNG) project in Papua New Guinea, an oil refinery in Indonesia and a deal with Trafigura to insure US$400mn in revolving credit facilities for the purchase of LNG.

Other recent approvals include a US$240mn loan guarantee for a gas project in Iraq and financing for an oil tank project in Estonia.

US Exim is also faulted in the report for a lack of transparency in its transaction reporting, especially around the support it provides to fossil fuel value chains, such as the export of equipment for coal mining.

To combat this, the study calls for legal reforms such as updating its mission and mandate to focus on “a just energy and climate transition”, and placing “absolute limits on fossil fuel production”.

US Exim could be made subject to judicial oversight by Congress, and as a last resort, the Secretary of State could also be called on to direct it to reject applications for fossil fuel projects, the report suggests.

In response, a senior US Exim official tells GTR that this year the agency’s financing “for climate and renewable transactions surpassed US$950mn, the largest amount the agency has ever authorised in this sector”.

Non-discrimination clause

Under particular scrutiny is a “non-discrimination” clause that prevents the export credit agency (ECA) from excluding deals purely because they are in the oil and gas sector.

The senior US Exim official says the agency “seeks to align with the Administration’s climate agenda while still complying with Exim’s statutory requirements, including the charter prohibition against discrimination based solely on industry, sector or business, and its mission to support US jobs”, adding that “any change to Exim’s charter must be passed through Congressional action”.

Yet the report says a way around this clause could also be achieved by setting maximum greenhouse gas emissions intensity thresholds.

The clause “does not effectively prevent Exim from screening projects and developing internal criteria and procedures that can screen and filter projects on carbon intensity without any explicit exclusion by industry, sector, or business”, the report says.

US Exim’s mandate does change periodically: in 1992, it was altered to require the agency to increasingly support environmentally beneficial exports, and in 2019, reforms included the requirement to commit at least 5% of its financing each year to renewable energy exports.

But changes to US Exim’s charter will require bipartisan support, which might be “difficult to achieve in the current political circumstances”, the report says.

Political consensus has proved to be a stumbling block for the ECA, which in recent years has been accused of favouring large corporates like Boeing, and distorting the free market “by crowding out private financing”.

Between 2015 and 2019, US Exim failed to get the required number of board members confirmed by the Republican party and so could not approve transactions of more than US$10mn or with tenors longer than seven years.

In its own 2022 Competitiveness Report, US Exim’s advisory committee acknowledges that the ECA “is not back up to fighting weight” since the quorum lapse, and is instead “clinging to practices designed for a different era” and “passively waiting for transactions”.

The committee recommends establishing a clean tech working group, and notes that despite the non-discrimination clause, “it isn’t mutually exclusive to recognise that reality while also substantially increasing the bank’s ability to advance clean energy solutions around the world”.

In its report, US Exim says that it authorised US$54.3mn in support of renewable energy exports last year, marking a US$12mn increase year on year, but adds that this is “well below authorisation levels from the years preceding the agency’s lapse in authority and lack of board quorum”. In 2014, the figure approached US$200mn.

“Taking the energy transition seriously and fully aligning Exim with the US climate commitments would be a clear win-win situation for Democrats and Republicans, for exporters and foreign buyers, as well as for present and future generations,” says Igor Shishlov, head of climate finance at Perspectives Climate Research and co-author of the Perspectives/Oxfam report.

The joint report also calls on the US to “demonstrate climate leadership” and ensure the global export finance system is aligned with the Paris Agreement, including tabling proposals for restricting oil and gas value chains via the OECD’s Arrangement on Officially Supported Export Credits.

Other goals include drafting a definition of climate finance and a net-zero target by 2050 at the latest.

The post US Exim urged to put “absolute limits” on fossil fuel projects: report appeared first on Global Trade Review (GTR).

The credit facility was initially launched at US$500mn and closed at US$600mn. It can be increased by an additional US$200mn via an accordion feature.

The agreement renews BB Energy’s first US borrowing base deal – signed two years ago – and is once again a digital facility that will use Swiss trade finance fintech Komgo’s platform, the trader says.

ING Capital acted as arranger and bookrunner on the syndication and is serving as administrative agent, while Citi is cash management bank.

A total of 11 banks, including returning lenders Crédit Agricole, HSBC, Garanti Bank International, Natixis, Société Générale, UBS and Wells Fargo joined the facility, while Deutsche Bank and MUFG are new financiers on the agreement.

“The entry of new lenders and the resulting large oversubscription is a testament to the maturity of BB Energy’s operations in the Americas,” says Cauê Todeschini, head of trade and commodity finance  Americas at ING.

In July, BB Energy closed an oversubscribed revolving credit facility worth US$350mn with a pool of 27 banks, the proceeds of which are refinancing a maturing facility and for general corporate purposes.

BB Energy, headquartered in the UAE, was founded by Lebanon’s Bassatne family in the 1960s and primarily trades crude, refined oil products, liquefied natural gas and liquefied petroleum gas. In 2022, it traded 31 million tonnes of crude and petroleum products and gas, resulting in a turnover of US$24bn.

Through its Houston office, BB Energy trades energy products both within the US as well as Central and South America.

The post BB Energy closes bumper borrowing base facility, draws in new banks appeared first on Global Trade Review (GTR).

Under the agreement, Nuclearelectrica will work with Canadian companies to develop Canada Deuterium Uranium (CANDU) reactors, units 3 and 4, at the already operational Cernavoda nuclear power plant.

The export financing will be provided via the government’s Canada Account, rather than the national export credit agency, Export Development Canada (EDC), a spokesperson for Global Affairs Canada confirms to GTR.

The Canada Account process is used when EDC is unable to take on the financing risk, though the agency typically helps negotiate, execute and administer these deals on the same basis as corporate account activities.

The Canadian government says the deal will drive down emissions and help Romania phase out coal power by 2032. According to Nuclearelectrica, the project is slated to be completed by 2031, and following its completion, nuclear energy will account for more than a third of domestic energy production.

The Export-Import Bank of the United States (US Exim) is also backing the proposed expansion of the plant and will provide a direct loan of US$57mn to EnergoNuclear, a subsidiary wholly owned by state-backed Nuclearelectrica, to support pre-construction engineering and feasibility studies for the project.

“Russia’s brutal and unjustified invasion of Ukraine has underscored the need for Romania and other European countries to reduce continental reliance on Russian energy while maximising their energy security. In this regard, Canada is stepping up to support Europe’s energy future in the face of supply shortages, while advancing shared priorities,” says Natural Resources Canada.

A representative from the government department tells GTR the agreement is aimed at the broader Canadian supply chain – rather than a specific exporting company – and will enable multiple firms to win contracts through an open procurement process.

The deal will “create hundreds, if not thousands, of jobs for engineers and scientists, as well as in the manufacturing sector”, they add.

The post Canada commits C$3bn export financing to Romania nuclear plant appeared first on Global Trade Review (GTR).

The Financial Crimes Enforcement Network (FinCEN) says Bancrédito, a San Juan-based bank that is now in liquidation, wilfully violated anti-money laundering and transaction reporting requirements between 2015 and 2022. 

Before its liquidation, Bancrédito provided services including checking accounts, correspondent banking and trade finance, FinCEN says.  

The authority says the bank allowed AllBank Corporation, a Panama-based lender shut down in 2019, to move more than US$100mn through a correspondent bank account held with Bancrédito. 

Those transactions included wire transfers by a Venezuelan national convicted of bribing government officials in Argentina, payments on behalf of an individual who had a yacht and aircraft seized by the Drug Enforcement Agency, and several payments from a company connected to the OneCoin cryptocurrency scam. 

“Bancrédito processed millions of dollars in suspicious transactions through the United States on behalf of high-risk customers, providing correspondent accounts to foreign financial institutions without the required due diligence and reporting required by the [Bank Secrecy Act],” says FinCEN director Andrea Gacki. 

Prior to its liquidation, the lender was one of Puerto Rico’s oldest and largest international banking entities (IBEs).  

Under US law, IBEs were not required to implement an anti-money laundering programme until March 2021, though were required to report suspicious activity under the Bank Secrecy Act.  

The fine is the first enforcement action taken against a Puerto Rican IBE. 

Gacki says the authority “is sending the message that the era of easy money laundering through Puerto Rican IBEs is over”. 

“Correspondent accounts held in the US by foreign financial institutions serve as an important gateway to the US economy, but have long been recognized to present unique risks that US financial institutions need to appropriately manage,” FinCEN adds. 

“Bancrédito’s failure allowed nearly an unfettered flow of funds by these international correspondent accounts through the US financial system, jeopardising the integrity of the United States financial system.” 

Offshore lenders 

Under US law, IBEs are only permitted to take deposits and provide loans to non-resident customers and foreign businesses, rather than Puerto Rican residents.  

Government listings show that in April 2022, the most recent date for which data is available, there were 27 IBEs active in Puerto Rico, including branches of international lenders Citi and UBS. As of Q1 this year, those lenders held assets totalling more than US$49bn in value. 

In a money laundering risk assessment published last year by the US Department of the Treasury, IBEs were singled out as carrying an elevated risk of exposure to money laundering “because of their offshore banking business model”. 

Scarce resources have meant there have been relatively few supervisory staff assigned to IBEs, making them “attractive money laundering vehicles, potentially allowing nefarious actors to misuse them to facilitate illicit financial activity”, the assessment found. 

Elizabeth Callan, a former financial crime analyst at the US treasury, the Drug Enforcement Agency and the CIA, says the enforcement action shows such businesses are likely to face greater scrutiny from enforcement authorities. 

“FinCEN has identified IBEs as an entryway to the financial system, and where there might be trade-based money laundering or other financial crime, is making it clear it is looking to do something about it,” says Callan, now an anti-money laundering and financial crime risk and compliance subject matter expert for North America at risk management tech firm SymphonyAI Sensa-NetReveal. 

“This is also an example of FinCEN addressing some of those gaps or risks that were pointed out in the US national money laundering risk assessment in 2022, and more broadly, we can expect to see action against other key risks for the US financial system that were identified in the assessment. 

“The nature of enforcement is that you don’t need 500 actions to send a message; one or two important or major ones will make it clear to the industry what authorities are looking at and where banks should focus attention.” 

Lenders should ensure they carry out proper due diligence on their customers and their activity, Callan says. 

“FinCEN also explains that much of the problem stemmed from the downstream customers or counterparties, and publicly available negative information existed on some of those downstream customers,” she adds.  

“For banks, that’s a really important part of this; you have to make sure you’re screening negative news properly, and where you do have hits, that they are properly investigated.” 

Other suspicious activity identified by FinCEN, not related to correspondent banking, involves Bancrédito founder Julio Herrera Velutini, a Venezuelan and Italian citizen and UK resident. 

The US Department of Justice last year accused Herrera Velutini of promising to provide funding to former Puerto Rico governor Wanda Vazquez Garced to support her election campaign in 2020. 

In exchange, Vazquez Garced agreed to stop investigations into Bancrédito by Puerto Rico’s financial regulator, it alleged. 

The post US threatens anti-money laundering crackdown on offshore lenders appeared first on Global Trade Review (GTR).

The pilot used the programmable transfer of tokenised deposits through smart contracts to provide instant payment by the shipping giant to a canal authority, expediting the traditionally cumbersome bank guarantee process and reducing transaction processing times from “days to minutes”, Citi says.

While the bank declined to name the canal authority that took part in the pilot, the solution is being announced in the wake of drought-induced capacity reductions at the Panama Canal, which have led to significant bottlenecks – and increased competition among carriers for slots to cross the vital waterway.

An unusually long dry season this year has forced the Panama Canal Authority to impose transit and draft restrictions on the waterway, which depends on rainwater to move vessels through locks connecting the Atlantic and Pacific Oceans. The resultant logjam of queueing ships has sparked fierce bidding for auctioned slots, which give shipowners the opportunity to jump the queue.

With time of the essence, any delay in obtaining a bank guarantee to cover passage fees – which must be paid in advance – could see a ship losing its slot.

Speaking to GTR at the Sibos event in Toronto this week, Valeria Sica, global trade data, partnerships and innovation head at Citi, says: “When you think about this specific use case, the ships need to move 24/7; they can’t wait until the bank is open to issue that guarantee.”

“We are converting client deposits to tokens that support a smart contract. When the conditions of the smart contract are met, those tokens go from one account to the other. For now, this is designed for very specific use cases, where guarantees are used as a payment mechanism.”

In a statement, Marie-Laure Martin, Maersk’s regional treasury manager for the Americas, says the technology used in the pilot has “promising applications for trade finance”. Beyond the bank guarantee process, Citi says it could also be leveraged to serve the same purpose as letters of credit in the trade finance ecosystem.

“The idea is to create solutions that really help our clients accelerate their own business,” Sica tells GTR. “The market is not necessarily ready for tokens, so when we designed the solution, we thought very deeply about what would make sense for clients and how we could design it in a way that would truly trigger adoption.”

The pilot is part of Citi’s new digital assets offering, which it launched at Sibos. Citi Token Services integrates tokenised deposits and smart contracts into the bank’s global network, with use cases including continuous cross-border payments and liquidity management, as well as automated trade finance solutions. Because the tokens are processed on private permissioned blockchain rails that are owned and managed by Citi, clients do not need to host their own blockchain node to access the services.

“Digital asset technologies have the potential to upgrade the regulated financial system by applying new technologies to existing legal instruments and well-established regulatory frameworks,” says Shahmir Khaliq, Citi’s global head of services. “The development of Citi Token Services is part of our journey to deliver real-time, always-on, next-generation transaction banking services to our institutional clients.”

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