Banks explore blockchain technology to tackle trade-based financial crime

Banks are starting to explore distributed-ledger technology similar to the one that underpins the bitcoin online payment system to curb trade-based money laundering (TBML).

Standard Chartered is working with DBS Group Holdings to develop an electronic ledger of invoices that uses a platform similar to the blockchain employed in bitcoin transactions.

Other banks exploring blockchain technology for trade finance and other banking applications include Bank of America and HSBC.

Fraud potential

Blockchain’s appeal is that it holds the prospect of eliminating paper invoices and documents along with the potential for fraud that accompanies them. The technology would be of greatest utility if banks adopt either common or compatible platforms.

Standard Chartered and DBS conducted a trial late last year of their TradeSafe project, which uses a shared ledger of as many as 60 mock invoices.

How TradeSafe works

The invoice and bill of lading numbers are used to generate a unique hash value that is stored on the shared ledger.

The system could potentially hold more details such as invoice amount, description of goods and date to create the hash value while confidential information is withheld from the shared data fields. This makes the hash value visible to all banks using the platform while confidential details remain undisclosed.

Processing stages

The bank receiving the invoice attaches one of four processing states – received, processing, financed or rejected – to that hash value.

If a second bank enters the same invoice data fields into the system, the same hash value would be generated, alerting the second bank that the invoice already exists on the ledger and the stage of processing it was at.

Based on the stage of processing, the second bank can then decide what it wants to do with that invoice.

Other banks

HSBC and Bank of America are reportedly involved in a number of blockchain projects including trade finance applications.

Citigroup is reportedly in the “early stages of exploration” to assess how blockchain technology can be applied to treasury and trade finance operations.



Categories: Trade Based Financial crimes News