Swiss commodity trade finance banks respond to major frauds and insolvencies in 2020 with recommended best practices guide

Ten banks active in commodity trade finance (CTF) in Switzerland have responded to the slew of huge trade finance scandals that emerged in 2020 by producing a summary published by the Swiss Trading & Shipping Association (STSA) of recommended best practices for their CTF activity.

The adoption and implementation of the recommendations is voluntary and non-binding so banks can dovetail recommended best practices with their own internal processes and working guidelines.

Malpractice laid bare

Wholesale trade finance fraud was laid bare in the energy and commodities sector in 2020 when the coronavirus pandemic precipitated a slump in oil prices and banks experienced substantial losses. This led the ten banks to conclude that there is a need to strengthen and standardise market practice in the field of commodity finance.

The banks say that good implementation of best practices by the relevant sectorial teams of each bank, and an ongoing initiative to exchange views on these subjects of common interest are seen as useful tools to reduce the potential for future losses and deemed important to ensure the sustainability of CTF activities.

Scope of recommendations

As the recommendations are not obligatory, banks remain free to tailor the degree of adoption to the circumstances of its individual client relationships.

Recognising differences in the modalities of trade and consequently specific finance practice between the various commodities, a general common practice was prepared and a summary of most of these recommended best practices can be found in the STSA guide, Commodity Finance Banks in Switzerland: Recommended Best Practices.

Slew of scandals

Amongst the most spectacular scandals that emerged in 2020 was the failure of Singapore-based Agritrade which collapsed owing banks nearly US$1 billion and the sudden demise of oil trader Hin Leong Trading alongside several other companies owned by Singaporean mogul Oon Kuin Lim and his children.

Banks including ABN Amro and the Swiss operations of BNP Paribas have exited CTF, others have cut back their operations while many traders and banks are embroiled in multiple lawsuits.


Amongst the recommendations in the STSA guide, banks are advised to refrain from circular financing where transactions are staged so that a cargo is bought and then sold back to the initial seller as a way to generate working capital.

Banks are also advised to carry out checks that goods actually exist by adopting procedures to approve warehouses and establish with them the right to carry out third-party checks. They should also undertake due diligence on warehouses and terminals.

The STSA guide, Commodity Finance Banks in Switzerland: Recommended Best Practices, can be found here.


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