Problem Statement
Duplicate financing, where the same parties avail financing on the same underlying trade transaction or asset more than once, creates a systemic risk in markets, with the potential to inflict serious harm to banks, their customers and economies. When large frauds are exposed, the natural reaction of banks has been to limit or curtail financing, which exacerbate the already wide trade finance gap. Publicly identified frauds account for just a small fraction of the total extent of fraud, as many frauds are not discovered and stay concealed when the financing is repaid. The continuation of âundiscoveredâ frauds have the potential to cause great damage when defaults occur. For these reasons, mitigating fraud risks and having mechanisms to ensure the integrity of financing transactions are needed and important.
Solution
MonetaGo is the worldâs foremost authority on the prevention of duplicate financing fraud with its flagship Secure Financing system.
MonetaGoâs Secure Financing system serves as a secure database for records of trade transactions financed by any user of the system worldwide for detection of duplicate financing fraud. It is a natively global solution that is interoperable between markets, necessary because duplicate financing fraud for international trade happens across borders. It is possible for the same trade transaction to be financed in different countries. A foreign supplier availing financing from the buyerâs bank under a supply chain finance program may simultaneously get financing on the same invoices from its own bank. The documents presented under a letter of credit may be re-used for presentation under a different letter of credit within the same jurisdiction or in another. This is why a deduplication system capable of preventing cross-border fraud must be global from the outset.
How It Works
Financierâs register select document information, prior to disbursement, to the Secure Financing system. The system creates a digital fingerprint by using a hashing algorithm, guaranteeing privacy, that enables detecting exact or partial matches between documents in the network.
The fingerprinting alerts financiers of exact or near matches to both registered and financed documents from other financiers, but also to any internal documents from oneâs own institution. The process from start to finish can be completed in real-time.
The Technology
MonetaGoâs Document Fingerprinting solution is built on proven technology, creating a unique, cryptographic hash of a documentâs information. Security and privacy is consistently assured through industry-tested enterprise-grade cryptography leveraging the SHA-256 algorithm.
Document Types
Having proven the base functionality of MonetaGoâs Secure Financing system for invoices, use of the technology is now expanded to cover 8 different document types: Invoices, Purchase Orders, Warehouse Receipts, Bills of Lading, Air Waybills, Letters of Indemnity, Delivery Orders, Bunker Delivery Notes.
See below for more information in the âSolution Deep Dive.â
Problem Statement
Recent trade finance events in various locations highlight that fraud can be perpetrated over long periods of time, to be discovered only when certain disruptions to the fraudstersâ operations occur causing them to be unable to repay their financiers. Many of these scandals originate from duplicate financing of authentic or fabricated documents.
Duplicate financing of the same transactions is a common problem in trade finance. It is difficult to put an estimate on the amounts that are involved, as many such frauds go undetected due to lack of a prevention mechanism. Banks have hitherto relied on paperwork to secure their transactions, and the contractual representations, warranties, and undertakings of their customers that there is no duplicates of the transactions that the banks are financing.
The need to prevent duplicate financing fraud is at all levels â from the largest transactions and corporates to small transactions involving micro, small, and medium size enterprises. The ability to effectively detect, deter, and prevent duplicate financing would result in reduction of risks for trade finance which would improve profitability of trade finance for banks and ultimately avail more financing to business enterprises who genuinely need financing for their trade activities.
Solution
MonetaGo is the worldâs foremost provider of duplicate financing fraud prevention technology, having deployed its first platform in India live in production since March 2018. The Secure Financing system has processed over 6 million transactions has detected thousands of attempts at duplicate financing.
The live solution in India helps TReDS, SWIFT India, NBFCs, and others mitigate the risk of duplicate finance frauds related to domestic invoices by making queries to the same MonetaGo Secure Financing platform.
The Secure Financing systemâs Invoice Fingerprinting capabilities leverage best-in-class technology to prevent duplicate financing in real-time. Having proven the base functionality of MonetaGoâs Secure Financing system for invoices, use of the technology covers 8 different document types: Invoices, Purchase Orders, Warehouse Receipts, Bills of Lading, Air Waybills, Letters of Indemnity, Delivery Orders, Bunker Delivery Notes.
How It Works
Lenders register select document information, prior to disbursement, to the network. With each document, the key information of the document is hashed to create digital fingerprints that guarantee privacy for everyone. Fingerprints are pushed to the network.
The information fields vary across the 8 document types that we currently support: Invoices, Purchase Orders, Warehouse Receipts, Bills of Lading, Air Waybills, Letters of Indemnity, Delivery Orders, Bunker Delivery Notes. For example, Invoices and Purchase Orders ask for buyer and supplier information as well as transaction amounts, while Bills of Lading and Warehouse Receipts ask for carrier or warehouse information but not transaction amounts. The solution was built to enable ease of adding support for new document types and information fields moving forward.
Standardisation of the fields submitted by the participants is essential. MonetaGo will obscure all of the information to protect privacy and address all competitive concerns.
The network acts as a secure unified data repository across the network participants. When the same document is submitted to the network from multiple lenders, the system will reject or flag all duplicates after the first unique instance is marked as financed on the system.
The network registry is architected to share data on a need-to-know basis only, so the information is not broadcast to everyone in the network. Of all the lenders on the network, only the lenders who submit a query to the network will store the query information. If the same query is submitted by 2 lenders, only those 2 lenders will have the fingerprint data.
In the case of simultaneous financing, the networkâs ordering service will resolve which event occurred first to determine which lender should process the financing. It will not be possible for more than a single instance of an invoice to be marked as financed.
In cases where a borrower may intentionally make minor changes to document fields to avoid duplication detection, the system may link similar records (e.g. near or fuzzy matched Document Fingerprints).
The Technology
A Document Fingerprint is created by cryptographically hashing various data points extracted from the document. The data points for fingerprinting are differently defined for each document type. The platform will analyse combinations of hashes to identify any Document Fingerprint matches â exact matches and fuzzy (partial) matches would indicate suspected duplicate financing attempts. Assurance of banks and their customersâ privacies will be provided by industry-tested enterprise-grade cryptography based on the SHA-256 algorithm.
The MonetaGo Secure Financing system is the first, and currently the only, third-party service available on SWIFT, launched in October 2022, accessible to SWIFTâs 11,000+ member financial institutions worldwide. It is the underlying technology powering the Trade Finance Registry of The Association of Banks in Singapore, launched live in June 2023, which deduplicates not only domestically but cross-border as well.The solution can also be accessed by Non-Banking Financial Institutions (NBFIs) directly through API or UI.
The scale of a standardised global solution results in better economics, keeping the cost of usage for banks as low as possible, to encourage mass adoption and create a more secure and safer ecosystem for trade finance.
MonetaGo has architected the Global Secure Financing product with customer privacy as the highest priority. A multi-pronged approach to privacy and security has been adopted to go beyond the industry standards expected. MonetaGo follows all industry standard practices for information security and is ISO 27001 certified, but is also taking steps to address the largest weakness of all vendors explained above - employee privilege - using cutting edge privacy enhancing technology, to provide stronger technological guarantees on customer privacy. Confidential Computing comes in many flavors, but all have a common goal of operating on data without the operator having any ability to gain knowledge of the data itself. This means a third party like MonetaGo can do useful calculations and processes on customer data without ever having visibility into it. This paradigm can be extended to allow operating on pooled data of multiple customers without any of the parties involved gaining any visibility into the raw data which doesnât belong to them. This is known as âSecure Multi-Party Computationâ. MonetaGo has partnered with Google to implement confidential computing through trusted execution environments on Google Cloud. Using this technology we minimize the ability of any individual employee to access or view customer data by removing all human controlled account privileges to the data while it is being operated on. Instead, the data is encrypted with a special key which only the target trusted execution environment can decrypt. This trusted execution environment is a highly protected piece of hardware which no admin has access to, and is strongly hardened against any external viewer.
Document Types
Financing platform for invoices, use of the technology is now expanded to cover 8 different document types: Invoices, Purchase Orders, Warehouse Receipts, Bills of Lading, Air Waybills, Letters of Indemnity, Delivery Orders, Bunker Delivery Notes.
Examples of Duplicate Financing Frauds A few examples to illustrate duplicate financing frauds are provided hereunder. Invoices Domestic / foreign suppliers financed under an SCF (Payables Finance) program offering the same invoices for factoring domestically. Same suppliers are enrolled in two or more SCF (Payables Finance) programs of the same Buyer, and same invoices are financed by different SCF providers. Supplier obtaining domestic / international factoring of the same invoices from two or more finance providers. Purchase Orders Same purchase orders submitted to two or more banks for PO finance or pre-shipment financing. Warehouse Receipts Same warehouse receipts submitted to two or more banks for inventory financing. The banks may be in the same country or in different countries. Bills of Lading Same bill of lading presented for two or more Letters of Credit.
The examples above are neither exhaustive nor restrictive. Banks are welcome to share additional duplicate financing fraud scenarios. The tests for duplicate financing would follow the same logic for each document type.