«Trade Finance Demystified»: How dangerous instruments evade the control of banks

When it comes to the war on money laundering, Switzerland is still in the 19th century. The FinCEN Files last week provided another stark reminder of this, yet the Federal Council continues to place blind faith in banks to bring order to the commodities trade, a sector which produces various scandals every year. In the report "Trade Finance Demystified", Public Eye analyses trade financing instruments and unveils the ways in which its kingpins, who are launching their traditional FT Commodities Summit today, take advantage of regulatory loopholes to engage in high-risk deals.

(For more infographics download the report below)

Suspicious transactions totalling two trillion dollars from 1999 to 2017: This figure was revealed by the FinCEN Files data leak, which exposed the shortcomings of the measures put in place to prevent the laundering of money made through corrupt and criminal activities. The commodities trading sector is particularly exposed to these corruption risks. Today, Public Eye is revealing the role played by Swiss banks, in particular cantonal banks, in the financing of this sector. From 2013 to 2019, they lent no less than USD 17.2 billion dollars to Vitol, Glencore, Trafigura, Mercuria and Gunvor. But what checks do banks really implement on how their funds are used?

Our Trade Finance Demystified report – a nod to Trafigura’s ‘educational’ brochures – confirms that the Federal Council was forced to make a veiled admission that banks are not in a position to police the traders, in a report called for by parliament. The testimonies of bankers, compliance officers and traders reveal a dangerous evolution of instruments and practices that continue to evade the control of banks. These include Revolving Credit Facilities (or syndicated loans) which in some situations act as an "open bar" or blank cheque that banks provide to traders. As for swaps – exchanges of crude oil for refined petroleum products – they pass almost entirely under the banks’ radar.

Another development is that the main trading houses are now able to raise sufficient funds to increasingly be in a position to award huge – and opaque – loans to African states that are already heavily indebted, in exchange for privileged access to oil. The collapse of the price of this black gold caused by the Covid-19 crisis shone the harsh light of day on the severe impacts such agreements have on producer countries and their populations. In dire straits, Chad asked Glencore to freeze the repayment of loans taken out against oil in 2013 and 2014, which totalled nearly USD 2 billion. With the world in a state of flux, many countries are seeing their public debt skyrocket while at the same time traders, who have morphed into treasurers of globalisation, have become "too big to fail".

For more information, contact:

Oliver Classen, Media Director, +41 44 277 79 06, oliver.classen@publiceye.ch
Adrià Budry Carbó, Commodities Researcher, +41 78 738 64 48, adria.budrycarbo@publiceye.ch