Report Public Eye, 2020
Traders like to describe themselves as logistics managers who organise the delivery of goods from A to B. In reality, however, commodities trading is slightly more complex. The large trading houses have become masters of financial instruments that offer them greater financial flexibility and enable them to avoid any controls by banks.
These instruments include Revolving Credit Facilities, which in some situations act like an open bar or a blank cheque signed by banks in favour of trading houses. Pre-financing granted by the trading companies to governments of producer countries enables traders to source oil for numerous years using very opaque price formulas that escape the control of the financial institutions. In addition, swaps – exchanges of crude oil against refined petroleum products – and other alternative financial products, pass almost entirely under the banks’ radar.
To identify the flaws and shifts in a sector that continues to resist any form of regulation, it is key to understand these very complex instruments.
This report, entitled “Trade Finance Demystified”, has drawn freely from publications such as “Commodities Demystified” issued by the trader Trafigura. However, where the trader tells a positive story of globalisation, we recount the harmful financial excesses that ever more evade scrutiny by banks, as evidenced by scandals and cases piling up on the prosecutors’ desk in Switzerland.