Singapore’s commodities trading has seen scandals, keeping lawyers busy helping clients detect and mitigate fraudulent activity. Baldev Bhinder, the managing director of Blackstone & Gold LLC, discusses vulnerabilities in commodities trading, including fraud susceptibility, asset recovery challenges, and potential recovery avenues.
What does BlackStone & Gold do?
We specialize in energy, trade financing and commodities disputes, but our niche expertise is in trade fraud. Our capabilities naturally extend to asset recovery across the world, where legal experience, sector expertise and agility are critical.
Which commodity type is most susceptible to fraud?
No one commodity is particularly susceptible although fraud in oil trading tends to make the news. Its probably due to the large sums involved (up to $100m per vessel) and use of loose indemnity documents. But fraud happens equally in metals and agri-commodities as well.
What is the single most vulnerable aspect of commodities trading to fraud?
Most say it’s the paper bill of lading (a title document) because it can get altered or photocopied to facilitate a fraud. But I say receivables are the Achilles’ heel. Receivables can distort the health of a company, masking big losses by the creation of fake invoices from third parties or indirectly controlled entities.
What are some of the problems with asset recovery when dealing with commodities fraud?
Our core skill set is to spot vulnerabilities and marshal teams of lawyers and investigators to track assets internationally at short notice. Speed and momentum is vital. Asset recovery in commodities is unique because the first port of call would be to enforce security over the goods which sometimes reveal the weaknesses in such structures. The notion of security in commodities, allows a creditor in theory to take control and resell the goods in case of default but in practice, the creditors might struggle without the necessary possession, control or local know-how to seize and sell the goods when dealing with concepts such as retention of title, pledges and charges.
What about seeking recovery from third parties?
International trade can involve third-party custodians such as vessel owners, tank or warehouse operators who by virtue of their contractual documents might hold the goods on behalf of the owner and hence become liable for it, creating a further avenue of recovery.
If there’s a fraud, can’t a freezing injunction be used?
Freezers tend to be the knee-jerk reaction to fraud. If used properly, it can be the atomic bomb its meant to be but far too often, its poorly under-stood and deployed, making it a rather blunt tool. Enforcing a global freezing order in different jurisdictions might not be automatic or straightforward, taking away the element of surprise. Even when recognised, the injunction does not prevent the debtor from paying debts in the ordinary course of business – in that regard, it doesn’t give the creditor a priority over other creditors.– a creditor still needs to obtain the requisite judgments before enforcement. Sometimes insolvency might be a better option to clawback certain dubious transactions.
