37 ASIAN LEGAL BUSINESS – MAY 2024 WWW.LEGALBUSINESSONLINE.COM tors to operate shell companies and cover for trade fraud or money laundering schemes has come under scrutiny in recent news. In April, 41-year-old Chinese national Zheng Jia, who served as a nominee director for over 380 companies, was fined S$8,500 for his role in laundering millions of dollars through two shell companies tied to internet scams. A Singapore court ordered Zheng to pay the fine after he pleaded guilty to failing to exercise due diligence as a director and abetting another man for similar failures. The authorities have heeded recommendations from the Financial Action Task Force (FATF) to reform laws in curbing vulnerabilities while maintaining regulatory efficiency, according to Bhinder. For example, nominee directors and shareholders may soon be required to publicly disclose their representative status to the Accounting and Corporate Regulatory Authority (ACRA) and identify who nominated them. HOW INVESTIGATIONS PROCEED A law firm’s dual commercial and legal expertise goes a long way in investigating allegations of trade fraud, according to Bhinder. Thorough analysis calls for an understanding of how trade deals are structured and the vulnerabilities in these structures. “It’s often the commercials of the deal that are the red flags. There is a great deal of synergy between the investigation skill set and the asset recovery work,” he adds. Disputes related to commodities are becoming more commonplace in the logistics industry. Investigators examine shipping documents for inconsistencies, transaction records for fragmented information, and discrepancies between physical cargo ownership and paper trade agreements. When it comes to pursuing asset recovery, speed and momentum are the name of the game, says Bhinder. Yet, local laws impacting commingled commodities sometimes hamper security control over goods. He urged creditors to “stress test whether they have the necessary possession, control or local know-how to seize and sell the goods.” Bhinder notes that third parties like vessel owners and warehouse operators holding goods under contract could become liable. Fabricated receivables or duplicate assignments can undermine reliance on a debtor’s accounts receivables. While “the atomic bomb” of an injunction aims to surprise, Bhinder cautions they are “far too often, poorly understood and deployed, making it a rather blunt tool.” Global enforcement poses issues, and a costly injunction alone does not guarantee priority over debts or proprietary recovery rights. Even if a debtor becomes insolvent before litigation concludes, Bhinder argues that an appointed liquidator examining directors and clawing back certain transactions retains power for recoveries. Laws supporting creditor funding could incentivise pursuing insolvency claims. BROUGHT TO YOU BY BLACKSTONE & GOLD LLC A conversation with Baldev Bhinder 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 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 understood 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. 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 Baldev Bhinder Managing Director, Blackstone & Gold LLC, Singapore E: baldevbhinder@blackstonegold.com
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