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How digital trade finance solutions work to address COVID-19 concerns

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As COVID-19 spreads across the world, courier services and the movement of paper documents have slowed. A recent review of the survival of human coronaviruses on surfaces found large variability, ranging from two hours to nine days, writes Colin Stevens.

The survival time depends on a number of factors, including the type of surface, temperature, relative humidity and specific strain of the virus.

With shipping routes and ports disrupted, more countries entering lockdowns and pressure mounting on exporters, logistics networks and banks, there is a strong incentive for businesses who trade internationally to digitize their documents.

The multi-commodity trading business is very complex - there are a number of stakeholders, intermediaries and banks operating together to make deals happen. These deals are massive in value and happen very frequently - it’s  high volume business.

In a typical international trade up to 36 documents issued by different parties from different countries are first sent to a producer or trading company, further handled and then sent to banks, all making the spread of the virus worse.

Therefore, parties involved in global trade are having to turn to digital solutions, such as electronic signatures and platforms which offer digitized documents, to ensure their trade finance deals and papers can be virtually inked.

In what is called the 'Silk Road Countries'- the areas between Europe, Central Asia and China some companies that are using all manual processes and others that are moving into digital - there’s no standardization.

An international organization with the aim of increasing trade amongst members and states is the Silk Road Chamber of International Commerce.

One of its leading members is Ali Amirliravi, the CEO of LGR Global of Switzerland and founder of Silk Road Coin, a cryptocurrency designed to facilitate international cross border trade along the Belt and Road countries.

Speaking to this website, he said:

Ali Amirliravi, the CEO of LGR Global of Switzerland

LGR Global of Switzerland CEO Ali Amirliravi

“The COVID pandemic has highlighted a lot of the problems that currently exist in global supply chains. To begin with, we saw the risks of the so-called “just-in-time” production style and what can happen when companies use supply chains themselves as warehouse facilities. Everyone saw the disruptions and delays in supply of the surgical masks and personal protective gear--the overall lack of transparency in traditional systems was really brought to light.

"We saw the need for high quality data control and documentation - people wanted to know exactly where their products were coming from and which touchpoints exist along the supply chain. And then of course we saw the need for speed - the demand was there, but the traditional supply chains ran into a number of problems in generating and delivering the products on time - especially once the legal and compliance requirements were enforced.

"On the money movement side, we saw increased fees, coin shortages, and bank delays really interfering with critical business operations. In times of crisis, even small inefficiencies can have a huge negative impact - this is true particularly in the commodity trading industry where the transaction size and volume is so large.

"These are all problems that the industry has been aware of for some time now, but the COVID crisis has shown the need for action now so that we can overcome these issues. It’s a critical time for infrastructure upgrades and increased transparency, and while the pandemic has caused a lot of negative effects, a potential positive impact is that it has made clear to the industry that changes do need to be made to optimize processes and improve the overall functioning of international trade, trade finance, and money movement.”

Ali Amirliravi suggest some of the solutions to these problems:

“I think it comes down to integrating new technologies in smart ways. Take my company for example, LGR Global.  When it comes to money movement, we are focused on three things: speed, cost and transparency. To address these issues, we are leading with technology and using things like blockchain, digital currencies and general digitization to optimize the existing methodologies.

"It's quite clear the impact that new technologies can have on things like speed and transparency, but when I say it’s important to integrate the technologies in a smart way that’s important because you always have to keep your customer in mind - the last thing we would want to do is introduce a system that actually confuses our users and makes his or her job more complicated. So on one hand, the solution to these problems is found in new technology, but on the other hand, it’s about creating a user experience that is simple to use and interact with and integrates seamlessly into the existing systems.”

In a global emergency, international trade may slow but it must not stop. Even as COVID-19 reveals the shortcomings of a paper-based trade system, it presents companies such as LGR Crypto Bank an opportunity to modernise the function and nature of trade.

“In the trade finance and money movement industry, that means that new solutions have to be able to plug in directly into existing customer systems,” said Amirliravi.   “Using APIs this is all possible. It’s about bridging the gap between traditional finance and fintech, and making sure that the benefits of digitalization are delivered with a seamless user experience.”

 

 

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COVID-19 reveals the shortcomings of a paper-based trade system

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According to a recent report by the International Chamber of Commerce, as COVID-19 reveals the shortcomings of a paper-based trade system, financial institutions (FIs) are finding ways to keep trade circulating. It states that the problem being faced today is rooted in trade’s single most persistent vulnerability: paper. Paper is the financial sector’s Achilles heel. The disruption was always going to happen, the only question was, when, writes Colin Stevens.

Preliminary ICC data shows that financial institutions already feel they are being impacted. More than 60% of respondents to the recent COVID-19 supplement to the Trade Survey expect their trade flows to decline by at least 20% in 2020.

The pandemic introduces or exacerbates challenges to the trade finance process. To help combat the practicalities of trade finance in a COVID-19 environment, many banks indicated that they were taking their own measures to relax internal rules on original documentation. However, only 29% of respondents report that their local regulators have provided support to help facilitate ongoing trade.

It’s a critical time for infrastructure upgrades and increased transparency, and while the pandemic has caused a lot of negative effects, a potential positive impact is that it has made clear to the industry that changes do need to be made to optimize processes and improve the overall functioning of international trade, trade finance, and money movement.

Ali Amirliravi, the CEO of LGR Global of Switzerland and founder of Silk Road Coin, explained how his firm has found solutions to these problems.

“I think it comes down to integrating new technologies in smart ways. Take my company for example, LGR Global, when it comes to money movement, we are focused on 3 things: speed, cost & transparency. To address these issues, we are leading with technology and using things like blockchain, digital currencies and general digitization to optimize the existing methodologies.

Ali Amirliravi, the CEO of LGR Global of Switzerland and founder of Silk Road Coin,

Ali Amirliravi, the CEO of LGR Global of Switzerland and founder of Silk Road Coin

"It's quite clear the impact that new technologies can have on things like speed and transparency, but when I say it’s important to integrate the technologies in a smart way that’s important because you always have to keep your customer in mind - the last thing we would want to do is introduce a system that actually confuses our users and makes his or her job more complicated. So on one hand, the solution to these problems is found in new technology, but on the other hand, it’s about creating a user experience that is simple to use and interact with and integrates seamlessly into the existing systems. So, it’s a bit of a balancing act between technology and user experience, that’s where the solution is going to be created.

"When it comes to the broader topic of supply chain finance, what we see is the need for improved digitalization and automation of the processes and mechanisms that exist throughout the product lifecycle. In the multi-commodity trading industry, there are so many different stakeholders, middlemen, banks, etc. and each of them have their own way of doing this - there is an overall lack of standardization, particularly in the Silk Road Area. The lack of standardization leads to confusion in compliance requirements, trade documents, letters of credit, etc., and this means delays and increased costs for all parties. Furthermore, we have the huge issue of fraud, which you have to expect when you are dealing with such disparity in the quality of processes and reporting. The solution here is again to use technology and digitalize and automate as many of these processes as possible - it should be the goal to take human error out of the equation.

"And here is the really exciting thing about bringing digitalization and standardization to supply chain finance: not only is this going to make doing business much more straightforward for the companies themselves, this increased transparency and optimization will also make the companies much more attractive to outside investors. It’s a win-win for everyone involved here.”

How does Amirliravi believe these new systems can be integrated into existing infrastructure?

“This is really a key question, and it's something that we spent a lot of time working on at LGR Global. We realized you can have a great technological solution, but if it creates complexity or confusion for your customers, then you’ll end up causing more problems than you solve.

In the trade finance and money movement industry, that means that new solutions have to be able to plug in directly into existing customer systems --using APIs this is all possible. It’s about bridging the gap between traditional finance and fintech and making sure that the benefits of digitalization are delivered with a seamless user experience.

The trade finance ecosystem has a number of different stakeholders, each with their own systems in place. What we really see a need for is an end-to-end solution that brings transparency and speed to these processes but can still interact with the legacy and banking systems that the industry relies on. That’s when you’ll start to see real changes being made.”

Where are the global hotspots for change and opportunities?  Ali Amirliravi says that his company, LGR Global, is focusing on the Silk Road Area - between Europe, Central Asia and China - for a few main reasons:

“First, It’s an area of incredible growth. If we look at China for example, they have maintained GDP growth of over 6% for the last years, and central Asian economies are posting similar numbers, if not higher. This kind of growth means increased trade, increased foreign ownership and subsidiary development. It’s an area where you can really see the opportunity to bring a lot of automation and standardization to the processes within the supply chains. There is a lot of money being moved around and new trading partnerships being made all the time, but there are also a lot of pain points in the industry.

The second reason has to do with the reality of currency fluctuation in the area. When we say Silk Road Area countries, we are talking about 68 countries, each with their own currencies and the individualized value fluctuations that come as a by-product of that. Cross-border trade in this area means that the companies and stakeholders that participate in the finance side have to deal with all kinds of problems when it comes to currency exchange.

And here is where the banking delays that happen in the traditional system really have a negative impact on doing business in the area: because some of these currencies are very volatile, it can be the case that by the time a transaction is finally cleared, the actual value that is being transferred ends up being significantly different than what might have been agreed to initially. This causes all kinds of headaches when it comes to accounting for all sides, and it’s a problem that I dealt with directly during my time in the industry.”

Amirliravi believes that what we are seeing right now is an industry that is ready for change. Even with the pandemic, companies and economies are growing, and there is now more of a push toward digital, automated solutions than ever before. The volume of cross border transactions has been growing steadily at 6% for years now, and just the international payments industry alone is worth 200 Billion Dollars.

Numbers like that show the impact potential that optimization in this space could have.

Topics like cost, transparency, speed, flexibility and digitization are trending in the industry right now, and as deals and supply chains continue to become more and more valuable and complex, demands on infrastructure will similarly increase. It’s really not a question of “if”, it’s a question of “when” - the industry is at a crossroads right now: it’s clear that new technologies will streamline and optimize processes, but parties are waiting for a solution which is secure and reliable enough to handle frequent, high volume transactions, and flexible enough to adapt to the complex deal structures that exist within trade finance. “

Amirliravi and his colleagues at LGR Global see an exciting future for the b2b money movement and trade finance industry.

“I think something that we are going to continue to see is the impact of emerging technologies on the industry “he said.  “Things like blockchain infrastructure and digital currencies will be used to bring added transparency and speed to transactions. Government-issued central bank digital currencies are also being created, and this is also going to have an interesting impact on cross-border money movement.

"We’re looking at how digital smart contracts can be used in trade finance to create new automated letters-of-credit, and this gets really interesting once you incorporate IoT technology. Our system is able to trigger transactions and payments automatically based on incoming data streams. This means, for example, that we could create a smart contract for a letter of credit which automatically releases payment once a shipping container or a shipping vessel reaches a certain location. Or, a simpler example, payments could be triggered once a set of compliance documents is verified and uploaded to the system. Automation is such a huge trend - we’re going to see more and more traditional processes being disrupted.

"Data is going to continue to play a huge role in shaping the future of supply chain finance. In the current system, a lot of data is siloed, and the lack of standardization really interferes with overall data collection opportunities. However, once this problem is solved, an end-to-end digital trade finance platform would be able to generate big data sets that could be used to create all kinds of theoretical models and industry insights. Of course, the quality and sensitivity of this data means that data management and security will be incredibly important for the industry of tomorrow.

"For me, the future for the money movement and trade finance industry is bright. We’re entering the new digital era, and this is going to mean all kinds of new business opportunities, particularly for the companies that embrace next generation technologies.”

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Big-tech's stablecoins may hurt privacy and innovation - ECB

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Representations of virtual currency are displayed in front of the Libra logo in this illustration picture, June 21, 2019. REUTERS/Dado Ruvic/Illustration

A stablecoin managed by a big tech company, like Facebook's FB.O proposed libra, would raise concerns about data protection and even choke financial innovation, European Central Bank board member Fabio Panetta said on Wednesday (4 November), writes Francesco Canepa.

“The issues at stake range from data security and compliance with EU data protection law to cutting off the lifeblood of European financial innovation,” Panetta said.

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We can’t afford tax havens in the age of #Coronavirus

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UK Chancellor Rishi Sunak, appointed to the job just over a month ago, announced the most significant set of British policy measures since the Second World War on Friday, 20 March.  The sweeping package—which includes a £30 billion tax holiday for corporations and a government commitment to pay part of citizens’ wages for the first time in British history—would have been unthinkable for a Conservative administration only weeks ago. The unprecedented nature of the measures, as well as the gravitas with which Sunak announced them, drove home the reality of the economic tsunami which the coronavirus pandemic has unleashed.

The global economy, as one commentator noted, is going into cardiac arrest. Central banks from Tokyo to Zurich have slashed interest rates—but this can only do so much to alleviate the pain from millions of workers staying home, assembly lines grinding to a halt, and stock markets going into freefall.

It’s almost impossible to predict the full scale of economic damage while most of the world is still fighting to contain the virus’s exponential spread, and while so much remains uncertain. Will the virus, for example, fade thanks to a combination of strict quarantine measures and warmer weather—only to return with a vengeance in the fall, causing a devastating double dip in economic activity?

What’s almost certain is that Europe is tipping into a fresh financial crisis. “Extraordinary times require extraordinary measures,” admitted ECB chief Christine Lagarde, underscoring that “there are no limits to our commitment to the euro.” The bloc’s major economies, some of which were flirting with recession even before the pandemic, are sure to blow past 3% deficit limits. They are likely to play fast and loose with EU state aid rules, too, as hard-hit firms—particularly major airlines, including Air France and Lufthansa—may need to be nationalised to keep them from folding.

As policymakers try and keep their economies afloat during—and after—this acute phase of the pandemic, they will need every scrap of revenue. It’s outrageous, then, that some $7 trillion in private wealth is hidden away in secrecy jurisdictions, while corporate tax avoidance via offshore tax havens drains as much as $600 billion a year from government coffers. New research indicated that 40% of multinational firms’ profits are squirreled away offshore.

The Tax Justice Network has identified an “axis of avoidance”—the UK, the Netherlands, Switzerland and Luxembourg—which together account for fully half of the world’s tax evasion. The UK bears a particular responsibility for failing to crack down on the widespread financial malfeasance occurring in its overseas territories.  While NHS staff on the frontlines of the coronavirus epidemic have expressed concerns that they are being treated as “cannon fodder” amidst a gross shortage of protective equipment, the world’s three most notorious offshore hideaways are British overseas territories.

The most famous is probably the Cayman Islands, which the EU placed on its tax haven blacklist earlier this year. For decades, ill-fated firms from Enron to Lehman Brothers stashed their problematic assets in the idyllic islands, while firms like mining giant Glencore allegedly funnelled bribe funds through the British Overseas Territory.

The Caymans have made a recent attempt to shed this reputation as a fiscal Wild West, pledging to reveal corporate owners by 2023—a move which would bring the island nation in line with EU directives. In the meantime, however, stories continue to emerge illustrating how unscrupulous companies are taking advantage of the Caymans’ lax regulation.

Just a few months ago, the Gulf Investment Corporation (GIC)—a fund owned jointly by the six Gulf countries—asked courts in both the Caymans and the United States to look into the “hundreds of millions of dollars” which have apparently disappeared from the Port Fund, a Caymans-based financial vehicle.

According to court filings, the Port Fund’s sponsor, KGL Investment Company, may have been involved in siphoning off proceeds from the sale of Port Fund assets in the Philippines. The GIC maintains that the Port Fund sold a Filipino infrastructure project for roughly $1 billion—but only disclosed $496 million in proceeds and disbursed a mere $305 million to the fund’s investors.

The “missing” $700 million didn’t just evaporate into the ether, of course. It seems highly plausible that the discrepancy has gone at least partly towards the costly lobbying effort which the Port Fund has mounted to spring its former executives, Marsha Lazareva and Saeed Dashti, from prison in Kuwait, where they’ve been locked up after being convicted of misappropriating public funds. The high-powered lobbying campaign has run up a tab of millions of dollars and roped in everyone from Louis Freeh, the head of the FBI from 1993 to 2001, to Cherie Blair, the wife of former British PM Tony Blair.

The sordid saga is the perfect illustration of how cunning companies can exploit the lack of regulatory oversight in fiscal paradises like the Caymans to keep cash out of public coffers. There are countless such examples. Netflix reportedly shifts money through three different Dutch companies to keep its global tax bill low. Until mere months ago, tech titan Google took advantage of a tax loophole dubbed the “Double Irish, Dutch sandwich”, channelling huge sums through Ireland to “ghost companies” in tax havens including Bermuda and Jersey, both British dependencies.

European leaders can no longer afford inaction on stamping out these financial black holes. Ibrahim Mayaki, the co-chair of a recently-created UN panel on illicit financial flows, remarked that “the money that is being hidden in offshore tax havens, laundered through shell companies and outright stolen from public coffers should be put towards ending poverty, educating every child, and building infrastructure that will create jobs and end our dependence on fossil fuels.”

Right now, it should be put towards retrofitting critical care beds, ensuring that Italian doctors treating coronavirus patients have the gloves that could save their own lives, and providing support to Europe’s small businesses so that they don’t go belly up.

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