Financing, securing, controlling: the risks of commodity trading — a part of the book Geneva as an International Financial Centre by Dr Alexander Ressos.
Commodity trading lives on credit, which in turn lives on trust. A cargo of oil, copper or wheat is worth tens of millions of dollars. The trader who buys it does not pay for it out of its own funds, while the bank that finances it never sees it. The whole chain rests on documents, certificates, guarantees and verifications, whose reliability determines the security of the transactions. When that trust is betrayed, as it was in 2020, when traders presented the same cargoes to several banks or invented cargoes that did not exist, the losses run into billions and institutions withdraw from the sector.
The risks of commodity trading go beyond fraud. International sanctions, whose scale has changed in nature since 2022, can render transactions already under way unlawful from one day to the next. The fight against money laundering and corruption imposes on traders, as on banks, due diligence obligations with regard to their counterparties, particularly in producing countries where politically exposed persons are numerous. The criminal liability of companies, introduced into Swiss law in 2003, has led to the conviction of several major Geneva and Zug houses for bribery of foreign public officials. Requirements of transparency and accountability, finally, have multiplied, from the Code of Obligations to international initiatives.
Part H examines these risks in six chapters. The first describes trade finance, its instruments and its banks. The second analyses the frauds of 2020 and their consequences. The third deals with sanctions, in particular those adopted against Russia. The fourth presents the fight against money laundering and the treatment of politically exposed persons. The fifth examines the criminal liability of companies and the cases that struck Gunvor, Glencore and Trafigura. The sixth describes the requirements of transparency and accountability, from company law to sector initiatives. As these subjects lie at the heart of the author’s practice, they are treated from the practitioner’s perspective, with the points that require verification flagged.
This part belongs to Geneva as an International Financial Centre by Dr Alexander Ressos, published here in full, section by section.
Trade finance: instruments, banks, risks — overview and summary
Commodity trade finance, or transactional commodity finance, is a banking speciality of which Geneva is one of the principal centres in the world. Read more Geneva · Financing, securing, controllingThe logic of transactional finance
Transactional finance rests on a simple idea: each trading transaction finances itself. Read more Geneva · Financing, securing, controllingThe documentary credit
The documentary credit, or letter of credit, is the central instrument of commodity trade finance. Read more Geneva · Financing, securing, controllingThe other instruments
The documentary credit is only one instrument among a broad range. Trade finance draws on a set of tools adapted to the different phases and the different risks of commodity transactions. Read more Geneva · Financing, securing, controllingThe trade finance banks in Geneva
Trade finance in Geneva is practised by a group of banks whose composition has changed over time. Read more Geneva · Financing, securing, controllingThe risks of trade finance
Trade finance carries risks of its own, which the events of 2020 brought to light and which the following chapter analyses. They can be grouped into a few categories. Read more Geneva · Financing, securing, controllingHow the sector has evolved since 2020
The frauds of 2020 brought about a contraction and a transformation of trade finance. Several banks withdrew or scaled back their activity, as the following chapter describes. Read more Geneva · Financing, securing, controllingTrade finance and wealth management
Trade finance and wealth management, the two pillars of the financial centre, maintain relationships that market participants do not always emphasise. Read more Geneva · Financing, securing, controllingDocumentary risk up close: anatomy of a bill of lading
The bill of lading deserves particular attention, so heavily does it concentrate the risks of trade finance. Read more Geneva · Financing, securing, controllingPre-financing for producer states: a special case
The pre-financing that traders grant to the national companies of producer countries deserves separate examination, given its importance for Africa, which Part I will develop. Read more Geneva · Financing, securing, controllingThe documentary credit up close: a typical transaction
The documentary credit is worth following step by step, because its mechanics explain both its strength and its weaknesses. Read more Geneva · Financing, securing, controllingSecurity interests: pledges, assignments and fiduciary arrangements
Transactional financing rests on security interests whose legal soundness determines the credit. Read more Geneva · Financing, securing, controllingStructured finance: pre-export and inventory-backed financing
Beyond transactional operations, trade finance includes more complex structures in which the Geneva banks were pioneers. Read more Geneva · Financing, securing, controllingTrade finance and Basel III
Prudential regulation has made trade finance more expensive for banks. The capital requirements derived from the Basel accords, whose final version has applied in Switzerland since 1 January 2025,… Read more Geneva · Financing, securing, controllingTrade finance in figures
Worked example. A Geneva bank devotes CHF 4 billion of facilities to transactional trade finance, spread across 60 traders. Read more Geneva · Financing, securing, controllingCredit insurance and public guarantees
Trade finance relies on insurers whom banks and traders call upon to transfer part of the risk. Private credit insurance covers a buyer’s default on payment, with ceilings per debtor and deductibles. Read more Geneva · Financing, securing, controllingChecklist: structuring a transactional financing
Identify precisely the goods being financed, their value, their liquidity and their place of storage or transport. Read more Geneva · Financing, securing, controllingThe frauds of 2020: when the cargoes do not exist — overview and summary
In the history of trade finance, 2020 will remain the year of the frauds. Within a few months, several traders based in Singapore, Dubai and elsewhere collapsed, revealing that they had obtained… Read more Geneva · Financing, securing, controllingThe context: the pandemic and the collapse in prices
The frauds of 2020 were brought to light by a market shock. In the spring of 2020 the Covid-19 pandemic caused a collapse in energy demand and a sharp fall in oil prices, which briefly turned… Read more Geneva · Financing, securing, controllingHin Leong: the collapse of a giant
Hin Leong Trading, founded in Singapore in 1963 by Lim Oon Kuin, was one of the largest independent oil traders in Asia. Read more Geneva · Financing, securing, controllingAgritrade, ZenRock, Hontop and the others
Other cases came to light at the same time. According to Global Trade Review, the first sign of trouble appeared in March 2020, when the Singapore trader Agritrade International was accused by ING,… Read more Geneva · Financing, securing, controllingThe mechanics of the fraud
The frauds of 2020 exploited the structural weaknesses of transactional financing described in the previous chapter. Read more Geneva · Financing, securing, controllingThe banks: losses, withdrawals, closures
The consequences for the banks were immediate and lasting. ABN Amro, whose exposure to Hin Leong was exceeded only by that of HSBC, announced in August 2020 its complete withdrawal from the trade and… Read more Geneva · Financing, securing, controllingThe lessons
The frauds of 2020 led banks and authorities to draw lessons, which Bloomberg summarised as follows: most banks chose to remain in an 18,000 billion dollar market and took steps to fight back. Read more Geneva · Financing, securing, controllingGeneva after 2020
The Geneva financial centre drew its own particular lessons from the frauds of 2020. Read more Geneva · Financing, securing, controllingA long history: fraud before 2020
The frauds of 2020 form part of a long history. Commodity-backed financing has been exposed, since its origins, to the temptation to pledge goods that do not exist or to pledge them several times… Read more Geneva · Financing, securing, controllingThe consequences for honest traders
The frauds of 2020 penalised traders who had no part in them. The contraction of credit, the tightening of conditions and the withdrawal of banks hit the whole sector, and in particular the mid-sized… Read more Geneva · Financing, securing, controllingThe mechanisms in detail: documents, stocks, counterparties
The frauds of 2020 used three families of mechanisms which Geneva practitioners have since learned to recognise. Read more Geneva · Financing, securing, controllingThe Hin Leong trial and the question of responsibility
The trial of the founder of Hin Leong, which ended in 2024 with his conviction for cheating and abetting forgery, brought to light the responsibility of management in a fraud that auditors, banks and… Read more Geneva · Financing, securing, controllingThe lessons for supervision
The frauds of 2020 raised the question of the supervision of trading and its financing. Read more Geneva · Financing, securing, controllingWhat fraud costs a financial centre
Worked example. According to estimates in the specialist press, the frauds of 2020 caused more than nine billion dollars of potential losses to the banks, a substantial share of which fell on… Read more Geneva · Financing, securing, controllingThe frauds and Geneva’s reputation
Although the frauds of 2020 took place mainly in Singapore and Dubai, their consequences reached Geneva through the banks. Read more Geneva · Financing, securing, controllingThe frauds and insurance: who pays in the end?
When a fraud is discovered, the question of who pays arises between the banks, the insurers, the auditors, the inspectors and the management. Read more Geneva · Financing, securing, controllingInternal fraud: the trader who hides its losses
Whereas the frauds of 2020 were directed against the banks, another category of fraud is directed against the trading house itself by its own employees. Read more Geneva · Financing, securing, controllingThe frauds and technology: what 2020 accelerated
The frauds of 2020 had an unexpected effect: they accelerated the digitalisation of trade finance, which the banks had been putting off for years for want of a common interest. Read more Geneva · Financing, securing, controllingChecklist: detecting the warning signs of trade finance fraud
Rapid growth in financed volumes without a corresponding increase in equity or operational capacity. Read more Geneva · Financing, securing, controllingSanctions: when the law interrupts the flows — overview and summary
On 28 February 2022, at an extraordinary meeting, the Federal Council decided to adopt the European Union’s sanctions against Russia. Read more Geneva · Financing, securing, controllingThe Swiss sanctions framework
Switzerland applies sanctions on the basis of the Federal Act on the Implementation of International Sanctions, known as the Embargo Act, which entered into force in 2003. Read more Geneva · Financing, securing, controllingFebruary 2022: the adoption of the sanctions against Russia
Russia’s invasion of Ukraine on 24 February 2022 confronted Switzerland with a choice. Read more Geneva · Financing, securing, controllingThe frozen assets
The asset freeze is the most visible measure. As at 1 April 2025, the value of assets frozen in Switzerland as a result of the sanctions against Russia amounted to CHF 7.4 billion. Read more Geneva · Financing, securing, controllingSanctions and commodity trading
The sanctions struck Geneva’s commodity trading even more directly than its wealth management. Read more Geneva · Financing, securing, controllingThe circumvention cases
The sanctions gave rise to circumvention cases involving Geneva actors. The most significant concerns a trader established in Geneva, described by the press as the first European national sanctioned… Read more Geneva · Financing, securing, controllingSanctions compliance: organisation and practice
Sanctions compliance requires institutions and traders to put in place a specific organisation, the elements of which have become clearer since 2022. Read more Geneva · Financing, securing, controllingThe other sanctions regimes
Russia is not the only country targeted. Switzerland applies sanctions against Iran, North Korea, Syria, Belarus, Myanmar, Venezuela and other states, as well as measures against persons linked to… Read more Geneva · Financing, securing, controllingWhat the sanctions have changed for Geneva
The sanctions adopted since 2022 have transformed the Geneva financial centre in several ways. Read more Geneva · Financing, securing, controllingNeutrality put to the test by sanctions
The adoption of the sanctions against Russia revived, in Switzerland, an old debate on neutrality, whose origins Parts C and F have traced. Read more Geneva · Financing, securing, controllingThe twentieth package and the evolution of the measures
The sanctions against Russia have extended well beyond the initial asset freezes and export bans. Read more Geneva · Financing, securing, controllingAmerican sanctions and their extraterritorial reach
American sanctions, described above as regards their reach, call for some clarification of their mechanics. Read more Geneva · Financing, securing, controllingManaging frozen assets
Freezing an asset does not make it disappear; it immobilises it. Its management raises questions that Geneva banks have had to resolve. Read more Geneva · Financing, securing, controllingThe neutrality initiative: the vote of 27 September 2026
Swiss sanctions policy is directly at stake in a popular vote scheduled for 27 September 2026. Read more Geneva · Financing, securing, controllingHumanitarian exemptions and International Geneva
Sanctions contain exemptions for humanitarian action, and Geneva, the humanitarian capital described in Part F, is one of the places where they are applied. Read more Geneva · Financing, securing, controllingSanctions and private law: contracts, force majeure and disputes
Beyond public law, sanctions disrupt contracts. A sale or financing contract concluded before a sanction and rendered unperformable after it raises questions of force majeure, impossibility,… Read more Geneva · Financing, securing, controllingChecklist: managing sanctions risk in a commodity trading transaction
Screen all parties, beneficial owners, vessels, ports and goods against the Swiss, European, British and American lists. Read more Geneva · Financing, securing, controllingAnti-money laundering and politically exposed persons — overview and summary
Since 1990, the fight against money laundering has formed the bedrock of compliance in the Geneva financial centre. Read more Geneva · Financing, securing, controllingThe legal framework
The fight against money laundering rests on two pillars. The criminal pillar comprises Articles 305bis and 305ter of the Criminal Code, introduced in 1990, which penalise money laundering and the… Read more Geneva · Financing, securing, controllingThe Reporting Office statistics
The annual reports of the Money Laundering Reporting Office Switzerland measure the growing intensity of the system. Read more Geneva · Financing, securing, controllingPolitically exposed persons
Politically exposed persons form the category of clients to which the regulations attach the highest degree of vigilance. Read more Geneva · Financing, securing, controllingThe cases that have marked the financial centre
Over the past two decades the Geneva financial centre has been hit by several money laundering cases involving politically exposed persons or funds of criminal origin. Read more Geneva · Financing, securing, controllingFINMA and enforcement
FINMA supervises compliance with anti-money laundering obligations by the institutions it licenses. Read more Geneva · Financing, securing, controllingCommodity traders and anti-money laundering
Trading companies generally fall outside the definition of a financial intermediary within the meaning of the Anti-Money Laundering Act, since they buy and sell goods for their own account. Read more Geneva · Financing, securing, controllingThe practical organisation of compliance
In a Geneva institution, anti-money laundering compliance rests on an organisation whose elements have become standardised. Read more Geneva · Financing, securing, controllingWhat money laundering teaches the financial centre
Thirty-five years after money laundering was made a criminal offence, the Geneva financial centre has internalised a requirement that the Due Diligence Agreement of 1977 had sketched out: to know… Read more Geneva · Financing, securing, controllingAnti-money laundering from the practitioner’s perspective: three typical situations
Three typical situations encountered in Geneva practice illustrate the concrete difficulties of the fight against money laundering. They are described in schematic and fictitious form. Read more Geneva · Financing, securing, controllingThe 2025 revision: lawyers, notaries and advisers
For a long time the Anti-Money Laundering Act left outside its scope those advisory activities which involve no financial intermediation: the formation of companies, foundations and trusts, the… Read more Geneva · Financing, securing, controllingThe transparency register and the identification of beneficial owners
The Federal Act on the Transparency of Legal Entities, whose register comes into force on 1 October 2026, complements the fight against money laundering with a federal, non-public register of the… Read more Geneva · Financing, securing, controllingMoney laundering and crypto-assets and digital assets
The fight against money laundering has extended to crypto-assets and digital assets, whose framework is described in Part K. Read more Geneva · Financing, securing, controllingA case: the suspicious activity report seen from the inside
Worked example. The head of compliance of a Geneva bank receives an alert on an account held by a company in the Emirates whose beneficial owner is a national of a West African country. Read more Geneva · Financing, securing, controllingTraining and the culture of compliance
Compliance rests on people. Over thirty years the Geneva financial centre has built up a population of specialists whose training has become a sector in its own right. Read more Geneva · Financing, securing, controllingInternational cooperation: mutual legal assistance and the exchange of information
Since the fight against money laundering is international by nature, the Geneva financial centre depends on the cooperation of foreign authorities as much as on its own. Read more Geneva · Financing, securing, controllingChecklist: opening a relationship with a politically exposed person
Identify the politically exposed person status of the client, of the beneficial owner and of their close associates and family members, using databases and supplementary research. Read more Geneva · Financing, securing, controllingThe criminal liability of companies: Gunvor, Glencore, Trafigura — overview and summary
Since 2003 Swiss law has made it possible to convict a company for offences committed within it where it has failed to take all the reasonable and necessary organisational measures to prevent them. Read more Geneva · Financing, securing, controllingArticle 102 of the Criminal Code
Article 102 of the Criminal Code, which came into force in 2003, establishes the criminal liability of the enterprise. It distinguishes two forms of liability. Read more Geneva · Financing, securing, controllingGunvor: Congo, Côte d’Ivoire, then Ecuador
Gunvor, an energy trading company whose principal office is in Geneva, was the first large trading house to be convicted in Switzerland on the basis of Article 102. Read more Geneva · Financing, securing, controllingGlencore: the Democratic Republic of the Congo
Glencore, a trading and mining group run from Baar in the canton of Zug, was convicted by summary penalty order of the Office of the Attorney General of Switzerland of 5 August 2024, at the end of a… Read more Geneva · Financing, securing, controllingTrafigura: Angola and the first public trial
Trafigura, one of the largest oil trading companies in the world, operating from Geneva, was the first company to be tried in Switzerland, in a public trial, for the bribery of foreign public… Read more Geneva · Financing, securing, controllingThe lessons
These three affairs share common features, from which practitioners can draw lessons. Read more Geneva · Financing, securing, controllingAnti-corruption compliance programmes
In response to these cases and to the demands of banks, authorities and business partners, the large trading houses have put in place anti-corruption compliance programmes whose components have… Read more Geneva · Financing, securing, controllingForeign proceedings and international coordination
The Gunvor, Glencore and Trafigura cases all had an international dimension. Gunvor pleaded guilty in the United States over the Ecuadorian facts, where it was required to pay more than USD 661… Read more Geneva · Financing, securing, controllingThe United States and United Kingdom proceedings: a comparison
The Swiss convictions of Geneva traders form part of an international movement of which the United States and the United Kingdom have been the driving forces. Read more Geneva · Financing, securing, controllingThe liability of executives and intermediaries
The sentencing of Trafigura’s former second-in-command to a term of imprisonment, described above, marked a turning point: the criminal liability of companies, introduced in 2003, had until then… Read more Geneva · Financing, securing, controllingWhat the cases cost and what they yielded
Worked example. The three Geneva cases described in this chapter cost the companies concerned, in Switzerland alone, approximately CHF 94 million for Gunvor in 2019, CHF 86.7 million in 2024 for the… Read more Geneva · Financing, securing, controllingArticle 102 in practice: what the company must prove
Article 102 of the Criminal Code, in its paragraph 2, punishes the company that has failed to take all reasonable and necessary organisational measures to prevent certain offences, including the… Read more Geneva · Financing, securing, controllingIntermediaries: the weak link
The three cases have one point in common: the corrupt payments passed through intermediaries, agents, consultants, business introducers and service companies, remunerated by commissions of which a… Read more Geneva · Financing, securing, controllingChecklist: assessing an anti-corruption compliance programme
Verify the existence of a code of conduct circulated to all employees and of a documented assessment of corruption risks. Read more Geneva · Financing, securing, controllingTransparency and accountability: from the Code of Obligations to sector initiatives — overview and summary
The transparency and accountability requirements imposed on trading and finance have multiplied over the past decade, under the influence of the cases described in the preceding chapters, of pressure… Read more Geneva · Financing, securing, controllingThe responsible business initiative
On 29 November 2020, the Swiss people voted on the popular initiative “Entreprises responsables – pour protéger l’être humain et l’environnement” (Responsible Business Initiative – protecting human… Read more Geneva · Financing, securing, controllingThe report on non-financial matters
The counter-proposal introduced into the Code of Obligations, at Art. 964a et seq., an obligation for large public-interest companies to draw up each year a report on non-financial matters. Read more Geneva · Financing, securing, controllingDue diligence in relation to minerals and child labour
The counter-proposal also introduced, at Art. 964j et seq. of the Code of Obligations, due diligence and transparency obligations for companies that place on the market or process in Switzerland… Read more Geneva · Financing, securing, controllingTransparency of payments to governments
Art. 964d et seq. of the Code of Obligations require companies active in the extraction of minerals, oil or natural gas, or in the logging of primary forests, to publish each year a report on the… Read more Geneva · Financing, securing, controllingThe Guiding Principles and the duty of vigilance
Beyond Swiss law, Geneva companies are confronted with the United Nations Guiding Principles on Business and Human Rights, adopted in 2011. Read more Geneva · Financing, securing, controllingNon-governmental organisations as a counterweight
The demands for transparency and accountability owe much to non-governmental organisations, several of which are established in Geneva or elsewhere in Switzerland. Read more Geneva · Financing, securing, controllingThe role of banks in the accountability of commodity trading
The trade finance banks described in Chapter I of this Part constitute a lever of accountability that law and practice have progressively activated. Read more Geneva · Financing, securing, controllingIndividual liability: executives, employees, advisers
Corporate liability is coupled with that of natural persons. The cases described in the previous chapter led to the conviction of employees and, in the Trafigura case, of a former executive, with… Read more Geneva · Financing, securing, controllingTransparency as a selling point for the financial centre
The demands for transparency and accountability, often experienced as constraints, can become a selling point for the Geneva financial centre. Read more Geneva · Financing, securing, controllingThe new initiative of 2025 and the counter-proposal
The debate on corporate responsibility, which was thought to have been closed by the vote of 2020, has resumed. Read more Geneva · Financing, securing, controllingThe European duty of vigilance and its effects on Geneva
The European directive on corporate sustainability due diligence, adopted in 2024, imposes on large companies of the Union, and on third-country companies generating substantial turnover in the… Read more Geneva · Financing, securing, controllingTransparency among traders: what has been done and what is missing
Since the federal reports of 2013 and 2018, described in Part G, the transparency of Geneva’s commodity trading has progressed on several points. Read more Geneva · Financing, securing, controllingAn example: a trader’s due diligence report
Worked example. A Geneva metals trader employing 400 people and generating a turnover of USD 12 billion, of which USD 3 billion in the European Union, prepares its first due diligence report. Read more Geneva · Financing, securing, controllingBanks confronted with their clients’ duty of vigilance
The transparency and due diligence obligations imposed on traders reach the banks indirectly. Read more Geneva · Financing, securing, controllingTransparency of the private houses: the question of ownership
A particular question of transparency concerns the ownership of the trading houses. Read more Geneva · Financing, securing, controllingWhat transparency costs and what it yields
Transparency has a cost that Geneva companies measure and a return that they measure less. Read more Geneva · Financing, securing, controllingConclusion of Part H
Part H has examined the risks of commodity trading and of the finance that accompanies it: the fragility of documentary financing, revealed by the frauds of 2020, and then the interruption of flows… Read more Geneva · Financing, securing, controllingChecklist: preparing a report on non-financial matters
Determine whether the company falls within the scope of Art. 964a et seq. of the Code of Obligations and of the obligations relating to climate matters. Read more