Financial instruments such as documentary credit, structured finance and derivatives have proved their value in commodity trade. However, the sophistication of these instruments can also make them a tool for financial fraud. This report discusses how, using commodity market instruments such as letters of credit, warehouse receipts, Special Purpose Vehicles, futures and swaps, the sophisticated financial fraudster may try to trick bankers, commercial counterparties, Government regulatory or tax offices, and shareholders. Various techniques that have been used in the past are described, and illustrated with case studies (e.g. the salad oil swindle, Solo Industries and Enron). Ways in which Governments, banks and commodity firms can reduce the potential for such frauds are summarized in the report’s conclusion.
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Find related papers by JEL classification: K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law F39 - International Economics - - International Finance - - - Other G15 - Financial Economics - - General Financial Markets - - - International Financial Markets G29 - Financial Economics - - Financial Institutions and Services - - - Other
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