Anti-Fraud in International Supply Chain Finance: Focusing on Moneual Case

Journal of Korea Trade Vol. 24, No. 1, 59-81, February 2020

23 Pages Posted: 1 May 2020

See all articles by Ki-Moon Han

Ki-Moon Han

Hannam University

Sae Woon Park

Changwon National University

Sunhae Lee

affiliation not provided to SSRN

Date Written: February 28, 2020

Abstract

Purpose – This study analyzes the scope of due diligence and risks of banks and K-Sure in trade finance covered by EFF focusing on Moneual case, one of the latest and biggest trade finance fraud cases in Korea. Also, we suggest anti-fraud measures in trade finance on the part of banks and K-Sure in order to give them a desirable way of due diligence and reasonable risk management of export insurance.

Design/methodology – Based on Moneual case of trade finance fraud, this study employs the methodology of an extended literature review and analysis of court decisions.

Findings – Seoul High Court of Korea failed to decide whether K-Sure was wholly obliged to pay the insurance against the banks’ EFF claims, but issued a compulsory mediation order, judging that both the banks and K-Sure were responsible by 50:50. The court may have judged that both the parties had lacked their due diligence in the trade finance. It is quite difficult for trade finance providers to manually investigate whether the transaction is suspected of trade finance fraud, so digitalization of trade finance which can facilitate the prevention and detection of trade fraud needs to be realized quickly. Since there has been no international rule available for open account trade finance up till now, clearly stipulated EFF terms on the exporter’s genuine export obligation might have protected K-Sure from the disaster.

Originality/value – This study investigates the due diligence of the banks and K-Sure in Moneual case which few researchers have considered, to the best of our knowledge. This study also suggests several practical methods (including block chain) to prevent complicating trade finance fraud amid increasing use of an open account, and further offers reasonable risk management of EFF employing international factoring rule which is also related to problematic open account trade finance.

Keywords: Due Diligence, Export Financing Facility (EFF), Open Account, Trade Finance Fraud, Moneual Case

JEL Classification: F34, G21, N70

Suggested Citation

Han, Ki-Moon and Park, Sae Woon and Lee, Sunhae, Anti-Fraud in International Supply Chain Finance: Focusing on Moneual Case (February 28, 2020). Journal of Korea Trade Vol. 24, No. 1, 59-81, February 2020, Available at SSRN: https://ssrn.com/abstract=3570166

Ki-Moon Han (Contact Author)

Hannam University ( email )

Taejon, 309-791

Sae Woon Park

Changwon National University ( email )

Changwon
Korea, Republic of (South Korea)

Sunhae Lee

affiliation not provided to SSRN

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