Catch ‘em while you can: How to spot invoice fraudsters

At Trade Treasury Payments (TTP) headquarters, we sat down with Baldev Bhinder, Partner at Blackstone & Gold, to discuss the murky world of invoice financing fraud and how to stay ahead of it.

Bhinder said, “There are three common categories of fraud we see. First, you have fake invoices, either fabricated by colluding parties or using impersonation to appear legitimate. Second is duplicate invoicing, where the same transaction is broken into multiple invoices to extract more liquidity. And third is over- or under-invoicing to manipulate value, whether for tax evasion, capital flight, or other purposes.”

The mechanics of fraud are changing and often in elaborate ways. In many cases, Bhinder explained, the orchestrator of fraud isn’t necessarily a criminal syndicate but an over-leveraged trader under pressure to access liquidity. This trader may create a web of supposedly arm’s-length counterparties – entities that, on paper, appear separate but are effectively part of the same scheme.

Bhinder said, “It’s about scale. One invoice can get you liquidity once. But string that trade through ten entities, or reroute it in a circular fashion, and you can multiply that liquidity over and over again. In a circular trading structure, I can insert five companies between the original seller and final buyer, trading the same goods 100 times. And no one sees the fiction I’ve created.”

Circular trading isn’t inherently fraudulent, he cautioned, but it often conceals fictitious trades. “Commercially, you’d ask, why am I buying goods I already own? But in a fraud scenario, it’s a mechanism to obscure the real transaction and to manufacture volume where none exists.”

The warning signs, Bhinder noted, are often hiding in plain sight. Contracts that ignore the physical characteristics of a commodity, documents that don’t trace back to an origin, or shipping records lacking standard forms like original bills of lading or certificates of origin should all raise flags.

Bhinder said, “A certificate of origin is a good example. That’s usually issued by a Chamber of Commerce or another official third party. You can’t just make one up. If that document is missing or seems unofficial, it’s worth asking why.”

For financial institutions, insurers, and regulators, the challenge lies in spotting the anomaly before the money moves or ensuring that risk controls are strong enough to catch it after the fact. In a world where capital flows are faster and more global than ever, vigilance is the first line of defence.