As Brexit’s final transition date edges closer, Britain’s businesses have warned that they are running out of time to make preparations for trade, should a no-deal be reached. At the same time, the government has warned that there will be a huge amount of red tape for businesses to contend with, whatever deal is struck. Put these factors of uncertainty and increased bureaucracy together and you have the perfect recipe for trade fraud to manifest itself and thrive.
Jesse Chenard, CEO at fintech MonetaGo, looks at why the risk of trade fraud is higher than ever in the current climate and how technology could provide the solution.
Although the UK has left the UK politically, it has not economically. The resultant loose ends pose a serious threat to Britain’s business landscape, as they urge the government for clarity on the future of trading.
In the absence of this clarity and, whether a deal is struck or not, the British government says businesses must prepare for new paperwork such as customs declarations, and “short-term disruption” to cross-Channel trade. In fact, a deal is a more likely outcome now and that will generate even more paperwork and red tape than a no-deal agreement.
Fraud flourishes where confusion reigns
Fraud flourishes amid uncertainty, chaos and outdated processes, which tend to be those that are paper-based. Currently, Britain’s businesses are facing all three as they stare down the barrel of Brexit.
With the future of trade between the UK and EU looking unclear, this will create the perfect petri-dish of conditions that make it easier to execute trade fraud.
Continued delay and obfuscation over the exact shape of the future relationship between the EU and the UK has left many businesses unclear on the UK’s regulatory environment in the next year.
Fraudsters will be looking to take advantage of any ambiguity or loopholes in regulatory frameworks, as the UK pulls out of a vast web of EU regulations.
Whatever version of Brexit we end up with is likely to reduce – or at least make more difficult – cooperation across Europe in criminal matters. This is often crucial in the multi-jurisdictional issues sophisticated frauds entail.
Looking to a digital solution
Many of the challenges outlined above could be solved through distributed ledger technology.
From trade finance to customs clearance, transportation and logistics, trade in goods involves multiple actors and remains paper-intensive.
With blockchain, huge amounts of paperwork could be automated and verified. An immutable ledger could provide complete transparency over the transportation and processing of physical and online goods. Double invoice financing could be eradicated.
VAT is a good practical example of how technology could reduce the risk of fraud. This type of tax is vulnerable to fraud because it relies on self-reporting and a disjointed system of rules and enforcement among European Union member countries.
Blockchain could solve many of the system’s weaknesses by creating a registry of digital invoices that would allow tax authorities across Europe to see and verify the taxes paid when a product changes hands.
Blockchain’s intrinsic features of immutability, transparency and its network effect mean that trading counterparties have the assurance that ‘what you see is what I see’. The Economist calls blockchain a ‘trust machine’.
Although the future of the UK-EU trading relationship remains unclear, what is clear is that whatever the outcome, there will be increased risks and bureaucracy for businesses in Britain. With the right technology, we can mitigate the chance that these risks do not lead to widespread fraud that will create even more problems.