When the news broke of the collapse of Stenn, once a visionary London-based non-bank trade finance provider suddenly and unexpectedly placed into administration after an application by HSBC in December, it seemed like an unfortunate standalone case of insolvency. As more details emerged, an unlikely story spanning three continents, impersonated clients, and shady Russian links was uncovered.

Just days later, Kimura, another private commodity financier for small and medium-sized enterprises (SMEs), also announced the closure of its trade finance wing. The outlook for trade finance going into 2025 began to look bleak. This news came after the 2021 collapse of Greensill, a leading UK-based supply chain finance provider valued at over £5 billion only a year before it fell in an insolvency that continues to haunt the industry.

Despite having similar business models, these three firms present very different stories and reasons for collapse. Stenn reportedly went down when one of its lenders suspected wide-ranging fraud and pulled a line of credit, catapulting it into insolvency, while Kimura went into administration after paying back investors to refocus resources elsewhere. Greensill, a case now over four years old, was more complicated: “Greensill went under amid allegations of sharp practices, the loss of its credit insurance cover, customer defaults and consequently its inability to service its own debt,” said John MacNamara, CEO of Carshalton Commodities and trade finance expert. 

However, the three cases are all symptomatic of different aspects of the industry’s darker side, one where vulnerability to financial crime risks such as fraud and collusion continue to threaten the commercial viability of the trade finance market. 

Now, two months after the initial announcement of Stenn’s insolvency, as more information about its suspicious dealings was released, the overwhelming impression is: how was this allowed to go on for so long? The lax oversight around non-bank lenders, especially compared to traditional institutions, makes it easier for fraud to thrive, especially in an intrinsically vulnerable industry like supply chain finance; this puts further strain on an industry that can have tight margins and high severity of risk. The shared burden of oversight between investors, insurers, and regulators can sometimes mean that accounting issues or fraudulent practices slip through the cracks and can be hard to catch in good time. 

“Trade finance remains a very risky market for new entrants, as the recent collapses of non-bank lenders illustrate,” said André Casterman, Chair of the International Trade and Forfaiting Association’s (ITFA) Fintech committee. Trade, receivables, and payables finance can be fraught with risk, from fraud to cashflow issues to fragile company structures. Small players like Kimura can often go down unnoticed: but when big hitters like Stenn collapse too, the importance of effective risk management and oversight comes to light. 

Speaking to Trade Finance Global (TFG) on condition of anonymity, a senior trade finance credit executive said, “Most of the experts in trade finance had to reinvent themselves after the exodus by banks.  Some moved over to funds, but many left the industry. [Currently], most funds lack the requisite scale and bench strength of people with deep expertise in trade finance that banks typically enjoy. This can translate into crucial gaps permeating, enabling fraud and accounting malpractice to go undetected, [ending in] in losses or insolvency.”  

Stenn: The trade darling wrecked by fraud accusations

Stenn’s collapse was all the more impactful because it was so unexpected. Launched in 2015, the company reached an over £700 million valuation and provided 800 businesses with £16 billion in financing in just a few years. Stenn was known for providing invoice financing in dozens of markets globally, especially targeting SMEs that struggled to get funding from traditional sources. 

Stenn gained attention – and investors – for its use of technology which, it said, provided funding to suppliers faster than competitors. CNBC one included the company in their list of the top 250 fintechs globally in July 2024, and it attracted investments from Citigroup, Barclays, Crayhill Capital Partners, and Centerbridge Partners, all of which praised its innovative processes and mission to increase access to finance. 

However, it took just one of the investors looking into Stenn’s operations for it all to come tumbling down. HSBC Innovation Bank was providing Stenn with a £20 million revolving credit facility originally established by Silicon Valley Bank UK, which HSBC rescued in March 2023. 

HSBC started looking into Stenn’s operations after seeing the company and its CEO, Greg Karpovsky, named in two indictments in the US in October 2024, the Financial Times reported. The indictments, related to a Russian citizen running an illegal money transmitting system to move over 12 billion Russian rubles (£100 million), linked Stenn and Karpovsky to Singaporean companies used in the scheme – but did not accuse either of any wrongdoing.

The indictments prompted HSBC to look into Stenn’s clients and raise the alarm after finding that many transactions purported to be with major companies in Japan and Taiwan may have been fraudulent. It is speculated that on 2 December 2024, only days after this discovery, HSBC demanded immediate repayment of its credit facility; when Stenn was not able to comply, the bank filed an application for Stenn to be put in administration, which was granted 2 days later. Stenn reacted to this by claiming its insolvency was due to “sudden action by an investor” and pledged to “actively defend” against it. As it stands, Stenn is still under administration. 

Since the approval of the administration application, worrying new information about Stenn’s activities has come to light, casting doubts on the legitimacy of any of the company’s activities. An investigation by Bloomberg found that HSBC’s fears over the identity of some of Stenn’s biggest clients were allegedly justified, meaning some of the company’s largest sources of revenue are now challenged. Sources told Bloomberg that employees understood that much of Stenn’s income came from a handful of large clients in Japan and Taiwan, termed the “legacy book,” whose accounts were exclusively handled by the company’s upper echelons. Since going into administration, however, some of these supposed clients denied ever having had a relationship with Stenn or even knowing about its existence, leaving as much as £32 million from unknown, potentially bogus sources. 

Not only were the invoice owners potentially bogus, but further investigation also pointed to the companies’ purported suppliers, whom Stenn was extending credit to by buying invoices, as fronts or misrepresentations. When questioned, several larger companies whose invoices Stenn claimed to be handling denied ever having purchased goods and services from many of those suppliers. Karpovsky and Andrey Gurdzhibek, Stenn’s COO, both denied any wrongdoing. 

The key question, then, seems to be how Stenn’s fraudulent activities were allowed to go on for so long. The scheme only unravelled because HSBC – one of Stenn’s many investors, with no formal auditing responsibilities – serendipitously came across the US indictments, which marginally linked Stenn and its CEO to alleged Russian-backed schemes.

However, the signs were there long before this. Karpovsky had previously founded Eurokommerz, a Russian invoice finance company that went insolvent in 2008 and was embroiled in fraud lawsuits for years thereafter. Karpovksy was also a director and shareholder of Silverbird Global, a UK-based fintech which went insolvent earlier in 2024 due to links to Russian fraud schemes. Shortly after its collapse, Silverbird’s CEO, Maxim Faldin, joined Stenn as its Chief Client Officer.

Stenn’s auditing firm, EY, resigned as early as 2018, citing “concerns” around some transactions and the inadequacy of explanations given by management, as reported by the Financial Times. Red flags were everywhere: most of Stenn’s suppliers came from high-risk jurisdictions, many had little to no online presence, and at least one had been deregistered since 2021. According to Bloomberg, employers were unable to recognise over 40% of the firm’s Hong Kong clients and were allegedly warned about deals that seemed too good to be true. It should also have raised eyebrows that the bulk of the company’s revenue came from a few “legacy book” clients who the vast majority of employees could not interact with, and indeed knew very little about, making it hard to realise whether they were impersonators. 

Kimura: From promising commodities backer to trade finance runaway

Only days after Stenn’s placement into administration, Kimura, a London-based commodity financier, announced it would wind down its trade finance operations, instead focusing on its sport management and commodity logistics sectors. 

On 19 December, Kimura filed a creditors voluntary liquidation to close its operations, after returning money to investors and selling its exposures. In November, Gaspara Asset Management scrapped plans to establish a commodity hedge fund with Kimura.

Many have speculated that Kimura’s move was not due to pressing financial concerns but rather a strategic realignment in response to increased awareness of the risks and challenges surrounding fraud and illegal activities in the trade finance industry – as well as of the costs and complex infrastructure needed to manage them effectively. 

Others, however, point to the inherent fragility of businesses like Kimura, and the high pressure they face to get high returns and quick turnovers. It can be hard for institutions to keep up with the demand for returns from investors, especially given the inherent risk of the underlying operations of trade. Some insolvencies in an industry as diverse as trade finance are to be expected, but examining individual cases yields valuable insights into the risks faced by small non-bank lenders and the impact of closures on the wider market. 

“Those pressures can also lead to willful refusal by [some] portfolio managers to recognise critical risks identified through due diligence and to lend regardless, thereby imperilling the fund, its investors and other stakeholders. Evidently, too, some decide not to pay external lawyers to draft critically important documents, as Yieldpoint’s case is just one example of. Global players have also succumbed to major frauds when key controls procedures and basic risk due diligence simply weren’t followed,” said the credit executive. 

Isolated cases or canaries in coal mines?

Risk, closure, or insolvency are not what makes these cases unique. Rather, the collapse of Kimura and Stenn just days from each other shows just how vulnerable trade finance in particular can be; comparing these to Greensill’s breakdown only a few years ago uncovers some of the pain points of the non-bank lending trade finance community. 

“There are certain risks in receivable financing that are very hard to control without the right tools, that people probably oftentimes underestimate, and that can lead to events like this,” said Nils Behling, Co-Founder and Chief Legal Officer at Tradeteq. As the new year begins, the industry has the opportunity to face its core issues, become more aware of the risks involved in many of its operations, and review its own practices accordingly. 

An inherently risky trade

While many trade finance firms have been, and are, yielding high returns honestly by leveraging technology to tap underserved markets like SMEs, the industry’s inherent risk can easily damage the financial health of non-bank lenders.

“If HSBC calling in a relatively modest credit line was enough to bring the company to insolvency, clearly there was insufficient depth in the capital structure of Stenn to ride through this kind of storm, irrespective of the size of the teacup,” said MacNamara. 

Greensill Capital, the supply chain finance firm targeting SMEs that went bust in 2021, had similar issues when it took on too much debt and was criticised for using allegedly aggressive lending and accounting practices to camouflage the true level of its exposure. 

Fraud: The ever-looming killer

Trade finance has always been vulnerable to fraud, money laundering, and other illicit activities: moving money and goods across borders, through complex supply chains, and using easily faked paper documents makes it easier for would-be criminals to exploit the system for illicit gains. The International Maritime Bureau recently found that trade finance threats are rising, especially those involving fraudulent shipping documentation. 

Fraud itself is an ever-present risk. “If someone wants to defraud you and puts their energy into defrauding you, there’s no way you can prevent this. […] It’s virtually impossible to put safeguards into place that will prevent any and all fraud,” said Behling. However, institutions can still play their part to minimise the instances and impact of fraud. 

Investors backing non-bank lenders are not currently afforded the same regulatory protections as investors backing banks. This means that they often have direct access to the risks and returns of the lender, and can be harmed if the operations of the institution they are investing in turn out to be fraudulent, as Stenn’s allegedly did. The regulations placed on banks themselves, while often burdensome (especially in their trade finance operations), sometimes fail to address the most important risks within the lenders or impose internal controls on them.  

A knee-jerk reaction to this might be to enact more regulation to prevent further cases like Stenn, but this might have a counter-productive effect, explained Behling. “I think there’s a bit of a reflex to say, ‘Oh, something went wrong – now we need to regulate even more.’ […] I think it’s more important for investors and managers who operate in this space to be vigilant, to be transparent, and do the right thing.”

Oversight in trade finance funds can be complicated. Varying levels of monitoring and delegation stand between the investors, the fund, and the businesses involved in the underlying trade itself. It is virtually impossible for stakeholders other than the fund manager to perform sufficient initial and ongoing due diligence. “More care and more appropriately qualified resources are needed. You have to realise that many funds are run by self-interested owners, fattening the trade finance loan book for an ultimate exit, paying big bonuses along the way. It is incredibly hard to achieve the necessary governance standards required for trade finance in a fund management company,” said the credit executive.

Instead, it is up to the industry itself – investors, insurers, companies, and finance providers working in conjunction – to protect itself against fraud and ensure that trade finance institutions are legitimate, financially healthy, and can grow sustainably.

Investors – the first and last lines of defence

Non-bank lenders are definitionally dependent on investors, which can range in size from individuals to pension funds and hedge funds, to large multinational banks. Investors play a crucial role in detecting fraud and checking the lenders’ financial soundness. They can be the first to identify that something is amiss and keep companies accountable: “If you’re an investor, make sure you understand what you’re investing in and that you demand to get transparent information,” said Behling.

Transparency is key, especially for lenders like Kimura who act as middlemen for multiple small transactions. When investors have visibility over their portfolios, they can avoid taking on too much risk and ensure that all the trades they are financing are legitimate and above board; on the other hand, if investors lose sight of the assets they are managing, or fail to complete due diligence and compliance checks, fraud is more likely to proliferate. Currently, investors complete due diligence on the funds they are backing, rather than the underlying transactions themselves, leaving controls on those to the fund. This can reduce the compliance burden on investors but also leaves them vulnerable if the lender’s risk-management or fraud-detection processes are not up to scratch. 

Investors should demand transparency from their creditors to ensure a healthy portfolio: as an investor, “you need that transparency, you need the control, you need to make sure that you know at any time what’s happening with your assets,” said Behling. This is also necessary to avoid problems higher up in the investment chain which could have much greater effects on the markets: this is especially crucial if “there’s an element of willful ignorance because [investors] again have [their] own investors and you have to avoid this chain mail of bad information”. That Stenn’s downfall was instigated by HSBC, who also uncovered the alleged fraud, is indicative of just how impactful this type of oversight can be in fraud prevention. 

The trade credit insurance safety net 

Trade credit insurance can also play a crucial role both in preventing trade finance fund insolvencies – by underwriting the underlying trades managed by non-bank lenders – and in detecting and managing risks. “Since the commodity frauds in primarily Southeast Asia and the Gulf, our members have become much more strict on looking at who they underwrite for,” said Richard Wulff, Executive Director of the International Credit Insurance and Surety Association. This means that trade credit insurers often look deep into the financial and legal soundness of trade finance institutions, and can uncover issues that had gone unnoticed before.

“When the underwriter indicates, ‘Hey, look, we don’t want to cover this,’ they might not go into a huge amount of detail, but it’s giving the policyholder a good signal that something isn’t right,” said Wulff. Trade credit insurance is not legally mandated but will often be required by investors for at least the first few interactions with a new non-bank lender. In summary, if insurers are unwilling to underwrite a trade or a trade finance company, this can send a powerful signal to the fund and investor that something isn’t right. 

Is non-bank lending suitable for trade finance?

Non-bank lenders play a crucial role in facilitating global trade, providing finance to SMEs and emerging markets that struggle to get credit from traditional sources and driving global growth. The closures of Stenn and Kimura might put a momentary damper on the industry’s growth: Stenn’s public breakdown and fraud accusations could spook providers of trade credit insurance, making coverage more expensive and harder to get for some firms. 

“I don’t think the capacity [of trade credit insurance] is going to dry up, but the people who that capacity is given to will be selected very carefully,” said Wulff – meaning some companies might experience more thorough checks and pickier insurers. 

Exciting technological developments and a growing awareness of the role of smaller institutions in closing the trade finance gap are creating fertile ground for new firms to make a name for themselves in invoice and supply chain finance. “Players active in the business-to-business space are gradually expanding to lending as they own – or can secure access to – the collateral required to underwrite transactions,” said Casterman. 

Electronic bills of lading (eBLs) are also being embraced by the industry for their potential to reduce document-based fraud, said MacNamara: “[eBLs] provide a framework within which TF can move away from easily faked paper documents of title towards something more reassuringly secure”. AI and other technological developments like real-time monitoring tools can also enhance due diligence capabilities, said the credit executive. 

However, fraud and high volatility are still important hurdles to growth. As Stenn and Kimura’s breakdown shows, an already high-risk industry which is vulnerable to fraud must have stronger financial and compliance oversight to survive. While the two cases, especially so close together, are useful examples of the key issues faced by the industry, they are not quantitatively significant: “In the US alone, there’s $10 trillion of accounts receivable […] and similar amounts in Europe and Asia: this is just a blip,” said Behling. 

For every Stenn and Kimura, there are hundreds of honest trade finance providers that keep global trade going by financing exporters big and small; the industry owes it to them, and to global trade, to work together to make the market safer and more transparent.