Trade Finance Legal Frameworks

State Bank of Pakistan Tightens Trade Finance Regulations The State Bank of Pakistan (SBP) has introduced new regulations to combat trade-based money laundering (TBML) and terrorist financing, making it mandatory for all trade-related financial instruments to include accurate H.S. codes and precise units of measurement (UoM). This move is a significant step toward improving transparency and mitigating risks in the country’s trade finance ecosystem. What Banks and Businesses Need to Know This is what you need to do to ensure compliance with the new rules: Accurate Product Details: Use specific H.S. codes for every product. Avoid generic "others" codes and list each product separately, even if they share an H.S. code. Precise Descriptions: Provide clear descriptions that include the quality, variety, and subcategory of the product. If you use a brand name, it must be accompanied by the generic product name. Specific Units of Measurement: Ditch vague terms like "boxes" or "cartons." Use the exact unit of measurement for each item (e.g., kilograms, liters, or individual units). Full Party Names: State the full legal names of all parties involved in the transaction. No abbreviations are allowed. Export Advance Payments: For export advance payments, all details in the financial instrument, including the consignee, must match the Advance Payment Voucher exactly. Why the Change? Previously, trade documents often contained incomplete descriptions, generic H.S. codes, and imprecise UoM, which created vulnerabilities that could be exploited for illicit activities. The new regulations are designed to close these gaps and enforce stricter controls. What’s Next? Banks and businesses must immediately review their product classifications, update their financial instrument templates and workflows, and train staff to ensure smooth and effective compliance. The SBP also encourages banks to centralize the issuance of financial instruments under a dual control system to enhance monitoring and oversight. Source: State Bank of Pakistan - EPD Circular Letter No. 08, 2025 (Revision in Framework for Managing Risks of Trade-Based Money Laundering & Terrorist Financing)

Over the past several years, I’ve seen a meaningful shift in how growth-oriented SMEs think about capital. More operators are asking a simple question: How do we fund confirmed demand without giving up equity? Purchase Order (PO) Finance is one of the most underutilized, misunderstood — and most powerful — non-dilutive tools available to companies expanding into larger contracts or new retailers/end buyers. When structured correctly, PO funding: • Aligns capital directly to confirmed purchase orders • Preserves ownership (no dilution) • Funds production and procurement before invoicing • Shifts underwriting focus toward the strength of the end buyer/off-taker (a dedicated source of repayment) What’s particularly interesting right now is the infrastructure evolving around global trade. Supply chains are becoming more transparent. We’re seeing increasing adoption of electronic bills of lading (eBLs), digitized trade documentation, and — importantly — legal modernization to support digital assets. In the U.S., the adoption of UCC Article 12 formally recognizes “controllable electronic records” and provides a legal framework for transferring and perfecting security interests in digital trade documents. That’s not just technical reform — it’s foundational. As trade documents move from paper to digitally controllable instruments: • Title becomes clearer • Assignment becomes cleaner • Perfection becomes more certain • Fraud risk is reduced • Capital can move faster Globally, similar reforms are underway, aligning commercial codes with the realities of digital trade flows. Layer in automated verification systems — and eventually smart contract execution tied to shipping and delivery milestones — and the framework supporting structured trade finance becomes significantly stronger. From a private credit perspective, PO finance sits at a compelling intersection: • Short-duration exposure • Self-liquidating trade cycles • Dedicated source of repayment • Risk tied to underlying commerce, not just enterprise value As legal frameworks modernize and documentation becomes digitally native, I believe PO finance will move from “specialty product” to a more mainstream component of the working capital stack — both in the minds of borrowers and capital providers. For SMEs expanding into new contracts, larger retailers, or international markets, non-dilutive capital tied directly to confirmed purchase orders isn’t just a financing option. It’s a growth strategy. Happy to compare notes with operators and others within the international trade ecosystem thinking about where structured trade is headed next.

HOT OFF THE PRESS: BAFT (Bankers Association for Finance and Trade) and its working group have just launched the  2025 BAFT Master Trade Loan Agreement (2025 BAFT MTLA), assisted by Sullivan & Worcester LLP. I caught up with Geoffrey Wynne on stage a few minutes ago at the Europe Bank-to-Bank forum, to discuss the launch. The 2025 BAFT MTLA is designed as an industry-standard document, used for lending between financial institutions to finance or refinance specified trade transactions. The 2025 MTLA - English Law reflects changes based on current market expectations, law and practice, including the demise of LIBOR, and the impact of Brexit, as EU Law no longer applies in the UK. The 2025 agreement includes: - Updates and changes to the structure of the agreement and introduces an offer and acceptance mechanism for the request and making of Trade Loans. - Additional provisions and commercial terms are now included in the Trade Loan Request to reduce the amount of optional wording in the main body of the agreement. - A new concept of “Booking Office” has been introduced to allow parties to select an office or branch in the relevant Trade Loan request and/or acceptance for a particular Trade Loan. - A number of sections in square brackets which the parties must complete (or agree additions or deletions) to complete the 2025 BAFT MTLA - English Law. A number of further provisions have been added or updated to the Agreement, including a new option to use the 2025 BAFT MTLA for sustainability loans. Craig Weeks Matilda Johnson 📸 Evelyne Wynne

💥 Trade Finance Spotlight – Sanctions & Trade Flows 💥 🌍 International trade isn’t just about goods and payments — it’s also about who you can (and cannot) deal with. That’s where OFAC (US) and EU sanctions step in. 🔹 What Are Sanctions? Legal restrictions imposed by governments or blocs (US, EU, UN) to control who companies can trade with. They can target countries, individuals, entities, ships, or even specific goods. 🔹 OFAC (US) • Administers and enforces US sanctions programs • Covers US persons, US-origin goods, and even USD transactions worldwide • Example: A European bank clearing a USD payment through a US correspondent = OFAC rules apply 🔹 EU Sanctions • Issued by the European Council; binding on all EU member states • Include trade restrictions, asset freezes, and service bans • Often align with UN sanctions but aren’t always identical to OFAC 🔹 Impact on Trade Flows 🚫 Restricted access to financial systems → payments blocked/delayed 🚫 Higher compliance costs → more due diligence, slower processing 🚫 Route disruptions → need alternative suppliers/buyers 🚫 Increased use of non-USD currencies → to bypass US jurisdiction 🔹 Red Flags for Traders & Banks ⚠️ Counterparties in sanctioned countries (direct/indirect links) ⚠️ Dual-use goods (civil + military) ⚠️ Complex ownership structures hiding sanctioned parties ⚠️ Unusual shipment or payment routing 💡 Pro Tip: Always run KYC + sanctions screening before shipping or paying. One sanctioned entity in the chain = deal blocked + penalties risked. 👉 Sanctions don’t just change laws — they reshape global trade flows. Understanding them keeps business safe, legal & profitable. 🔑 #TradeFinance #Sanctions #Compliance #OFAC #EU #Regulations #Banking