KYT In Trade Finance

KYT means Know Your Transaction. In trade finance, that is the discipline of verifying the underlying trade, not just the borrower. You validate the goods, the route, the documents, the counterparties, and the payment path so the deal is financeable, enforceable, and monitorable.

KYT is a transaction-level control framework used to reduce fraud, trade-based money laundering risk, sanctions exposure, and operational surprises. It ties underwriting to what is actually happening in the supply chain and in settlement, then builds an audit trail that can stand up to lender and investor scrutiny.

What KYT Is

KYC and KYB tell you who you are dealing with. KYT tells you what you are financing. In commodity trade finance, you do not get paid because a company is charismatic or has a nice deck. You get paid because a shipment is delivered, a buyer pays, and settlement is controlled.

  • Trade reality check: Is there a genuine commercial purpose with a clear buyer and clear payment terms?
  • Document integrity check: Do the documents match each other, the Incoterms, and the actual movement of goods?
  • Cash flow control check: Can you control or reliably monitor proceeds, releases, and settlement events?
  • Enforcement check: If something breaks, do you have usable remedies in the relevant jurisdictions?

Why KYT Matters In Trade Finance

  • Trade fraud often hides inside believable paperwork. KYT forces cross-checks across documents, logistics, and cash.
  • Commodity supply chains can include multiple intermediaries. KYT maps the chain and tests who is really taking risk and getting paid.
  • Sanctions and export controls can attach to counterparties, vessels, ports, banks, and end users. KYT expands screening beyond names on a contract.
  • Price manipulation and mis-invoicing are classic trade-based money laundering patterns. KYT looks at price realism and structure logic.
  • Investors and lenders need an audit trail. KYT builds repeatable files, not ad hoc judgment calls.

If the transaction cannot be verified, monitored, and enforced, it is not a trade finance deal. It is a hope trade.

The Five KYT Pillars For Commodity Trades

1) Counterparties

  • Who is buyer, seller, and any broker, agent, or intermediary?
  • Beneficial ownership and control persons, not just corporate names
  • KYC and KYB pack quality, licensing where relevant, and reputation checks
  • Sanctions screening for entities and key individuals

2) Goods

  • Commodity type, grade, specs, and inspection method
  • Quantity, tolerances, and measurement points
  • Storable and insurable characteristics where inventory is involved
  • Does the commodity fit the chosen control model?

3) Documents

  • Sales contract and purchase contract consistency if back to back
  • Commercial invoice, packing list, certificate of origin, certificates of quality and quantity
  • Bill of lading and shipping documents aligned to Incoterms and title transfer logic
  • Insurance documents aligned to risk transfer points

4) Logistics

  • Route, ports, warehouses, and transshipment points
  • Vessel, carrier, and freight arrangements where relevant
  • Independent inspection and sampling steps
  • Jurisdictional realities of seizure, storage, and dispute resolution

5) Cash And Settlement

  • Who pays whom, when, and under what documentary conditions?
  • Controlled account routing, escrow, or collection account structures where applicable
  • Release mechanics tied to verified milestones
  • Bank path and correspondent risk signals

Result

  • A transaction file that can be approved, monitored, and audited
  • Clear triggers for holds, escalations, and enforcement actions
  • Controls that match the risk, not generic checklists

KYT Checklist For A Typical Commodity Trade

  • Contract logic: Incoterms, title transfer, risk transfer, payment terms, dispute venue, and governing law
  • Price realism: compare to market ranges and explain premiums, discounts, and unusual fees
  • Document cross-checks: do names, dates, quantities, and ports match across all documents?
  • Operational proof: inspection plan, warehouse or terminal plan, and custody responsibility
  • Counterparty chain: who is the real end buyer and who benefits from the spread?
  • Settlement map: payment routing, controlled accounts, release conditions, and fallback steps
  • Compliance screen: sanctions, export controls, high-risk geographies, and restricted end uses

KYT is not a one-time box tick. It is a control loop that continues until the transaction is fully settled and reconciled.

A Practical KYT Workflow

  • Intake: collect the transaction dossier and map the flow of goods and cash
  • Validate: cross-check contracts, invoices, logistics plan, and documentary conditions
  • Verify: confirm counterparties, screening results, inspection steps, and document authenticity signals
  • Structure: design proceeds controls, releases, covenants, and monitoring cadence
  • Monitor: track milestones, exceptions, and settlement until close-out and reconciliation

Strong KYT frameworks make underwriting faster because exceptions are visible early and escalation rules are clear.

Common Red Flags KYT Is Designed To Catch

  • Unclear source of goods or inability to evidence title and custody
  • Document inconsistencies across quantities, ports, counterparties, or dates
  • Payments routed through unrelated third parties without a clean explanation
  • Unusual pricing and fees that do not match commodity norms
  • Last-minute changes to shipping instructions, ports, or consignee details
  • Pressure to fund before verification steps are completed
  • Weak or unverifiable inspection and insurance arrangements

A clean KYT file does not mean zero risk. It means the risks are identified, controlled where possible, and priced honestly.

How KYT Shows Up In A Trade Finance Fund

In a fund or vehicle context, KYT is the foundation for eligibility rules, concentration limits, reporting, and audit readiness. It is also what allows a credit committee, a lender, or an allocator to understand why a transaction was approved and how it was monitored.

  • Standardized transaction file format across deals
  • Clear eligibility criteria, exceptions policy, and approval authority thresholds
  • Ongoing monitoring and reconciliation, not just pre-funding review
  • Documented evidence for controls and enforcement pathways

Request The KYT Framework And Checklist

If you are underwriting trade finance, allocating to a trade finance vehicle, or building a repeatable transaction process, request our KYT checklist and dossier template.

Share your typical ticket size, commodities, jurisdictions, and preferred structure (prepayment, receivables, inventory, or facility). We will respond with the KYT intake fields and the control framework used for screening and monitoring.

Request The KYT Pack

This page is informational only. No offer or solicitation is made. Any materials are provided privately to eligible parties and only where lawful.

Important notice: This page is provided for informational purposes only and does not constitute legal, tax, accounting, investment, or compliance advice. You should consult your own advisors. Financely acts as advisor and arranger and coordinates execution through regulated counterparties where lending, custody, or securities intermediation is required. Financely is not a bank and does not take deposits. Any engagement, onboarding, and access to materials are subject to eligibility checks, confidentiality terms, KYC and AML review, sanctions screening, and internal acceptance. Nothing on this page creates any obligation to proceed, allocate, lend, invest, or transact. KYT is a risk control framework. It reduces risk when properly applied, but it does not eliminate risk. Loss of principal and delays in settlement are possible in trade finance.