Circular Trading: When Revenue Looks Real, But Isn’t

Introduction

In business, high revenue often creates trust. Investors, banks, and customers assume that rising sales reflect genuine demand. But sometimes, revenue exists only on paper.

One of the best-known examples is the collapse of Singapore-based Hin Leong Trading in 2020.Founded by Lim Oon Kuin (OK Lim), Hin Leong grew from a small fuel delivery business into a global oil trading company with reported annual revenue of nearly US$20 billion. Built over five decades, the company enjoyed immense credibility with banks.

The problem began when Hin Leong incurred heavy losses, around US$800 million, through speculative oil futures trading. Instead of reporting these losses, the company allegedly concealed them by using circular trading.

How did it work?

Hin Leong sold oil to another company, which borrowed money from a bank to buy it. That company then sold the same oil to a third company, which also borrowed funds. Finally, the oil was sold back to Hin Leong using another loan. The oil kept changing ownership on paper, while banks financed every transaction.

No real economic value was created. The same inventory kept moving in a circle, creating the illusion of booming sales and strong business activity. This practice is called circular trading, and it is illegal because it inflates revenue, misleads lenders and investors, and hides the true financial position of a company.

The scheme collapsed in 2020 when the COVID-19 pandemic caused oil prices to crash. Banks demanded additional collateral, exposing that the same oil had been pledged multiple times. Hin Leong ultimately disclosed liabilities of US$3.85 billion against assets of only about US$714 million.

The lesson is simple: Revenue alone is not a measure of business health. Sustainable businesses generate real demand, real cash flows, and transparent financial reporting—not transactions that merely circulate on paper.

Acknowledgement: The primary narrative of this article is adapted from an educational post published by Groww and has been supplemented with information from publicly available reports.

References

1. Groww – Educational article on Circular Trading and the Hin Leong case.
2. Reuters. Singapore oil trader Hin Leong collapses after hidden losses emerge.
3. Bloomberg. The Fall of Hin Leong Trading.
4. Financial Times. How Hin Leong’s Oil Empire Unravelled.
5. BBC News. Oil trader Hin Leong and Singapore’s commodity trading scandal.
6. Monetary Authority of Singapore (MAS) – Regulatory actions and market oversight following the Hin Leong collapse.