| What is a fraud? An international trade transaction | | | | avoid laying up their vessels are tempted to charter |
| involves several parties-exporter, importer, | | | | them to unknown companies without demanding any |
| ship-owner, charterer, ship's master, officers and | | | | substantial financial guarantee for the performance of |
| crew, insurer, banker, broker or agent, freight | | | | the charter contract. |
| forwarder. Maritime fraud occurs when one of these | | | | The fraudulent chartered can turn this situation to his |
| parties unjustly takes another's goods or money. In | | | | advantage. Having chartered a vessel from an |
| some cases, several of these parties act in collusion | | | | unsuspecting owner, the chartered canvasses for |
| to defraud another. Banks and insurers are often the | | | | cargo, knowing that in a depressed economy, |
| victims of such frauds. | | | | shippers will be willing to cut corners in the hope of |
| The sinking of an over-insured vessel carrying a high | | | | reducing transport costs and thus saving on freight |
| valued non-existent cargo has been encountered at | | | | so that their goods can be more attractively priced |
| regular intervals. During periods of economic and | | | | the charterer offers low freight rates on pre-paid |
| political upheaval and depression in the shipping | | | | basis. He can afford to do that, as he has no |
| business, there have been incidents of unusual losses. | | | | intention of completing the voyage. |
| In the last few years, these and other factors have | | | | Soon, after the vessel sails from the port, the |
| led to a significant escalation in the number of | | | | chartered disappears. He may have paid his first |
| incidents that can be termed as 'maritime frauds'. | | | | month's hire or he might not have paid any hire |
| Types of Fraud | | | | charges as are due from him. Meanwhile the |
| Maritime fraud has many guises and it methods are | | | | ship-owner may find himself with substantial bills to |
| open to infinite variations. Majority of these crimes | | | | meet from port authorities along with the ship's route |
| can be classified into four categories as under:o | | | | as well as for crew's wages and for provisioning the |
| Scuttling of shipso Documentary fraudso Cargo | | | | ship. Worse, the ship owner may find that his ship, |
| Theftso Fraud related to the chartering of vessels | | | | not having delivered the cargo to the consignees, has |
| Scuttling of Ships | | | | been arrested and this leads to protracted and |
| Also known as 'rust bucket' frauds, this involves | | | | expensive legal wrangle. |
| deliberate sinking of vessels in pursuance of fraud | | | | In order to get their goods to destination, shippers |
| against both cargo and hull interests. With occasional | | | | may agree to pay a freight surcharges or they will |
| exceptions, these crimes are committed by | | | | agree to a diversion and a sale of the goods to |
| ship-owners in a situation where a vessel is | | | | cover costs and then state the export process all |
| approaching or has the end of its economic life, | | | | over again. Sometimes, when no such compromise |
| taking into account the age of the vessel, its | | | | can be reached, the ship owner will instruct the |
| condition and the prevailing freight market. The crime | | | | master to divert his ship and sell the cargo wherever |
| can be aimed at hull insurers alone or against both hull | | | | he can, and this become as much of a criminal as the |
| and cargo interests. | | | | charterer. |
| For example, a dishonest shower may approach am | | | | Precautionary Measures for Fraud Prevention |
| exporter and offer to carry his next large cargo | | | | There are certain basic precautions against maritime |
| shipment on his vessel. The exporter is to arrange | | | | fraud that commercial interests, like exporter and |
| the contract and the proposed buyer to open a | | | | importers, banks and insurance companies, should be |
| letter of credit in his favor to pay for them. No | | | | aware of and should be able to implement. |
| goods are actually to be supplied or shipped, but the | | | | Exporters and Importers |
| ship-owner agrees to supply bills of lading to show | | | | The checks and precautions that buys and sellers can |
| that the goods have been loaded on the vessel. The | | | | implement are:o Care should be exercised when |
| bills of lading together with such other documents as | | | | dealing for the first time with unknown parties. |
| are required are presented to the bank negotiating | | | | Careful inquiries should be made as to their standing |
| the letter of credit. The banker pays against | | | | and integrity before entering into a binding |
| documents and not against goods. After ascertaining | | | | agreement.o Shipment should be by well-established |
| that the cargo description corresponds to the | | | | shipping lines. In India, vessels approved by GIC |
| requirements as stipulated in the L/C, the bank, in the | | | | should be preferred.o The cargo owners should be |
| normal course of events, releases the funds under | | | | wary: |
| the terms of the L/C. | | | | - If the freight rate is too attractive - If the ship |
| The ship, without it is by now paid for, but | | | | owner owns one vessel only9'singleton') - If the |
| non-existent cargo, leaves port. It should not of | | | | vessel is over 15 years of age. - If the vessel has |
| course reach its destination, because should it do so, | | | | passed through various owners.o Payment by |
| the missing cargo would lead immediately to the | | | | irrevocable documentary credit, confirmed by a bank |
| discovery of the fraud. To avoid this eventually, the | | | | in seller's country, provides the best safeguard to the |
| ship is deliberately scuttled in a suitable location, so as | | | | seller. Should the seller have any doubt about the |
| to remove the evidence of the non-existent | | | | authenticity of the documentary credit, he should |
| shipment beyond any prospect of subsequent | | | | immediately consult his bank before parting with the |
| investigation. | | | | goods.o As far as the buyer is concerned, he should |
| The ship-owner enters an insurance claim on his hull | | | | ensure that he receives the documents he has |
| underwriters and he also receives a share of the | | | | stipulated in his documentary credit application.o As |
| proceeds from the letter of credit from exporter, | | | | far as the buyer is concerned, he should ensure that |
| leaving the hapless buyer to pursue an insurance claim | | | | he receives the documents he has stipulated in his |
| for loss/non-delivery of his cargo. | | | | documentary credit application. Therefore, the buyer |
| Documentary Frauds | | | | must consider carefully which documents he requires. |
| This type of fraud involves the sale and purchase of | | | | For example, an independent "loading certificate" |
| goods o documentary credit terms and some or all | | | | would add significantly to his protection as would |
| of the documents specified by the buyer to be | | | | detailed instructions on which shipping line or |
| presented by the seller to the bank in order to | | | | forwarding agent is to be used. The inspection of |
| receive payment, are forged. Bankers pay against | | | | cargo should be as close to the time of loading on |
| documents. The forged documents attempt to cover | | | | board as possible.o In order to ensure that the |
| up the fact that the goods actually do not exist or | | | | subject cargo is in fact loaded on the specified |
| that they are not of the quality ordered by the | | | | carrying vessel, the buyer may stipulate for a "report |
| buyer. When the unfortunate purchaser of the goods | | | | on the vessel" from an independent third party.o |
| belatedly realizes that no goods are arriving, he starts | | | | Conference or national lines bills of lading should be |
| checking, only to find that the alleged carrying | | | | used and marked "freight prepaid" with the amount |
| vessels either does not exist or was loading at some | | | | of freight clearly stated in the bill of lading.o Services |
| other port at the relevant time. | | | | of dependable and well-known forwarding agents, |
| Banks deal with documents and not in the goods | | | | who are also members of a national association, |
| covered by them. A bank which accepts under a | | | | should be engaged.o Buyers and sellers should |
| letter of credit a set of documents which appear to | | | | attempt to identify whether the carrying vessel is on |
| be regular on their face, is not liable to its principal if | | | | charter and who the chatterers and owners are and |
| the documents turn out to be forged or to contain | | | | whether chartering is done only through agents or |
| false statements. Thus a confirming bank is entitled | | | | reputable institutions. |
| to obtain reimbursement against such documents | | | | Banks |
| from the issuing bank and the issuing bank is entitled | | | | Banks should take following precautions against |
| to obtain payment against them from the buyer. | | | | maritime fraud.o Bankers should make us of Lloyd's |
| Thus the loss is usually borne by the buyer. | | | | shipping index. Important points to check with regard |
| It is precisely to discourage the activities of | | | | to the carrying vessel are ownership, age, size and |
| fraudsters relating to export cargoes that GIC | | | | importantly the position of the vessel at the time the |
| evolved the ship approval system. This has been | | | | bill of lading was dated. o If such checks are |
| extended to full load import cargo also. The vessels | | | | considered difficult for a bank because of the volume |
| usually employed by fraudsters are: | | | | of work involved, then perhaps a 'super-service' at |
| -Vessels flying a flag of convenience | | | | additional cost to the customers should be considered |
| -Vessels over 15 or 20 years of age | | | | with the actual checks being carried out by outside |
| -Usually small sized ships of 7000 to 10000 GRT | | | | agent or brokers retained at an annual fee. o |
| -Vessels having changed their names and owners a | | | | Methods should be examined of improving |
| few months before the last voyage. | | | | documentary credit operations by the application of |
| Cargo Thefts | | | | computerized and modern business methods. |
| There are several variations in the modus operandi of | | | | Insurers |
| cargo thefts. In a typical example, the vessel, having | | | | Insurers should take the following precautions against |
| loaded a cargo, deviates from its route and puts it | | | | maritime fraud.o Where the name of the carrying |
| into a port of convenience. Such ports are Tripoli, | | | | vessel is not known at the point when insurance is |
| Beitut, Almina, Jouneih, Ras Salaata and others along | | | | effected, the insurance is made subject to the |
| the coasts of Greece, Lebanon and Suria. The cargo | | | | Institute Classification Clause and the requirement |
| may be discharges and sole on the quayside or in a | | | | that the vessel carrying the goods conforms to the |
| more sophisticated manner. Such an act is often | | | | provisions of the clause. o The assured is required to |
| accompanied by c a changed of the vessel's name or | | | | declare to the insurers the name of the carrying |
| a subsequent scuttling in order to hide the evidence | | | | vessel as soon as it is known. When the carrying |
| of theft. The whole process of investigation is | | | | vessels comply with the requirements of the |
| proved difficult as by the time the loss is known the | | | | classifications clause, standard rate premium is |
| cargo disappears and the actual recovery of goods is | | | | charged. Otherwise, extra premium is attracted for |
| unlikely. The owners of these ships are "paper | | | | over-age, under-tonnage, non-classification and FOC |
| companies" set up a few days prior to the operation. | | | | registration of a vessel. o In India, the exporter is |
| Fraud related to Chartering of vessels | | | | encouraged to use vessels "approved by GIC" to |
| This is also known as Charter-part fraud". Establishing | | | | carry the export cargo. This system also applies to |
| a chartering company required a modest initial financial | | | | import cargo when the carrying vessel is bringing a |
| commitment and is usually subject to little regulation. | | | | full load of import cargo to India as also to imports |
| In depressed conditions of shipping market, there is | | | | on vessels from Singapore, Malaysia and Far East |
| no have demand on tonnage and owners anxious to | | | | (excluding Japan, Mainland China). |