Ship Agency : Tuesday 3rd October

14.30 - 15.00 Mike Hawkins - Signum Services Ltd

BILLS OF LADING FRAUD

This type of crime is one of a variety of methods used by criminals to dishonestly obtain cargo. Currently the estimated worldwide annual loss to cargo crime is between 30-50 billion US dollars.

A bill of lading is one of the most important documents in maritime trading. It is:

1. Evidence of the contract of carriage.

2. The receipt for the goods.

3. A document of title to the goods.

It is this third factor that causes the major problem when considering fraudulent bills of lading. It is an unhappy fact of life that there will always be the presence of fraudulent documents until the electronic transfer of bills of lading for international cargo movement, such as ‘BOLERO’, is fully operational.

Until this happens, with the high profits that can be made with minimal risk, invite the criminal to forge or alter bills of lading in order to gain possession of cargo. As containers move the major portion of international cargo they are the prime targets for this type of crime, as there is always a market for the stolen goods.

It is unwise for anyone to believe that they can never be deceived by such documents. It is worth remembering that:

a. The essence of a successful fraud is to ensure that an honest person does not become suspicious.

b. The fraudster chooses the place, the time and method to commit the fraud.

c. The fraudster has the time and motivation to attend to details, whereas the honest person often does not.

d. The fraudster only has to be lucky once; the honest person has to be alert all the time.

It is an unequal battle, but by using diligence and carrying out checks, requesting a fax copy of the original bill of lading and establishing a sound procedure for the release of cargo, can only help to prevent this type of fraud.

Awareness of this type of fraud assumes particular importance when taking into account the English Commercial Court decision in the case of Motis Export V Dampskibsselkabet AF1912 and another. The Court upheld that the cargo release terms must be complied with, which generally means the presentation of an original bill of lading, not a forged one.

There are five general types of fraud that relate to bills of lading:

1. Fraudulent bill of lading created to secure the release of the cargo.

2. Fraudulent bill of lading created for a non-existent cargo and vessel in order to obtain payment from an unsuspecting consignee.

3. Fraudulent bill of lading created for non-existent cargo, allegedly carried on an existing vessel, in order to obtain payment from an unsuspecting consignee. Often it is shown that the vessel was at the port at the relevant time that the bill of lading was said to have been issued.

4. Fraudulent bill of lading created to present to a bank to obtain Letter of Credit funds.

5. Cargo released without presentation of the original bill of lading retained by the shipper.

There is no doubt that photocopier technology and computer equipment often used to perpetrate a fraud is becoming cheaper and more sophisticated. Such is the quality of these documents, that when viewed in the normal working environment, are accepted as genuine.

A more serious aspect is the low security profile that is placed on blank original bills of lading. All too often they are left unprotected in an agent’s office with no record being maintained as when and to whom issued. Consequently, many find their way into the fraudster’s possession. Sloppy practices or corruption often provide the fraudster with the essential details to create the fraudulent document.

Close managerial supervision of blank bills of lading and a security presence for these documents will offer a safeguard against dishonest persons coming into possession of this form and enable a prompt response should one be found to be unaccounted for.

The other major type of fraud is where cargo is released without the authority of the shipper who retains possession of the original bill of lading. It is not uncommon for agents to disregard the notified release instructions.

In virtually all cases that come to notice the party who permitted the unauthorised release did so whilst being aware of their legal responsibility. The lack of judgement is all too often influenced by their close association with the consignee or their agent, with whom they have no legal obligation.

Common methods used to achieve possession of the cargo are:

a. Consignee’s promise to the future.

b. Consignee’s letter of guarantee.

c. Consignee’s letter exonerating the agent from his action.

d. Bank guarantee confirming that sufficient funds exist in the account at that time.

e. Agreement between shipping agent and consignee.

f. Shipper’s extended credit facility, minus the authority to release the cargo.

The above mentioned types of fraud are serious to the maritime trade. Perpetrators are aware that there is only a slight chance of detection and prosecution. With the majority of maritime fraud being international, the buyer and the shipper are often in two different countries, which may be far apart and separated by language, currency, culture and laws.

For these reasons, it may take a considerable length of time and be very costly to mount an action against the perpetrator. An approach by the loser to the police of the country from where the goods were dispatched is likely to be met with the response that they have no jurisdiction in the country where the alleged offence took place.

If the law enforcement authority in the country where the alleged fraud took place is informed, it will probably result in a request for proof before consideration is given as to whether or not to take any action. Unless there is a major political or economical implication, most law enforcement agencies are unlikely to become involved in investigating these types of frauds.

This type of crime will never be totally eliminated, but it is essential that those involved in the release of cargo are aware of the problems and by taking positive steps to counter them, can at least provide some deterrent against the fraudster.