IB E-5: INTERNATIONAL

SUPPLY CHAIN
MANAGEMENT &
LOGISTICS
Prepared by:
ANEESH S.V.L.S (818003)
 This Photo by Unknown author is licensed under CC BY-SA

INTERNATIONAL MARITIME FRAUD & UNETHICAL

PRACTICES: CAUSES & PREVENTION
INTRODUCTION

Maritime trade – involves transport of goods through sea, using ships

International trade stakeholders – traders (sellers & buyers), insurer, ship

owner, charterer, broker, banker, customs officials
Maritime fraud – one of these parties succeeds, unjustly and illegally, in
obtaining money or goods from another party, to whom they have undertaken a
specific trade, transportation or financial obligation

In some cases, several parties collude and act to defraud other party/parties
 Categorisation of Maritime Fraud

◦ Numerous permutations and combinations 

◦ However, can essentially be put into four categories
◦ fraud committed by a trader against another trader, shipowner, bank or insurer
◦ fraud committed by a charterer against a shipowner
◦ fraud committed by a shipowner or trader against insurers
◦ fraud committed by a charterer or shipowner against a trader
◦ Barratry – fraud or gross negligence by ship's master or crew at the expense of
ship's owner or users
◦ Unlawful seizure of ships and their cargo
EXAMPLE OF MARITIME
FRAUD
◦ Buyer – country X – wanted 10,000 tonnes of commodity A
◦ Buyer approaches seller – country Y
◦ Seller unable to deliver X on time – approaches another seller – country P – agrees to deliver 
◦ Irrevocable confirmed L/C for USD 5 million opened by buyer in X in favour of seller in P
◦ Seller in P supplying from another country Q
◦ Payment based on following documents:
◦ Blacklist Certificate – to ensure that the vessel does not call at any port(s) of any hostile nation(s) to country X
◦ Quality assurance document, such as Mill Test Report (MTR)
◦ Certificate of origin - attests that commodity A has met certain criteria to be considered as originating in country P
◦ Seller in P submits the requested documents, receives payment
◦ After 4 months, buyer in X has not received cargo – enquires with original seller in Y
◦ The company in country Y launched investigation – found that the vessel on which the steel was supposed to have been shipped
was actually in country Q at the right time but did not load the commodity – shipowner and charterer not involved in the fraud
◦ The company in country Q knew nothing about the affair and had never had any dealings with the seller in country P. The mill
certificate had been forged as had the EEC certificate of origin, the certificate of a non-blacklisted vessel and the bill of lading. 
◦ The fraudulent documents were very crude forgeries. The seller in country P was untraceable
◦ Result - the buyer in X had been defrauded of  USD 5 million
DIMENSIONS & CAUSES
◦ Most individual cargo parcels/consignments are small – few kilos to 2-3 tonnes – never enough to fill a whole ship – shipowners
aggregate cargo of various shippers from one port or from various ports en route
◦ Various types of cargo + complex transportation networks = VULNERABILITY; scope for cheats and fraudsters
◦ Modus operandi: document forgery, , creating fake letter of credit/bill of lading, impersonation, false representation, either
directly or through their bankers
◦ Most observed cause: APPARENT BARGAIN – exceptionally favourable price and conditions quoted by a seIler or by a transport
provider; attraction of apparent bargain often neglects precautionary measures ususally adopted by traders to avoid fraud
◦ Multiplicity of the parties involved
◦ Too much trust leading to lack of verification of documents and standing of the, parties involved, and adoption of other
precautionary measures
◦ Problems of liner trade involving various types of cargoes md use of various iypes of transportation in carrying them from one
destination to another
◦ Lack of timely detection leading to lack of timely action
◦ Inadequacy and lack of timely surveys and expert evidence
◦ Indifferent attitude of concerned governments
◦ Jurisdiction problem and other legal complexities & in handling international disputes
◦ Lack of sharing information. 
 COMMON AREAS OF FRAUD

Carriage of Goods by Sea

Bill of Lading

Charter Parties (Voyage)

Charter Parties (Time)

Other matters – maritime frauds and piracy, dead freight, damage to cargo/ship,

non-payment of freight hire etc.
PRECAUTION
S TO BE
OBSERVED
BUYERS AND SELLERS
◦ Best way – make enquiries and satisfy themselves about the standing and integrity of the
parties they deal with
◦ Shipment of goods by well-established shipping companies and other reliable transporters;
chartering only through agents (in case of chartered vessels)
◦ Careful selection of the terms of shipment
◦ Proper packaging of goods so as to prevent wear & tear arising during voyage
◦ Transshipment inspection by independent inspectors
◦ Comprehensive written contract with the counterparty
◦ Purchasing a comprehensive insurance policy
◦ Processing transactions through known bankers, with whom both parties have had a good
experience
◦ Careful examination and understanding of Bill of Lading, Seaway bill
FREIGHT FORWARDERS

Must act ethically Must take

– keep shippers necessary
Well-placed to
(trading parties) precautions, make
read the
in the loop about necessary checks
conditions of local
any information before proposing
market
that may be maritime services
useful  to clients
BANKS

Encounter two types of fraud 

• presentation of genuine documents but subsequent fraudulent activities
• presentation of fraudulent documents in respect of inferior or non-existent goods
Both types of fraud occur under documentary credits – deal with
documents, not goods
Banks cannot verify the genuineness of the document or the
signatures
Vast number of shipping companies render such a check
impracticable
VESSEL OWNERS &
CHARTERERS
◦ Seeking advice on time charters – BIMCO, Baltic Exchange
◦ Using the services of reputed ship brokers
◦ Inquiring about the financial status of the charterer and establishing necessary
checks to ensure due, on-time payment
◦ Ensuring that time charters do not insert exploitative clauses
◦ Charterers must inquire about the standing and record of vessel owners
◦ Master must ensure that cargo signed for is on board
◦ When bill of lading is issued, masters must ensure that cargo is released only
against the original duly insured
INSURERS
◦ Last party to be aware of maritime fraud
◦ Insert classification clauses – restricts the acceptance, at contract rates, of cargo
carried on vessels of a certain age and type, otherwise an additional premium
must be paid or, in certain instances, the conditions of insurance may be varied
◦ However, will not be a fully effective measure unless the insurer states very clearly
his requirement that the name of the vessel must be declared to him at the earliest
possible the and unless the insured fulfils his obligation to do so
◦ Thorough checking of the vessel details must be undertaken – ownership,
management and trade record
STEPS TO FOLLOW IF A VESSEL
DOES NOT ARRIVE
◦ Normally, party at risk (shipper/seller/buyer) monitors the course of the vessel
◦ Essential part of insurance contract for the insured party to ensure loss is mitigated
◦ Party at risk should calculate an estimated time of arrival for the vessel on which cargo is carried – this estimate
should be a carry-forward item in the office diary
◦ If the vessel does not arrive by this date, there should be an immediate enquiry of agents at the port of arrival
and, if nothing is known, reference should be made to the various intelligence services available – Lloyd's List and
in many local journals, agents in every port in the world who can help if such information is not easily obtainable
◦ If there is still no news of the vessel it is possible that the situation is one that gives rise to an insurance claim
and insurers and/or brokers should be advised immediately
◦ If and when the vessel's whereabouts are known, it is quite possible that there are reasons why the owner was
unable to complete the voyage or failed to meet his obligation
◦ If unable to compel him to do so, it is better to arrange onward carriage, and, in these circumstances, it is
advised that the services of a recognised shipbroker be utilised – inform the insurer at the earliest
◦ The principal should follow the advice given by these brokers and should also allow them to appoint the agents at
loading and discharging ports
INTERNATIONAL CHAMBERS OF
COMMERCE (ICC)
◦ Non-profit organization – London, Kuala Lumpur, MY
◦ International body – various chambers of commerce and industries across the
world
◦ Membership – 150 nations
◦ Commercial activities for promolion of international trade and commerce
◦ Deals with concerned agencies on behalf of its members
◦ Consists of specialized agencies – help in discharging functions – CCS, CMB, CCB,
CMT, CU, CIB
INTERNATIONAL MARITIME
BUREAU (IMB)
◦ Established in 1981
◦ Covers all types of frauds and malpractices in trading and transport
◦ In cases of maritime fraud or when ships fall victim to pirate attacks, bureau
reacts swiftly using its staff and contacts worldwide
◦ The Bureau, which has observer status with INTERPOL, also investigates
suspicious cargo losses from containers during sea, road and rail transit
◦ Internatlonal Maritime Bureau's legal department advises on bill of lading/charter
party disputes and on the most effective way to recover debts
◦ Provides confidential due diligence database with information relating to fraud or
other suspect practices in international trade and maritime transport
 CONTENT
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