Maritime bureau chief urges caution with cargo transactions
Documentary and time-charter fraud is increasing as a result of the economic crisis, International Maritime Bureau (IMB) director Captain P. Mukundan says.
Speaking at an International Chamber of Commerce seminar on Maritime Shipping and Trading Fraud, Captain Mukundan said all parties involved in transactions needed to be more careful as cases of fraud increased.
Citing several fraud cases uncovered by the IMB, Captain Mukundan said there was no such thing as an internationally accepted law.
'The law is what a particular judge decides in a courtroom in a particular country, which might be strange to other countries,' he said.
In international litigation there were people who looked for a country to get the results they were seeking and it could be done, he added.
He also warned it was dangerous to use transferable letters of credit as they could end up with unknown parties and cause problems when there was a claim.
Captain Mukundan said if a fraud was perpetrated and did not involve physical cargo, insurance companies would not pay out a claim.
A bill-of-lading document used to ship internationally traded goods that gave the holder - the consignee - the right to take possession of goods had no security as it could be forged easily, or a duplicate of the original issued, as had been uncovered in some cases, he said.
The only preventive measure was to authenticate every bill of lading, Captain Mukundan said, adding that this could be done through the IMB if the parties were members. On average, the IMB authenticates 50 to 55 bills of lading each day.
Captain Mukundan warned banks they could fall prey to fraud if they became complacent. Even if a customer was doing business regularly with another customer for many years, spot checks should be carried out as a preventive measure as fraudsters had been known to use the knowledge that banks liked regularity and routine to later defraud them, he said. Cases uncovered by the IMB showed fraudsters had used this knowledge on a number of occasions, he added.
Shipping lines were warned not to pre-date bills of lading - a prevalent practice in the trade that was illegal, Captain Mukundan said.
This was because a bill of lading dated in a month when the charter rates were higher meant more money than in a month when the rates were lower, he said.
He also warned vessel masters not to agree when a charter party wanted a 'clean' bill of lading stating the cargo was in good order when it was not.
Captain Mukundan said it was illegal for a master to issue a 'clean' bill of lading even if the charter party undertook to indemnify the master of all claims.
Another common fraud was committed by exporters who persuaded shipping agents to switch cargo origin on goods bound for Europe or the United States to gain tax breaks on goods whose quotas were filled, he said.
He cited a case of a Singapore shipping agent who had become involved in such a case and finally had to reimburse part of the loss after the deception was uncovered.
On the issuance of bills of lading by a non-vessel-operating cargo carrier (NVOCC), Captain Mukundan said this practice was acceptable for less-than-container-load cargo for consolidation purposes, but not for larger shipments.
He said a case uncovered by the IMB revealed that a NVOCC who had issued a bill of lading to carpet merchants in India for a shipment of carpets worth US$800,000 had produced another set of documents to collect the carpets at the final destination and disappeared with the cargo.
No trace could be found of the NVOCC who has put up a $50,000 bond with the Federal Maritime Commission to allow him to operate.
Captain Mukundan said the carpet sellers had no recourse against the agent of the carrier because the bill of lading was not issued by the shipping line, and so they had to take the losses themselves as they had no liability insurance cover.
He said if a seller held a bill of lading issued by the NVOCC, he would have a right of claim against only the NVOCC.
Captain Mukundan's advice in the case of a dispute between a charter party, shipowner and cargo owner was to reach a settlement even if it meant paying money, instead of resorting to court action, which might end up with no result despite expenses and possibly long delays.