Complexity is the friend of the fraudster and an international trade transaction involves multiple parties – buyers, sellers, ship-owners, charterers, ships’ masters or crews, insurers, bankers, brokers or agents. In addition to the parties identified above, one also has to consider the opportunity for cargo handlers (loading and unloading), government officials, security staff, inspectors, surveyors, hold cleaners and others to commit fraud or behave corruptly.
Notwithstanding the supply chain length, the multitude of types of fraud and areas open to bribery or corruption include, but are not limited to:
- misrepresentation in Bills of Lading;
- agency/sub-contractor fraud;
- import/export port and border control;
- insurance fraud (hull/cargo/P&I);
- deviation fraud;
- fuel bunkering/pumping/expansion.
In the majority of fraud, documentation plays a key role in either the committing of or controlling fraud. Documents are often genuine but suffer subsequent fraudulent action by a third party in respect of goods, or are fraudulent from the outset in respect of inferior quality, non-existent goods or short supply. It can be difficult to check the provenance of any such documents, primarily signatures. It is especially important to be able to make as many checks as possible. As much as IT is used to perpetrate fraud, fortunately, it is extremely useful in being able to corroborate hard-copy documents with emails, scans, telephone calls, or video-conferencing. It is worth taking a moment to consider how you do check your documents and what extra controls and checks you could enforce to future-proof your current systems.
Bill of Lading fraud involves the forgery of Bills of Lading for non-existent goods, or differences in the quantity or quality of the goods. There can be fraud by the seller or buyer against the shipowner or the carrier. The Bill of Lading is a Document of Title and has three main functions:
- it acts as a receipt of the cargo from the carrier to notify the buyer that the cargo is being shipped;
- it details the quality and quantity of cargo;
- it records any defects with the marking or packaging of the cargo.
If the details do not match, the Bill is unclean which results in either a breach caused by the seller or the carrier.
Bribery and corruption also present significant risks. Shipping companies have to interact with a host of officials and other parties whose services are essential to contractual, safety and regulatory obligations, giving ample opportunity to seek ‘facilitation payments’ which are outlawed by the UK Bribery Act 2010. It is essential, therefore, that companies have adequate anti-bribery procedures in place and that staff are aware of the external and internal risk factors, are able to spot ‘red flags’ and manage third-party risks.
If the risks of fraud and bribery are to be reduced, organisations need to be able to demonstrate top-down commitment (effectively embedded into the corporate culture), strong anti-fraud/bribery awareness, communication and training, robust policies and procedures, due diligence, plus regular monitoring and evaluation.