Complexity is the friend of the fraudster. An international trade transaction involves multiple parties that can increase complexity – buyers, sellers, ship-owners, charterers, ships’ masters or crews, insurers, bankers, brokers or agents. In addition, 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.
Types of fraud (including 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.
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 ship-owner 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.
The massive rise in cyber-crime and the huge opportunities publicly and freely available tools and access to data present have also resulted in a serious change in the battle against fraud. In the majority of fraud, documentation plays a key role in either the committing of or controlling fraud. Genuine documents can suffer fraudulent action by a third party in respect of goods. Alternatively, the documents could be fraudulent from the outset. We intuitively trust many technologies as being immutable, and this tendency can be exploited by the fraudster to perpetuate their crime.
With the emergence of cyber-crime in the shipping industry, robust information security is a must. Failure to ensure you have this in place can enable fraudsters to access and change data. In the worst-case scenario, it could enable a complete take-over of the ship’s navigation systems by terrorists, resulting in a catastrophic environmental or logistical disaster. At the very least, it can be deployed as a tool to perpetrate fraud through account take-over, phishing emails or bank mandate fraud.
However, as much as technology is being used to perpetrate wrong-doing, it can be used to reduce fraud losses. Using IT to check the provenance of documentation and instructions can be relatively simple. Using IT to detect anomalies, spurious invoices and payments is not a quantum leap. Fraud is fraud, the tricks are the same; however, the modus operandi are changing. As the saying goes, ‘If you always do what you’ve always done, you’ll always get what you’ve always got’. Fraudsters are exploiting technology; you need to do the same.