During the recent years, the shipping industry and maritime commerce has seen a sharp increase in not only the number of fraud cases, but also the variety of fraud. Fraudsters are becoming more and more ingenious in their design and execution of scheme, including the use of modern technology, such as computer hacking, but sometimes tried & tested “old school” methods, such as document fraud, work just as well.
Fraud in commerce is as ancient as commerce itself, with examples going back to the Roman world and before.
The International Maritime Bureau defined maritime fraud as:
“An international trade transaction involves several parties – buyer, seller, shipowner, charterer, ship’s master or crew,insurer, banker broker or agent. Maritime fraud occurs when one of these parties succeeds, unjustly or illegally, in obtaining money or goods from another party to whom, on the face of it, he has undertaken specific trade, transport and financial obligations.”
Maritime fraud is becoming more common due to a number of reasons: Criminals are increasingly turning to new methods such as computer hacking, ports are adopting new technologies that in the worst case can enable new types of fraud (such as automatise container operations) and as shipowners are under pressure to win new business, many have disregarded due diligence when dealing with new business partners.
As both the greater reliance on IT and electronic trading platforms and documents increases, so does the need to stay ahead of the game played by the Fraudsters. There is a “cost” of course, to greater security, both in terms of investing in better technology and processes, but also in potential business opportunities.
In order to achieve the right commercial balance it requires experience, skill as well as knowledge of what scams and schemes are out there.
Given that Shipping is a global business, with many players and jurisdictions involved in any single shipment of cargo, even a simple A >>> B voyage, there are a myriad of potential pitfalls where the unscrupulous seek to take advantage of the unprepared. As parties are often based in multiple jurisdictions, and necessarily deal with each other at “arm’s length” and / or through Brokers and Financial Institutions, there may be little or no opportunity to make “physical checks”.
Everything comes down to reliance on documents, most importantly the Bill of Lading, as a key facilitator to fast trade with a low transaction cost. That is also the inherent weakness, the trust in a key document that can be adulterated and issued in multiple originals, which is the root of many of the frauds being perpetrated today.
It may be “minor” cheating or a multi-million dollar scam, but being prepared is the key to avoiding both.
This article gives you an overview of different fraud types, examples of fraud cases Skuld has been involved with useful tools, such as checklists to support your loss prevention programme against fraud.
Bunkering Frauds
Fuel can be the single greatest expense in the daily running cost of ships. Fuel prices rose over the last 10 years and never really fell significantly. Such values may provide a strong incentive for criminal designs to commit fraud, the incidence of which is said to be on the increase.
Commonly, disputes and alleged misdealing are in respect of:
a. quantity consumption by the vessel
b. quantity of deliveries
c. quality of deliveries
Case Scenario: Supplier overstated quantity supplied
The Association has been involved in matters where disputes arose over the quantity supplied. At times several days after a supply was made. These issues can be difficult to resolve, as the passage of time makes it more difficult to conclusively determine where fault may be found.
In particular it appears possible by the use of pumping air into bunkers as well as heating them to increase their volume and create what has been called “the Cappuccino” effect.
Experienced Engineers will be able to closely monitor a fuel supply and check for visible and physical signs of possible problems, including monitoring the temperature of the supply as well as checking for signs of air supply.
Lesson learned:
It is important to properly prepare for and monitor the supply of fuel oil to the vessel and not downgrade its operational significance. Experienced crew, assisted by a Bunker Surveyor, can significantly assist in the mitigation of this risk scenario. A mass flow meter on board the receiving vessel can also assist to determine exact quantities supplied, as mass measurement may be more accurate than volume.
Case Scenario: Bunkers are adulterated and off specification
Disputes over bunker quality are not uncommon, and often related the precise specifications, ignition quality, viscosity or other important factors.
Beyond those quality issues which simply make a Chief Engineer’s life more difficult than usual, are those which potentially can cause significant if not catastrophic damage to a vessel’s engines.
Bunker fuel is a heavy fuel oil product, resulting from the refinery process of crude oil and it contains a great many chemical and metal traces. Ship engines are designed to deal with these, but unusual or excessive concentrations may cause problems.
Furthermore the Association is aware of cases where bunker supplies were co-mingled with waste oils originating from a number of sources, including waste car oils and vegetable oils from the restaurant industry.
Lesson Learned:
Wherever possible new bunkers should be pumped into empty tanks on board the vessel and not co-mingled with existing stores. These bunkers should not be used until tests are performed to determine the exact nature of the supply. For claim purposes, bunker manifold samples on the receiving vessel can have the best evidential value if taken and stored properly.
Case Scenario: Crew colluded with Bunker Supplier to short change on a supply of fuel
A Chief Engineer on board a Tanker vessel was sentenced to a fine and imprisonment after being found guilty of having colluded with a Bunker Supplier to steal over 100 tons of fuel oil which was sold on to another vessel. The C/E had been induced into this course of conduct with a bribe, a small % of the value of the fuel, from the Supplier. The fraud was detected as the concerned authorities were aware of the general risk and had been monitoring possible suspicious activity which ultimately allowed for all the Conspirators to be caught.
Lesson learned:
Even relatively modest sums of money can be sufficient to entice people to commit a fraud. Given the key place bunkers hold in the vessel’s operational cost, careful voyage monitoring as well as on and off hire surveys, and bunker supply surveys are important in mitigating this risk. Ensuring rigorous staff training and company mandated codes of conduct are also important in this regard.
Case Scenario: Vessel is invited to conduct illegal bunkering off a West African Nation
Vessels trading to, from, or in the area of West Africa may be contacted by parties seeking to facilitate the supply of cheap bunkers outside of regular and established bunkering spots.
The potential fraud is the possible facilitation of the sale and purchase of stolen or smuggled bunkers and the avoidance of customs duties and other taxes which would have been due on the supply of the bunkers had they been procured properly.
This particular scenario comes with the added risk that vessel’s enticed to meet one of these alleged bunkering opportunities, may in fact be lured into an ambush designed to facilitate a piracy & kidnapping attack on the vessel. Security Contractors Dryad Maritime assisted the Association in highlighting these risks in the following Web Advisory to Members:
http://www.skuld.com/topics/voy...-gulf-of-guinea/
Even without the risk of a pirate ambush, such transactions are likely to fall foul of numerous laws as well as contractual agreements.
If the vessel sells part of the cargo, then that would be theft and outright criminal conduct. It may also amount to smuggling. Buying cargo, or particularly bunkers, may amount to smuggling and customs evasion.
In any of these scenarios the vessel is at risk of detention, possible confiscation, and the crew may be subject to arrest and criminal prosecution.
A variation of this scenario may see the vessel inadvertently take cargo originating from a country that is subject to sanctions, and which cargo may have been co-mingled or transited via repeat STS through a 3rd party jurisdiction.
Lesson Learned :
A deal that looks too good, probably is. The best way to ensure vessels stay both physically and legally safe is to ensure that they do not engage in activities which come with a high degree of suspicious circumstance, significant economic inducement or believed advantage, as well as other Red Flags (which are explained further below in the Loss Prevention Section).