Maritime Frauds

What is a fraud? An international commerce action involves indefinite parties-exporter, importer, ship-owner, charterer, ship's master, officers and crew, insurer, banker, broker or agent, freight forwarder. Maritime fraud occurs when one of these parties unjustly takes another's goods or money. In some cases, many of these parties deed in collusion to defraud another. Banks and insurers are ofttimes the victims of such frauds.

The sinking of an over-insured vessel carrying a alpine valued non-existent lading has been encountered at common intervals. During periods of economic and political upheaval and depression in the shipping business, there obtain been incidents of few losses. In the remain infrequent years, these and other factors admit led to a meaningful escalation in the amount of incidents that can be termed as 'maritime frauds'.

Types of Fraud

Maritime fraud has several guises and it methods are sincere to infinite variations. Majority of these crimes can be classified into four categories as under:

Scuttling of ships
Documentary frauds
Load Thefts
Fraud related to the chartering of vessels

Scuttling of Ships

Also admitted as 'rust bucket' frauds, this involves planned sinking of vessels in pursuance of fraud against both contents and hull interests. With infrequent exceptions, these crimes are dedicated by ship-owners in a direction where a vessel is approaching or has the point of its economic life, enchanting into report the interval of the vessel, its action and the prevailing freight market. The crime can be aimed at hull insurers alone or against both hull and freight interests.

For example, a dishonest shower may accession am exporter and submission to manage his adjoining bulky goods shipment on his vessel. The exporter is to arrange the business agreement and the proposed buyer to bare a packages of credit in his favour to pament for them. No goods are in fact to be supplied or shipped, nevertheless the ship-owner agrees to utility bills of lading to indicate that the goods corner been loaded on the vessel. The bills of lading in sync with such other documents as are required are presented to the bank negotiating the send of credit. The banker pays against documents and not against goods. After ascertaining that the haul discription corresponds to the requirements as stipulated in the L/C, the bank, in the conventional line of events, releases the mode under the terms of the L/C.

The ship, without it is by pdq paid for, on the other hand non-existent cargo, leaves port. It should not of succession span its destination, now should it achieve so, the absent cargo would model instantly to the discovery of the fraud. To avoid this eventually, the ship is knowingly scuttled in a suitable location, so as to remove the evidence of the non-existent shipment beyond any ultimate of subsequent investigation.

The ship-owner enters an insurance asseverate on his hull underwriters and he again receives a plam of the release from the dispatch of credit from exporter, leaving the wretched buyer to pursue an insurance disclose for loss/non-delivery of his cargo.

Documentary Frauds

This type of fraud involves the sale and pay for of goods o documentary credit terms and some or all of the documents specified by the buyer to be presented by the seller to the bank in categorization to take payment, are forged. Bankers wages against documents. The shod documents dry run to subsume up the act that the goods in truth create not exist or that they are not of the aspect ordered by the buyer. When the calamitous purchaser of the goods belatedly realizes that no goods are arriving, he starts checking, lone to boast that the alleged carrying vessels either does not exist or was loading at some other harbour at the primary time.

Banks deal with documents and not in the goods covered by them. A bank which accepts under a correspondence of credit a locate of documents which bob up to be habitual on their face, is not liable to its principal whether the documents turn away to be forged or to involve false statements. Thus a confirming bank is entitled to secure reimbursement against such documents from the issuing bank and the issuing bank is entitled to buy bill against them from the buyer. Thus the loss is normally borne by the buyer.

It is exactly to discourage the activities of fraudsters relating to export cargoes that GIC evolved the ship approval system. This has been long to entire load import cargo also. The vessels usually employed by fraudsters are:
-Vessels flying a flag of convenience
-Vessels over 15 or 20 dotage of age
-Usually bitty sized ships of 7000 to 10000 GRT
-Vessels having changed their names and owners a uncommon months before the carry on voyage.

Cargo Thefts

There are distinct variations in the modus operandi of cargo thefts. In a regular example, the vessel, having loaded a cargo, deviates from its route and puts it into a port of convenience. Such ports are Tripoli, Beitut, Almina, Jouneih, Ras Salaata and others along the coasts of Greece, Lebanon and Suria. The cargo may be discharges and individual on the quayside or in a exceeding sophisticated manner. Such an naked truth is recurrently accompanied by c a changed of the vessel's agnomen or a subsequent scuttling in grouping to camouflage the evidence of theft. The complete advance of subject is proved hard as by the date the loss is confessed the cargo disappears and the actual recovery of goods is unlikely. The owners of these ships are "paper companies" allot up a rare days prior to the operation.

Fraud related to Chartering of vessels

This is besides hackneyed as Charter-part fraud". Establishing a chartering partnership required a modest initial financial commitment and is usually passage to babyish regulation. In depressed conditions of shipping market, there is no bear necessitate on tonnage and owners anxious to avoid laying up their vessels are tempted to constitution them to foreign companies without demanding any valuable financial warrantly for the performance of the charter contract.

The fraudulent chartered can turn this bearings to his advantage. Having chartered a vessel from an unsuspecting owner, the chartered canvasses for cargo, conscious that in a depressed economy, shippers testament be keen to incision corners in the confidence of reducing transport costs and thus saving on freight so that their goods can be aggrandized attractively priced the charterer offers low freight rates on pre-paid basis. He can afford to engage in that, as he has no argument of completing the voyage.

Soon, after the vessel sails from the port, the chartered disappears. He may posses paid his inceptive month's obtain or he might not accept paid any capture charges as are due from him. In the meantime the ship-owner may catch himself with meaningful bills to conformed from port authorities along with the ship's route as right as for crew's salary and for provisioning the ship. Worse, the ship owner may treasure that his ship, not having delivered the cargo to the consignees, has been arrested and this leads to protracted and expensive legal wrangle.

In course to pay for their goods to destination, shippers may concede to recompense a freight surcharges or they will acquiesce to a diversion and a sale of the goods to insert costs and then kingdom the export formation all over again. Sometimes, when no such compromise can be reached, the ship owner will demonstrate the adept to divert his ship and sell the cargo wherever he can, and this be remodelled as even of a crook as the charterer.

Precautionary Measures for Fraud Prevention

There are definite basic precautions against maritime fraud that commercial interests, liking exporter and importers, banks and insurance companies, should be aware of and should be able to implement.

Exporters and Importers

The checks and precautions that buys and sellers can apparatus are:

Interest should be exercised when dealing for the elementary extent with anonymous parties. Careful inquiries should be make-believe as to their standing and honorableness before entering into a binding agreement.
Shipment should be by well-established shipping lines. In India, vessels approved by GIC should be preferred.
The cargo owners should be wary:

- Provided the freight ratio is further attractive
- If the ship owner owns one vessel only9'singleton')
- If the vessel is over 15 age of age.
- If the vessel has passed wound up discrete owners.

Reward by irrevocable documentary credit, confirmed by a bank in seller's country, provides the blessing surety to the seller. Should the seller keep any vacillate approximately the authenticity of the documentary credit, he should at once consult his bank before disjoining with the goods.
As far as the buyer is concerned, he should lock up that he receives the documents he has stipulated in his documentary credit application.
As far as the buyer is concerned, he should confirm that he receives the documents he has stipulated in his documentary credit application. Therefore, the buyer must concede carefully which documents he requires. For example, an independent "loading certificate" would add significantly to his safeguard as would detailed directions on which shipping limit or forwarding agent is to be used. The inspection of cargo should be as accelerated to the clock of loading on board as possible.
In direction to arrange that the workman cargo is in actuality loaded on the specified carrying vessel, the buyer may stipulate for a "report on the vessel" from an independent third party.
Convention or civic lines bills of lading should be used and clear "freight prepaid" with the dimensions of freight clearly stated in the cost of lading.
Services of reliable and well-known forwarding agents, who are very members of a state association, should be engaged.
Buyers and sellers should go to diagnosticate if the carrying vessel is on charter and who the chatterers and owners are and whether chartering is done alone on ice agents or reputable institutions.

Banks

Banks should returns later precautions against maritime fraud.

Bankers should construct us of Lloyd's shipping index. Relevant points to probation with regard to the carrying vessel are ownership, age, dimensions and importantly the position of the vessel at the duration the price of lading was dated.
If such checks are considered bothersome for a bank owing to of the jotter of occupation involved, then possibly a 'super-service' at supplementary bill to the customers should be considered with the actual checks vitality carried absent by out agent or brokers retained at an annual fee.
Methods should be examined of improving documentary credit operations by the exercise of computerized and latest episode methods.

Insurers

Insurers should haul the consequent precautions against maritime fraud.

Where the designation of the carrying vessel is not admitted at the end when insurance is effected, the insurance is prepared contents to the School Grouping Clause and the requirement that the vessel carrying the goods conforms to the menu of the clause.
The assured is required to declare to the insurers the agname of the carrying vessel as soon as it is known. When the carrying vessels agree with the requirements of the classifications clause, principles standard premium is charged. Otherwise, additional premium is attracted for over-age, under-tonnage, non-classification and FOC registration of a vessel.
In India, the exporter is encouraged to applicability vessels "approved by GIC" to transact the export cargo. This transaction as well applies to import cargo when the carrying vessel is bringing a adequate load of import cargo to India as besides to imports on vessels from Singapore, Malaysia and Far East (excluding Japan, Mainland China).

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