New trading frauds threaten banks and buyers

  • 23 April 2006

ICC’s International Maritime Bureau (IMB) continues to uncover fraudulent activity in the shipping industry, recently discovering a number of trade scams emanating from China and Estonia.

In the past few months, IMB has learned of nearly 80 cases of shipping fraud involving containers shipped from Qingdao, China to California. Investigations by IMB have revealed that containers were loaded onto vessels different from those officially stated on the bill of lading and destined for numerous ports around the globe, not California. Although containers were said to hold ‘gift items’, their actual contents are unknown.

In some instances, buyers were convinced to provide funds in advance. Unfortunately for these buyers, they will now face the difficult prospect of attempting to reclaim their lost funds through litigation.

Michael Howlett, Assistant Director of London-based IMB, stated: “Most of these new frauds appear to be targeting buyers, but banks are also at risk by unwittingly financing fraudulent trades. IMB is warning buyers to beware of these shipping scams, and urging them to closely monitor documents related to container shipments.”

This warning is the second on commodity trades in as many months. In March, IMB brought to light a paper trade fraud originating from Indonesia.

In a separate wave of shipping fraud, the Indian sub-continent was recently hit with a spate of fraudulent steel sales. Sold by an Estonian company to a number of Indian buyers, the cargoes of steel were said to have been shipped from Ust Luga, a port 60km from St Petersburg.

“IMB investigators found that the trades to Indian buyers were based on fraudulent documents,” said Mr Howlett. “Our investigation found that the container numbers were invalid and the vessels said to be carrying the steel did not exist.”

The modus operandi of this scam is very similar to a series of steel frauds targeted at buyers in India and Pakistan two years ago. IMB is currently investigating to verify if this latest round of frauds is being conducted by the same operators.

In all of these recent cases, diligence by financial institutions and early intervention by IMB investigators has helped draw attention to emerging fraud trends in the shipping industry.

IMB is a division of the International Chamber of Commerce.