False shipping documents detected
The ICC International Maritime Bureau (IMB) is warning against a pre-financing scam involving importers in West Africa and exporters in China that is manipulating the trade finance system to provide unofficial pre-shipment finance based upon false shipping documents.
The IMB first identified the scheme when authenticating liner Bills of Lading submitted by member banks. Though the shipments details presented matched those of genuine shipments, the documents themselves contained sufficient discrepancies to warrant further investigation. When contacted the purported issuers, all major carriers, confirmed that the documents were not genuine.
IMB Director Pottengal Mukundan commented: “False documents indicating cargoes have been shipped are presented under documentary credits to generate funds for the sellers before the shipment is made. Once the funds are released it would appear the goods are shipped. This is an abuse of the documentary credit system which relies upon shipments to be made as stated upon the bill of lading. From a banking perspective it can give rise to a number of risks if these transactions are allowed to continue unchecked.”
“It would appear that the sellers of these goods are unwilling to release the goods until they have been paid for” continued Mr Mukundan. “As this is not normal practice in international trade, someone along the line has produced false documents that relate to the trade which are then sent to the banks as they process these transactions. Once the funds have been released, it would appear that the goods are shipped and the genuine documents released.”
From the bank’s perspectiveor the bank , the biggest risk is that there could potentially be two or more sets of documents in circulation for the same shipment, each generating a set of trade finance for the same cargo, but going through different banking channels. One reason for the success of such schemes is that banks do not share their information on transactions. Other schemes which build upon this vulnerability include money laundering and long term frauds in which the bank itself becomes the target of the scam. The IMB provides specific services to banks to detect and prevent these schemes.
An additional problem identified by the IMB is that since the false documents were first identified, the quality of the false sets has increased as trade finance departments have been rejecting them on the basis of certain discrepancies.
Mr Mukundan continued: “Unauthorised pre-financing scams are not a new phenomenon, but the ultimate danger is that it may reach the point that sellers may receive funds and do not subsequently ship the goods. The buyers are especially vulnerable since they have agreed to an illegal arrangement and are, as such, complicit with the fraud.”
“These scams also present a danger for the liner carriers whose documents are forged, since there is a risk that they may become unwittingly embroiled in conflicting claims for the loss of cargo under the false bills of lading when the vessel arrives at its destination. They may have no ultimate liability, but it is an unnecessary loss of management time and legal expenses”, added Mr Mukundan.
The IMB advises both banks and carriers to be aware of these issues. The IMB provides a viable and safe conduit for the sharing of information between the various companies and sectors, which will help to frustrate the would-be fraudsters.
Source: ICC- IMB
