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Shipping Frauds Shipping Frauds

Untold StoriesUntold StoriesPresented by Presented by

CK SharmaCK SharmaAcademic AdvisorAcademic Advisor

19th November 2014 Mumbai

Perils in ShippingPerils in Shipping� High Value Assets.� Bad Weather.� Pollution Risk.� Navigation Hazards.� Pirates.� Dangerous Cargoes.� War Zones.� Dangerous Countries.� Cyclical Industry � Bad Owners/Charterers� Maritime Frauds� Commercial Risks

Maritime FraudsMaritime FraudsWe must differentiate between:� Oversight

– IRS vs IR; CCC vs China Register� Lack of due diligence:

– Not reading the whole contract carefully.– Documentation in a hurry : Example - LOI Countersigned by Bank?

� Series of unfortunate incidents leading to disaster:

– Khalijia 3 & Ink purchase by Mont Blank� Maritime Fraud:

– Definite “Intention to Cheat” the other party

Main Type of Maritime Frauds - IMain Type of Maritime Frauds - I� Non-Existent or defective cargo:

– Wet Sugar from Thailand� Non-Existent Ship:

– Igloo Tana oos� Non-Existent Parties:

– Desire to buy cheapest cargo or freight via least known brokers or internet is a great help to fraudsters. Very common in Containers. Case of Project Cargo in Essar – freight paid twice.

� Negotiation of Shipping Terms by non-shipping people : – Ship Owner asking for USD 4 pmt for use of

Crane in FOB Steel Cargo.�

� Communication is key in Shipping business� Abrupt orders can lead to disasters� P&I Cover is essential.� Training is most important for even the

smallest job.

Main Type of Maritime Frauds - IIMain Type of Maritime Frauds - II� Trickster Ship Operators:

– 2005 : Project Cargo from Mumbai to Iraq discharged at Bandar Abbas, Iran. Owners changed Ship’s name but ship nabbed later. The German Operator from Sharjah was never traced.

� Documentation Fraud:– False BL.– LC with tricky terms.– False documents: Coal offered to OPG reportedly

rejected at Chinese port. Docs of last voyage submitted.

– Freight prepaid BLs: Great problem for ship Owners if the freight is really not received in Owners account. SCI case of Calcutta to Kuwait.

Case of Chemical Tanker in NGC & Case of Chemical Tanker in NGC & Case of Steel Coils from India to Case of Steel Coils from India to

Saudi ArabiaSaudi Arabia� There are Disasters associated with

discharging against LOI.� Bad intention of the counterparty is

often the reason as in the case of Importer in Kandla where Norwegian Gas Carriers was the Ship Owner.

� But sometimes, one can get caught in a freak situation as in case case of Steel Coils.

� Moral of the story is that no matter what you do some uncertainty will always haunt you in Shipping.

Charter Party Frauds - ICharter Party Frauds - I� Charter Party Frauds:

– A ro-ro vessel loaded a cargo of vehicles for the Defence Ministry of a South East Asian country in the Black Sea. The shipper allegedly paid all the freights due to the charterer based in Rotterdam.  The charterer sent the shipowner an email confirming payment of freight including remittance advice from the bank. The shipowner releases freight prepaid BLs and the vessels proceeds through the Suez Canal. 

Charter Party Frauds IICharter Party Frauds II� No freight is received and it turns out

that the charterer had provided false remittance. The owner stops the vessel Red Sea near Sudan and demands payment of freight before proceeding. The freight is not paid. The vessel disappears & is no longer contactable by the cargo owners. The owner, based in Ukraine is also difficult to contact.  Now many months later the location of the ship and the cargo remains unknown.

Global trade in phantom cargoesGlobal trade in phantom cargoes  � In May 1998 an Indian in Dubai, Madhav

Patel who Owned Solo Corporation dealt in cargoes that actually never existed but ALL documentation was done between his UK Company and Dubai Company. All documentation was done in Solo’s office as needed by Banks.

� Citibank, Barclays and ABN Amro were the main Banks which lost £500 Million.

� Such cases keep happening even today to the dismay of Banks & honest importers who often find that their cargo Insurance is not any good in such cases..

THANK YOU FRIENDS