Shipping Manifest

IMB warns about W’ African importers - Chinese exporters pre-financing scam

The International Maritime Bureau (IMB) has raised an alarm about a pre-financing scam involving importers in West Africa and exporters in China.

According to the IMB, the scam involves 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.

The organisation explained that though the shipments details presented matched those of genuine shipments, the documents themselves contained sufficient discrepancies to warrant further investigation.

The IMB noted that when contacted, the purported issuers, all major carriers, confirmed that the documents were not genuine.

IMB Director, Mr. 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.”

He went: “It would appear that the sellers of these goods are unwilling to release the goods until they have been paid for. 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.”

Mukundan explained that from the bank’s perspective or 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.

He said that one reason for the success of such schemes is that banks do not share their information on transactions, adding that 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, according to him, 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.

“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,” Mukundan said.

He went on: “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.”.

The IMB advised both banks and carriers to be aware of these issues, noting that it 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.