Spanish Prisoner Scam has been Around for Hundreds of Years
Maritime insurer Skuld highlights four chartering fraud scenarios the industry should watch out for. There is usually the involvement of unknown or numerous intermediaries and an overly trusting approach to representations made by or on behalf of first time counterparties, says the company.
Case Study 1: Advance Fee Fraud
This style of fraud is famous as the Nigerian 419 or “Spanish Prisoner” scam and has been around for hundreds of years.
Ship owner “SO1” is offered a cargo lift from a country that recently had been subject to sanctions. The fixture offer came from an unknown broker (“UBB”) for one TCT / Liner Terms hybrid.
The broker alleged he represented a major European company that was the TCT charterer (“EURO”).
A request was made for port charges to be paid in advance of the vessel’s arrival, but because of “sanctions” these could not be paid to the local shipping agent (“LSA”), but instead should be routed via EURO’s subsidiary in the Middle East (“MIDDLE”).
The funds were remitted, but checks made thereafter showed that:
This particular cargo did not exist and was not usually traded from this country
The purported shipping agent did not exist
There were no relevant sanctions on the country
The money sent to MIDDLE was routed onwards to an entity in Northern Cyprus after which the trail went cold
The alleged broker and the alleged charterer EURO were run by the same person out of different email and phone accounts
This person showed a high degree of shipping experience and understanding of fixtures
Lesson Learned:
The transaction came with many red flags, including an unknown intermediary, an alleged sanction issue, a request for an advance payment as well as a request for routing funds via a third party and country. All of these should have led to further inquiry.
A phone call to the actual European Company, well known, whose name was being abused could have prevented the ship owner failing foul of this scheme.
Case Study 2: the “Double Play” Charterparty
Time charterer A (TCA) let out the vessel to voyage charterer B (VCB). The deal was fixed through TCA’s broker (BB1) and VCB’s broker (BB2). The fixture was for a cargo from Asia to Africa. Cargo was laden, Bills of Lading were issued and freight became due. TCA sent the freight invoice to VCB.
VCB responded by stating the following:
VCB had paid the freight to a different Time Charterer “DTC”
That was subject to a fixture concluded by BB2 on behalf of VCB and DTC
VCB denied having any contract with TCA
VCB refused to pay freight to TCA
The receiver in Africa, and the particular jurisdiction concerned meant that it would be difficult to successfully exercise a lien on the cargo. In the meantime both DTC and BB2 disappear from the scene.
Due to an error in the issued Bill of Lading it was possible to halt the documents in the Banking system before they reached the receivers. As a result a deal was arranged between TCA and the receivers for a commercial resolution as both parties were innocent.
Investigations revealed that the offer from BB2 had come from a particular “IP” (Internet Protocol) address, which was also the source of a number of other suspect fixture offers received in this time frame.
Lessons learned:
Contact with unknown intermediaries acting for unknown principals can be high risk without rigorous due diligence and counterparty checks.
Case Study 3: Intercepted Freight Scam
Time charterer A (“TCA”) is introduced to a fixture by their usual broker (“UBB”), they had in turn been approached by an Eastern European broker (“EEB”), who was merely passing on a proposal from a Central European broker (“CEB”).
The proposed voyage charterer (“PVC”) was a very reputable and known trader in Europe, and the fixture proposal gave full contact details of PVC’s genuine office and staff. At no stage was any attempt made to contact PVC direct.
TCA concluded the fixture via the chain of 3 brokers, and freight was invoiced subsequently for just over USD 1 million.
In the meantime the fraudsters used another company vehicle (“ACV”) to make a deal with the shippers in Asia (“SIA”) for the actual shipment of the cargo, all the while holding out that their principal was PVC. The deal was very competitively priced so as to make the Asian shipper SIA conclude the deal with undue haste and no due diligence.
The shipment took place and as per the fixture deal, Freight Prepaid Bills were issued and released. Due to an oversight by TCA, they did not chase for the freight until some considerable time had passed.
In the meantime ACV routed the funds received from SIA on to a third party, after which the trail goes cold. When challenged for the freight, ACV alleged that they believed to be in business with different charterers all together (not TCA or PVC) and claimed they paid their freight legitimately to the 3rd Party Disponent Owners they contracted with (allegedly a North Asian Based Entity “NAE”).
In any event, it turns out that ACV used a company in London to make this payment (“CIL”). Investigations revealed that while payments originated from CIL, no such company could be found in London, and the payment did not go to NAE, but instead to a company in Eastern Europe (“CE2”) and possibly onwards thereafter.
Ultimately the fraudulent design and set up of this complicated scheme was traced back to the 3rd Broker in the chain, namely CEB who used frequently changing mobile phone numbers, email and Skype accounts. Addresses given turned out to be fake.
Lesson Learned:
A long chain of intermediaries, who do not know each other, meant that the ultimate victim: TCA lost their freight and the complexity of the scheme meant it was not possible to track down either the responsible parties or the funds. A simple due diligence call to PVC would have revealed the truth.
Case Scenario 4: “I never planned to pay you anyway …”
The difficult shipping market has seen ship owners take business opportunities whenever they present themselves, because with tough times comes the need to keep the cash flow going. That means it may not always be possible to conduct careful due diligence in advance of a fixture, and deals may be made with unproven counterparties.
Unfortunately that has seen unscrupulous companies acting in the charterer capacity take vessels on hire, and either pay only first hire and bunkers – but at times not even do that, because they allege they need to collect the freight first before they can pay the owner.
Once the Bills are issued, however, and the freight is paid by the shippers, the charterer then disappears from the scene, leaving the owner with no revenue but a cargo that still has to be delivered under issued Bills. Given that freight was paid, it may now also not be possible to successfully lien the cargo to obtain payment.
Lesson learned:
Extending credit, by not ensuring prompt payment of hire and bunkers, as well as not undertaking due diligence before fixing can leave owners exposed to the unscrupulous actions of those seeking to take advantage of the tough market conditions. Where possible “freight pre-paid” Bills should be avoided, especially if the freight has not in fact been pre-paid.