Page 43 - BF Cover February 2019

ARTICLE

shipping bills and BLs. Trade fiancé transactions are complex at securing trade finance was false. Even obvious give-aways
in nature involving different countries, different laws and could be missed: in one example, people checking the
different languages. The involvement of various document failed to spot that the name of the carrier was
organizations provides criminals with the materials they spelled wrongly. Strict verification was the way that
need to carry out frauds. responsible banks dealt with the risks. In another fraudulent
bill, container numbers were listed that were false. Another
When it does happen, the victims can face very severe deceit was to add zeroes to that the alleged value of the
consequences which can cause some companies to go down shipment.
completely, causing a problem for all their creditors and
trading partners. The modus operands used in all these In some cases the export documents mainly factory stuffed
frauds are of various types which we are going to analyise Shipping Bills are filed through Service Centre by
so that the same can be noticed while dealing with trade unscrupulous elements for exporting the contraband goods
finance transactions. by misusing the IECs/CHAs codes of genuine exporters/CHAs,
by presenting fake documents such as KYC documents/
The trade finance system is wide open to manipulation. It Central Excise factory stuffing examination reports and fake
enables the transfer of large amounts of money from one seals, without the knowledge of the concerned authorities.
part of the world to another, relying on a documentary trail.
In the resulting shipment of goods, it is often difficult to know It is also noticed that in some cases the fake manual Shipping
what is inside a particular container, and that is one of the Bills are presented to the Port gate officers for entering the
big weaknesses of the system. containers containing contraband goods. Invariably these
manual Shipping Bills are shown to be cleared from ICDs/
Modus operandi in frauds SEZs. Often, the victims look to the cargo insurance policy
to recover such losses, but if the goods do not exist, the
Documentary Issues
policy does not come into effect. A buyer would have no
One of the most serious and costly scams is gaining access
recourse to compensation.
to trade finance by means of false shipping documents
including bills of lading. Sometimes goods were wrongly
There were also the cases of suspicious deals involving loans,
described in order to save a few thousand dollars in freight,
from non-banking institutions, dressed up as trade finance
but the consequences of that for the ship owner and the transactions. Sometimes these loans were termed
vessel could be immense. Cargoes were given innocuous 'structured trade letters of credit, which led to the financial
names, and the ship owner had no idea what was going on crash, transactions which have no intrinsic value.'
board.
To mitigate the risk of fraudulent bill of lading, the suggested
Product details are not matching with commercial invoice, way out is for the shipping industry to switch to electronic
or products like heavy machineries are being shipped in the
bills of lading. But the major concern is it is not the system
containers which practically not justified. Discrepancies exist which commits frauds, it is people, and that will not change
in weights, serial numbers, quantities, voyage numbers,
with electronic systems. The nature of the fraud will change.
ports of service, or shipment dates compared to invoices,
It could well have far greater consequences than the paper
export certificates and customs records. Bills of Lading frauds we see today.
contain no number, or the name of the carrier is missing.
Some of the importers submitted forged bill of entry and
Another serious issue is that genuine-looking bills of lading other import documents to banks with the intension to
using respectable corporate names were used by fraudsters fraudulently remit foreign exchange. Multiple duplicates of
to give credibility to their schemes. By spoofing websites of each bill of entry were made and submitted to different
carriers, criminals sought to make buyers confident that the
banks to show legitimate imports and to siphon off huge
payment they were making was for goods headed towards
foreign exchange outside India. Since there have been
their port.
sudden increase in trade based money laundering and
Superficial checks would not identify that a document aimed hawala scams, especially at big business centers, the banks

BANKING FINANCE | FEBRUARY | 2019 | 43