Commodity Fraud

• Commodity Fraud / Shipping Documents
• London Short Order Form Guarantee and 3034 or 3039
• Non-Circumvention, Non-Disclosure Agreements
• 4-1-9 Scam
• Identity Theft
• Blocked Funds

Commodity Fraud / Shipping Fraud

Koala Corp expresses, that even though the following article posted by the I.C.C. mentions specific commodities, it is the “shipping documents” that are the main focus and main concern.

Warning by International Chamber of Commerce

On 25th July 1991, a Bulgarian buyer paid US$3.8 million for 13,100 tonnes of Brazilian sugar by letter of credit. The payment was released by International banks on the basis of the usual documents which proved that the sugar was loaded on 17th July in the port of Santos on the m.v. Giovanna bound for Varna, Bulgaria.

Neither the ship nor the sugar existed and the criminals have never been brought to justice. 

In August 1992 a Paris bank released US$2.89 million under a letter of credit on the basis of documents stating that 10,000 tonnes of white refined sugar had been loaded on the m.v. Vladimir Ilyich in Panama, bound for Kalingrad, Russia.

The documents were forgeries and the money has never been recovered.

Diamonds can be faked and old master paintings can be forged, but commodities are easily measured and tested and are rarely of sufficient value to attract forgers. With commodites, the fraudulent transaction is almost invariably based on a consignment which does not physically exist. Although surprising at first glance, this potential arises because bureaucracies everywhere have engendered a belief in the authority of paperwork. Just as worthless paper money is accepted as having value, so pieces of paper are accepted as having value, so pieces of paper are accepted as proof that a consignment of a specific commodity exists. The ordinary man does not go to his central bank to check his wealth in gold - he relies on a statement of account on a bit of paper. By the same token, commodity documentation is taken on trust. It is only necessary to forge documents showing the existence of a consignment and to find someone to buy it.

Victims of fraud are almost always attracted by expectations of exceptional profit. They succumb more to their own greed than anything else. A deal which is too good to be true probably isn't true - yet people around the world queue up every day for all manner of schemes which could not logically be genuine. Commodities are openly traded on all the world's major commodity exchanges and their prices are exactly established. There are several long-standing international commodity traders of the highest repute. Offers to sell commodities at less than the ruling market price makes no commercial sense - unless the real motive is fraud. This has been a standard ploy since time immemorial: to make the victim believe that he has access to a phenomenal deal; so good that he wants to keep it secret. This enables the fraudulent seller to conceal detailed information about the origins and location of the commodity. The buyer thinks he is on to something no-one else knows about, which will make him a quick profit, and doesn't care too much about the origins of the commodity or why it is cheap, so long as it is genuine - and the documents appear to protect him on this point. To allay suspicions a fraudulent seller will often offer various assurances which seem to give protection, or at least to vindicate his character. He may lodge a performance bond equal to say, 2% of the value. He is then risking 2% in the hands of an honest buyer in order to swindle him of the remaining 98%. He may provide various attestations from banks as to his financial worth (of no legal value or protection). He may offer to supply secret information about the exact location and origins of the commodity in return for, say, 10% part payment, either as a means of consolidating the deal or simply to abscond with the part payment. Provision of unnecessary quasi-official documentation is another tactic; any bit of paper which seems to confirm the existence of the commodity provides further re-assurance. Victims are usually surprised and even outraged when they discover that the international banking system provided absolutely no protection against payments made on the basis of fraudulent documents. They fail to understand the rules of international payments systems and the division of responsibility between themselves and the banking system.

London, 24 February 2006: ICC’s International Maritime Bureau (IMB) has uncovered five cases of trade fraud in the shipping of paper and board products from Indonesia in the past three months.

IMB Director Pottengal Mukundan said: “All five of the frauds recently reviewed by IMB have involved the same exporter and Non Vessel Operating Common Carrier (NVOCC). In each case, buyers paid for goods that were never shipped. We suspect there are several more such cases that have gone unreported.”

The scheme is being run out of East Java by fraudsters who lure potential victims with attractive prices for paper and board products. Once the buyer is prepared to make a purchase, the seller persuades them to open a letter of credit, often on a deferred payment basis. It is then claimed that shipments − averaging half a dozen full container loads − have been arranged via a NVOCC. When contacted about the missing shipment the “exporter” then defers responsibility to the NVOCC and denies any accountability.

“The containers are purported to hold products from legitimate Indonesian paper and board companies, but the bills of lading issued are fraudulent and the goods are never shipped,” stated Captain Mukundan. “IMB has been in contact with buyers from the Middle East and Canada who have lost hundreds of thousands of dollars through this scam.”

IMB’s investigation has revealed that the fraudsters had developed a convincing website that could lead buyers to believe they were dealing with an authentic company. However, the bills of lading used do not list any street address or telephone number for the NVOCC − only the website address. “This is highly irregular and leaves the buyer with no means of contacting the NVOCC once the goods fail to arrive,” said Captain Mukundan.

It is suspected that initial contact with potential buyers is often made through a business intermediary, trade fairs or via the Internet. IMB strongly advises that paper and board importers around the world exercise caution and perform due diligence when sourcing consignments from unknown sellers in Indonesia. The alternatives − attempting to recover assets or order banks to stop payment through the Indonesian court system − can prove both difficult and costly.

IMB’s document checking service has extensive experience with trade finance fraud of this nature and is available to review bills of lading and validate their authenticity.

Prevention

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The conduct of commodity frauds suggests elementary extra prudence regarding:

1. Commodities offered at unrealistic, too good to be true, prices.

2. Undisclosed details of the seller or origin or any air of secrecy.

3. Performance Bonds or deposits.

4. Involvement in countries previously targeted e.g. buyers in India, China, Hong Kong, the Middle East or Eastern Europe and commodities sourced from Latin America, the Philippines or Thailand.

5. Independently checking any ship, its location, and its cargo.

6. Any unusual specification of the commodity or documents.

Further Action

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The best long-term defense is to ensure that fraudulent stories are well-publicized. Any information should be given to the International Chamber of Commerce, which has taken the initiative in gathering intelligence and advising those at risk.

Before you transact with any new company for the first time, Koala Global strongly suggest using the I.C.C., Commercial Crime Service's Financial Investigation Bureau. Designed to be of most use to banks, other financial services companies, law and accountancy firms, and individual investors, FIB will:

     

 London Short Order Form Guarantee and 3034 or 3039

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