Houston Maritime Attorney

What is a fraud? a global trade dealing involves many parties-exporter, importer, ship-owner, charterer, ship’s master, officers and crew, insurer, banker, broker or agent, freight forwarder. Maritime fraud happens once one in all these parties unjustly takes another’s product or cash. In some cases, many of those parties act in collusion to rook another. Banks and insurers area unit usually the victims of such frauds.

The sinking of AN over-insured vessel carrying a high valued non-existent shipment has been encountered at regular intervals. during times of economic and political upheaval and depression within the shipping business, there are incidents of surprising losses. within the previous couple of years, these and alternative factors have crystal rectifier to a major step-up within the range of incidents that may be termed as ‘maritime frauds’.

Types of Fraud

Maritime fraud has several guises and it strategies area unit receptive infinite variations. Majority of those crimes will be classified into four classes as under:

o Scuttling of ships

o Documentary frauds

o shipment Thefts

o Fraud associated with the chartering of vessels

Scuttling of Ships

Also referred to as ‘rust bucket’ frauds, this involves deliberate sinking of vessels in pursuance of fraud against each shipment and hull interests. With occasional exceptions, these crimes area unit committed by ship-owners in an exceedingly scenario wherever a vessel is approaching or has the tip of its economic life, taking into consideration the age of the vessel, its condition and therefore the prevailing freight market. The crime will be aimed toward hull insurers alone or against each hull and shipment interests.

For example, a dishonest shower could approach am businessperson and provide to hold his next massive shipment cargo on his vessel. The businessperson is to rearrange the contract and therefore the projected customer to open a letter of credit in his value more highly to procure them. No product are literally to be provided or shipped, however the ship-owner agrees to produce bills of loading to point out that the products are loaded on the vessel. The bills of loading along with such alternative documents as area unit needed area unit given to the bank negotiating the letter of credit. The banker pays against documents and not against product. when ascertaining that the shipment description corresponds to the wants as stipulated within the L/C, the bank, within the traditional course of events, releases the funds underneath the terms of the L/C.

The ship, while not it’s by currently obtained, however non-existent shipment, leaves port. It shouldn’t after all reach its destination, as a result of ought to it do therefore, the missing shipment would lead like a shot to the invention of the fraud. To avoid this eventually, the ship is deliberately scuttled in an exceedingly appropriate location, therefore on take away the proof of the non-existent cargo on the far side any prospect of succeeding investigation.

The ship-owner enters AN claim on his hull underwriters and he conjointly receives a share of the yield from the letter of credit from businessperson, deed the pitiable customer to pursue AN claim for loss/non-delivery of his shipment.

Documentary Frauds

This type of fraud involves the sale and get of products o documentary credit terms and a few or all of the documents given by the customer to be given by the vendor to the bank so as to receive payment, are forged. Bankers pay against documents. the cast documents decide to conceal the very fact that the products truly don’t exist or that they’re not of the standard ordered by the customer. once the unfortunate buyer of {the product|the products} tardily realizes that no goods area unit inbound, he starts checking, solely to search out that the alleged carrying vessels either doesn’t exist or was loading at another port at the relevant time.

Banks modify documents and not within the product lined by them. A bank that accepts underneath a letter of credit a collection of documents that seem to be regular on their face, isn’t vulnerable to its principal if the documents prove to be cast or to contain false statements. so a confirming bank is entitled to get compensation against such documents from the issuance bank and therefore the issuance bank is entitled to get payment against them from the customer. so the loss is typically borne by the customer.

It is exactly to discourage the activities of fraudsters concerning export cargoes that GIC evolved the ship approval system. This has been extended to full load import shipment conjointly. The vessels sometimes used by fraudsters are:

-Vessels flying a flag of convenience

-Vessels over fifteen or twenty years aged

-Usually little sized ships of 7000 to ten thousand GRT

-Vessels having modified their names and house owners many months before the last voyage.

Cargo Thefts

There area unit many variations within the procedure of shipment thefts. in an exceedingly typical example, the vessel, having loaded a shipment, deviates from its route and puts it into a port of convenience. Such ports area unit Tripoli, Beitut, Almina, Jouneih, Ras Salaata et al on the coasts of Balkan state, Asian nation and Suria. The shipment could also be discharges and sole on the quayside or in an exceedingly a lot of refined manner. Such AN act is usually amid c a modified of the vessel’s name or a succeeding scuttling so as to cover the proof of larceny. the total method of investigation is established troublesome as by the time the loss is thought the shipment disappears and therefore the actual recovery of products is unlikely. The house owners of those ships area unit “paper companies” came upon many days before the operation.

Fraud associated with Chartering of vessels

This is conjointly referred to as Charter-part fraud”. Establishing a chartering company needed a modest initial money commitment and is typically subject to very little regulation. In depressed conditions of shipping market, there’s no have demand on duty and house owners anxious to avoid giving birth up their vessels area unit tempted to charter them to unknown firms while not exigent any substantial money guarantee for the performance of the charter contract.

The fallacious chartered will flip this example to his advantage. Having chartered a vessel from AN unsuspecting owner, the chartered canvasses for shipment, knowing that in an exceedingly depressed economy, shippers are willing to chop corners within the hope of reducing transport prices and so saving on freight so their product will be a lot of beautifully priced the charterer offers low freight rates on pre-paid basis. He will afford to try to to that, as he has no intention of finishing the voyage.

Soon, when the vessel sails from the port, the chartered disappears. He could have paid his initial month’s rent or he won’t have paid any rent charges as area unit due from him. meantime the ship-owner could realize himself with substantial bills to fulfill from port authorities together with the ship’s route yet as for crew’s wages and for provisioning the ship. Worse, the ship owner could realize that his ship, not having delivered the shipment to the consignees, has been inactive and this results in prolonged and high-ticket legal wrangle.

In order to urge their product to destination, shippers could comply with pay a freight surcharges or they’re going to comply with a diversion and an acquisition of the products to hide prices and so state the export method everywhere once more. Sometimes, once no such compromise will be reached, the ship owner can instruct the master to divert his ship and sell the shipment where he will, and this become the maximum amount of a criminal because the charterer.

Precautionary Measures for Fraud hindrance

There area unit sure basic precautions against maritime fraud that industrial interests, like businessperson and importers, banks and insurance firms, ought to remember of and may be able to implement.

Exporters and Importers

The checks and precautions that buys and sellers will implement are:

o Care ought to be exercised once dealing for the primary time with unknown parties. Careful inquiries ought to be created on their standing and integrity before stepping into a binding agreement.

o cargo ought to be by well-established shipping lines. In India, vessels approved by GIC ought to be most popular.

o The shipment house owners ought to be wary:

– If the freight is simply too engaging – If the ship owner owns one vessel only9’singleton’) – If the vessel is over fifteen years aged. – If the vessel has seasoned varied house owners.
o Payment by irrevokable documentary credit, confirmed by a bank in seller’s country, provides the simplest safeguard to the vendor. ought to the vendor have any doubt regarding the believability of the documentary credit, he ought to like a shot consult his bank before parting with the products.
o As so much because the customer is bothered, he ought to make sure that he receives the documents he has stipulated in his documentary application.

o As so much because the customer is bothered, he ought to make sure that he receives the documents he has stipulated in his documentary application. Therefore, the customer should contemplate fastidiously that documents he needs. for instance, AN freelance “loading certificate” would add considerably to his protection as would elaborate directions on that shipping line or forwarding agent is to be used. The review of shipment ought to be as near to the time of loading on board as attainable.

o so as to confirm that the topic shipment is in reality loaded on the desired carrying vessel, the customer could stipulate for a “report on the vessel” from AN freelance third party.

o Conference or national lines bills of loading ought to be used and marked “freight prepaid” with the quantity of freight clearly explicit within the bill of loading.

o Services of dependable and well-known forwarding agents, WHO are members of a national association, ought to be engaged.

o patrons and sellers ought to decide to determine whether or not the carrying vessel is on charter and WHO the chatterers and house owners area unit and whether or not chartering is finished solely through agents or honorable establishments.


Banks ought to take following precautions against maritime fraud.

o Bankers ought to create United States of America of Lloyd’s shipping index. small print to examine with relation to the carrying vessel area unit possession, age, size and significantly the position of the vessel at the time the bill of loading was dated. o If such checks area unit thought of troublesome for a bank due to the quantity of labor concerned, then maybe a ‘super-service’ at extra value to the shoppers ought to be thought of with the particular checks being distributed by outside agent or brokers maintained at AN annual fee. o strategies ought to be examined of up documentary credit operations by the appliance of processed and fashionable business strategies.

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