Bill of Lading Fraud (Circular 01/08/96)


Our ref: 96/01

August 1996

TO: Members and their brokers

Some years ago the Club included an article on the dangers attached to "pre-dating and clausing" of bills of lading in its newsletter, "The Intermediary". Recent events have suggested that a further warning to Members on the perils of issuing bills of lading which contain incorrect information is timely.

Why does a shipper ask for a bill of lading containing incorrect information? In most cases he will be paid by means of a letter of credit, and unless the bill of lading complies with its terms exactly, he will not be paid. The shipper, the carrier and the agent all know, or would be assumed to know, that in the vast majority of cases the bill of lading will be used to negotiate payment.

The most frequent requests from shippers are for the issuance of a bill of lading:

mis-dating

confirming loading on a date prior to, or subsequent to, the date on which the cargo was loaded. Pre-dating a bill of lading only two or three days earlier than the cargo was actually loaded on the ship is fraudulent;

incorrect description of cargo

bearing an incorrect description of the quality, quantity or condition of the cargo. The most frequent misdescription of cargo is "clean on board" in respect of cargo which is known to have been damaged in some way;

"shipped on board"

claused "shipped on board" before the cargo is loaded. In some cases before the ship arrives at the port or even in the knowledge that the cargo has been shut out from the voyage in question;

under deck bills of lading for breakbulk cargo shipped on deck

claused "shipped under deck" (or bearing no reference to shipment on deck) for cargo which is known to have been loaded on deck;

incorrect port of shipment

showing an incorrect port of shipment, in order to defeat boycotts by concealing the port of origin. Bills of lading are often "switched" at intermediate ports to disguise the origin of cargo to take advantage of the intermediate country's import quotas into, for example, the EU.

The Managers have seen many other types of bill of lading fraud and have listed only the most common forms. An agent may feel that he is not personally guilty of fraud because he is simply following his principal's instructions. This has little effect on the legal position; if an agent knowingly misrepresents the status of cargo he is equally guilty with his principal of fraudulently inducing an innocent third party to pay for goods which are not in accordance with the bill of lading.

The agent may feel that he has secured his position by obtaining a letter of indemnity either from his principal or from the shipper. Such an indemnity is a worthless document in that it has been issued to support a fraud; it is therefore illegal and void and cannot be enforced in a court of law.

The agent should also be are of the fact that his principal is probably uninsured for the consequences of the issuance of a fraudulent bill of lading by his agent, and that the fraud will possibly have deprived his principal of the limitations incorporated in the bill of lading.

Although fraud by employees is covered by the Club under Rule 2 (b), fraud which is intended to confer benefit on the Member is excluded. A deliberate risk taken by the agent as a favour to his principal, or to a regular shipper, would almost certainly be regarded as being "for the benefit of the Member". The Club has seen claims totalling millions of dollars resulting from the issuance of fraudulent bills of lading. Agents come under considerable pressure from principals and shippers, but must always realise that their duty does not include an obligation to knowingly participate in a fraud.

If Members require any further information, or would like to discuss this matter with the Club, they should contact the Managers who suggest that the contents of this circular should be brought to the attention of all members of staff who are involved in the issuance of bills of lading.

ITIM Co Limited, Managers
International Transport Intermediaries Club Ltd

Date: 31/07/1996

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