International Action Against Maritime Fraud Thomas S. R. Topping* UNCTAD

International Action against Maritime Fraud Thomas S. R. Topping* UNCTAD In the last few years there has been an alarming increase in reported instances of maritime fraud and related acts occurring in the fields of international shipping and trade. Losses attributable to maritime fraud have been es- timated at half a billion U.S. dollars per year. � Consequently, this problem has recently received international attention from organizations concerned with shipping and international trade. Maritime fraud exists whenever someone intentionally deceives another above some fact or circumstance in connection with maritime activities, thereby enabling himself to obtain money or goods unjustly. It frequently involves the misuse of commercial contracts and documents, such as bills of lading, charter parties, and marine insurance policies. Although lacking any generally accepted definition, the term is commonly used to include any dishonest act in connection with maritime affairs-even though such acts may not necessarily involve acts of concealment, deceit, or misrepresentation that are typically thought to constitute elements of fraud in a legal context. Thus, acts of simple theft, piracy, and barratry are generally included within the term.2 Although various documents can be used in connection with the commis- sion of maritime fraud, the most important is the bill of lading, with its well- recognized functions of being a receipt for the goods by the carrier, evidence of the contract of carriage for the goods, and-most important-a document of title to the goods. One common form of fraud involving bills of lading, usually referred to as documentary fraud, occurs when, instead of presenting the goods to a shipping line in return for issuance of a bill of lading, dishonest sellers forge bills of lading on the standard forms of such a shipping line without ever having shipped any goods at all. The bill of lading-as a docu- *EDITORS' NOTE.-Mr. Topping is a former member of the UNCTAD Secretar- iat. 1. See Intervention of the International Chamber of Commerce at the tenth session of the Committee on Shipping of the United Nations Conference on Trade and Development (UNCTAD) at Geneva, June 14-25, 1982. UN Document TD/B/ 921-TD/B/C.4/254, paragraph 258. 2. Barratry refers to wrongful acts willfully committed by the master or crew to the prejudice of the shipowner or the charterer. ment of title for the "goods"-is sold to an innocent buyer who then expects to take delivery at the intended port of destination. When the vessel never arrives (or does so without his goods), and the buyer discovers the fraud, the seller has usually disappeared. Alternatively, dishonest sellers ship goods of a lower quality or quantity than specified in the contract of sale with the buyer. If the difference in quality or quantity is noted by the shipping Company on the bill of lading, then the bill can subsequently be altered to conceal the disparity. Usually the difference in quality or quantity is not detectable by the carrier, as frequently can be the case with goods prepacked in containers, thereby enabling a "valid" bill of lading to be presented to the buyer. It is not uncommon for rubbish to be shipped in this manner to represent the goods. Such frauds are successful because of the development of a trading system that relies on a shipped bill of lading to represent the goods and enables the sale of those goods to be effected by the transfer of that document. Since it is usually impracticable for the buyer to inspect the goods before paying for them-whether at the port of loading (where such inspection is usually com- plicated by the long distance involved) or at the port of destination (where such inspection is often resisted by sellers who wish to receive payment before that time)-payment for the goods is effected by presenting these documents. On the strength of the carrier's affirmation on the bill of lading that the goods are loaded on board his vessel, and relying on the relatively superficial control of the goods effected by the carrier at the time of loading, the buyer is prepared to pay the purchase price for the goods in exchange for the documents representing the consignment. At most, the buyer might insist on presentation of an inspection certificate, indicating that an independent inspection agency has surveyed the goods to determine the quality, quantity, and, perhaps, their loading on board the named vessel. Such documentary sales of goods are frequently accomplished through the international banking system via the opening of a letter of credit by the buyer with a bank in his own country, which in turn arranges with a bank in the seller's country to pay the purchase price of the goods to the seller on presentation of specified documents, including the bill of lading. Pursuant to the letter-of-credit instructions, the bank paying on the credit in the seller's country will inspect the documents presented by the seller to ensure that they meet precisely the requirements stipulated by the buyer. In effecting this inspection, the paying bank will usually be doing so pursuant to the Uniform Customs and Practice for Documentary Credits (UCPDC) issued under the auspices of the International Chamber of Commerce (ICC), under which the bank undertakes to inspect the documents only on their face and not to determine whether the goods actually exist or have been shipped. Thus, assuming that the forged documents all accurately reflect the specification of the buyer in the letter of credit, there is little to prevent the seller from collecting the purchase price-often amounting to millions of dollars. Cases .

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