IMB warns of suspect switched bills of lading scheme

The ICC International Maritime Bureau (IMB) has recently uncovered a new switched bills of lading tactic that it is warning its customer banks about.

IMB warns of suspect switched bills of lading scheme

The new variation leverages a ‘special’ relationship the named notify party claims to have with its bank that allows it to present switched bills of lading (bs/l) in a way never seen before.

IMB said switched bs/l already present banks with risks that many still do not fully appreciate and this new ploy carries significantly increased risks.

It detected the case after closely examining a number of NVOCC bs/l that had been submitted to it by a member bank for checking.

The documents related to metal product shipments in containers from Europe to the Indian subcontinent.

Of particular concern was the large and unusual number of notify parties based in East Asia that were listed alongside the Middle East-based shipper with no apparent connection to the countries of origin or destination or the shipment.

 When contacted, the original European shipper of the goods was also concerned that NVOCC bs/l naming a large number of apparently unrelated parties were in circulation for their cargo, not least because the original BLs issued by the physical carrier had been sent to the customer’s bank in India on a documents against payment basis.

The Indian notify party named on the original b/l, claimed they  were able to operate in this way due to a ‘special’ arrangement with its banks it said had been in place for years.

However enquiries revealed that the companies named as notify parties on the NVOCC bs/l had only been set up in March this year.

The Indian company argued that there was nothing wrong with the way its business was conducted but the IMB points out there is a fine line between this type of practice and the possibility of outright abuse of the trade finance system.

It also notes that the NVOCC bs/l as presented to the banks are effectively worthless as collateral, as the b/l would not have entitled the bank to take delivery of the cargo it had paid out on should this have become necessary.

Significantly, after the member bank involved in this case withdrew its facility to this particular customer, the arrival of more bs/l from another IMB member bank naming the same NVOCC and notify parties indicated the customer was continuing to look for other banks to support this kind of transaction. The banks are often told that this is a legitimate switched b/l arrangement. Many of the banks approached have declined to finance such transactions.

MB advises caution until the customer can properly explain how the switched b/l arrangement actually works and that the NVOCC b/l is a valid document of the title to the cargo. Many customers use the term “switched b/l” loosely to describe highly suspect trading arrangements.

This case highlights the benefits of banks being able to share information about dubious transactions and the consequent need for a secure resource with input from different banks, through which to do so, as due diligence measures are often ineffective in isolation. The IMB provides this facility.

*This article was published in the November edition of CCI, a monthly free bulletin available only to IMB members. To find out more about IMB’s work and how it helps members detect potential trade fraud go to https://icc-ccs.org/icc/imb