Charter party fraud
One of the common maritime frauds is “Charter party fraud”,
The fraudster may establish a chartering company with a bare minimum financial commitment and regulations.
When the shipping market is in a financially distressed condition and does not have much demand for tonnage, the owners are tempted to employ their vessel under a voyage or time charter agreement with an unknown charter party company.
Sometimes the owners do not know the whereabouts of the chartering company with whom the charter party agreement is done. For example, the ship-owner may be in China, but the vessel was registered in Singapore. The vessel may be chartered by a person based in the USA with the charter party governed by the Laws of US whilst the shipment may be from Australia to India.
The employment of the vessel under a charter party agreement will be more complicated when the charterer is permitted to employ the vessel under a sub-charter agreement with a sub-charterer, who may be located in Japan. The employment of ships by multiple with the involvement of different stakeholders leads to fraud.
The fraudster may charter a vessel from the owner. He offers the shipper for shipment of his goods at a low cost, which encourages the shippers to fall into the trap of the fraudster due to poor economic conditions with an expectation to reduce the transport costs. The shipper pays the freight to the Charterer on a pre-paid basis with an expectation to complete the voyage as early as possible.
The charterer disappears with the cargo as soon as the cargo is loaded. Sometimes it may happen that the Charterer pays initial hire charges to the ship-owner to gain his confidence, but does not pay the remainder of the hire for the subsequent voyages.
The ship-owner loses the remainder of the hire charges, but cannot avoid the liability to deliver the cargo to the cargo owner under a contract of carriage. The ship owner may also find that his ship or any of his sister ships has been arrested by the cargo owner due to the disappearance of his cargo. The ship-owner may receive substantial bills from the respective authorities towards port charges, crew wages, and other expenses for employees of the ship. Although charter party fraud is possible with a voyage charter, the risk of the ship owner is more with a time charter under a long-term agreement.
The ship-owner may avoid charter party fraud if they verify the financial stability and market reputation of the charterer before entering into the Charter party agreement. The ICC International Maritime Bureau has warned of new charter party fraud incidents, where a voyage charterer received payment for freight but failed to pay to the Ship-owner, who refused to deliver the cargo to the named destination.
Thus, the terms and conditions of the Charter party agreement should be prepared in consultation with the Maritime Lawyers/Law firm to avoid charter party fraud.
TYPES OF FRAUDS
Fraud reveals itself in different shades and colors. Owing to its international nature, in the Maritime Industry, it is like an umbrella term including different types of frauds. It stretches beyond the legal definitions. The following is an overview of the kinds of fraud that may be experienced, but it is far from being an exhaustive list.
- DOCUMENTARY FRAUDS
- BLACKMAIL FRAUDS
- BUNKERING FRAUDS
- CYBER FRAUD
- FAKE JOB OR MLC FRAUDS
- BARRATRY