A recent court case centering on sheepskins being exported from Australia to China serves as a timely reminder that paper bills of lading can be exposed to fraudulent activity. .
In this case, which was heard in a court in New South Wales, Australia, a freight forwarder found itself in trouble for ‘misleading and deceptive conduct’ over the serving of house bills that looked the same as the original negotiable bills. The bills named the consignee as “To order”, were stamped “Original” and were signed by the freight forwarder, “as agent” for the carrier.
By issuing the bills, the freight forwarder had, in effect, “put into the world two sets of documents of title” as the ocean carrier had also issued negotiable bills for the same shipment.
When the shipper defaulted on a loan obtained on the basis of the house bills, the finance company could not take possession of the cargo as it already had been released using the original bills. Understandably, the finance company became the plaintiffs in the New South Wales court action.
The case was heard in November last year and illustrates once more how paper bills of lading, which are still heavily in use, are so vulnerable. Quite apart from the details of this case, which are obviously disputed, tampering with paper documents remains the most common type of fraud, either to legitimise a fraudulent transaction or to use false information to raise finance.
Bills of lading sitting targets for fraudsters
Fraud is certainly on the increase. The newly-published biennial PwC report into fraud, found that almost half (49 per cent) of global organisations have been hit by “economic crime”, which was an increase of a third on the last survey in 2016.
Trade documentation has been used in fraud for a very long time, but in the contemporary world, there is really no excuse for continuing to use paper bills of lading. Three years ago (in 2015), the marine indemnity insurance provider ITIC issued a warning to shipping intermediaries to check bills of lading and associated documentation after a Belgian shipping agent released six containers of castor oil valued at $270,000 against a fraudulent bill of lading. The containers were to be shipped from India to Belgium and, although the bill of lading against which the ship agent released the cargo to the consignee appeared to be genuine, it turned out to be a forgery.
The future is digital
Imagine by contrast if bills of lading were constantly visible to everyone who is party to the transaction and nobody else. A rulebook based on English common law and to which all parties subscribe, would only allow access by the legitimate holder and all amendments would be immediately revealed, thanks to a comprehensive, automated audit trail.
Of course, this is not an imaginary scenario at all. Carriers, exporters, importers and everyone else involved in international trade are already solving the problems of fraud or unauthorised amendment of bills of lading by exchanging documents over a digital platform. Not only is this infinitely more secure, it also generates substantial cost-savings. Its speed of execution is constrained only by the internet and it pretty much eliminates couriering and storage charges by virtue of its secure, cloud-based digital operation.
On a digital platform, tampering becomes extremely difficult because authentication and traceability are integral to the technology. In addition, thanks to a high degree of automation, every participant is also relieved of the burdens of Know Your Customer protocols, vastly increasing the likelihood of compliance with anti-money laundering requirements around the globe.
eBLs lead the way in digital change
Electronic bills of lading (eBLs) are at now the centre of digital change in international trade because of their advantages in speed, cost and especially – security. Issued by a contracting carrier to a shipper just like its paper equivalent, the eBL serves three basic functions. It is a receipt from the carrier for the goods it describes, as well as the contract for carriage, bearing all the necessary details. Its third function is as a document of title, entitling the rightful holder to claim delivery of the goods.
The eBL fully replicates the functions of a paper bill of lading, containing as it does, the specific data such as a description of the cargo, the ports of loading and discharge, the date of shipment and so forth, along with the terms and conditions of carriage.
While the eBL can be used to obtain letters of credit and documentary collections, the in-built security of the platform ensures it is only the holder who can use the eBL for this purpose and is the only party permitted to demand delivery of the cargo from the carrier.
The bill of lading has been a mainstay in global trade for centuries and is likely to remain so for much longer. In digital form it is now at the forefront of introducing new levels of security for all involved in international trade, a fact that the Australian sheepskin trade should appreciate.