The Fraudulent Scheme

Since early 2020, a unique type of maritime fraud has entrenched itself at the Port of Mombasa, Kenya. 

With some slight variations, the maritime fraudulent scheme plays out as follows:

1. 1. 1. A fraudster identifies a manufacturing or retail company (hereafter, “the Shipper”) with an international presence and international clients. The scheme mostly targets shippers based in Europe, America, and Asia.
      2. The Fraudster impersonates an entity that would be a potential client of the Shipper (hereafter, “the Purchaser”). To successfully pass itself off as a legitimate client, the Fraudster: 

• Registers a domain resembling that of the Purchaser.
• Creates, where none exists, a fake website purporting to be that of the Purchaser.
• Forges purchase orders, letterheads, and other documents of the Purchaser.
• Creates email addresses using the names of personnel affiliated with the Purchaser.

1. The Fraudster, posing as the Purchaser, contacts the Shipper via email enquiring about the purchase and shipment of specific cargo. The Fraudster normally targets goods with a long shelf life e.g., fertilizers, pesticides, and raisins. 
2. The Fraudster places an order for the cargo and seeks a credit period of at least 30 days.
3. The Fraudster represents to the shipper that it has various branches in the world and instructs the shipper to list its branch location in Uganda (Kampala or Entebbe) as the consignee in the bill of lading. However, the Fraudster directs that the invoices for the cargo be addressed to the holding company or headquarters usually located in America, Europe, or Asia. Put differently, the Fraudster ensures that the responsibility of settling the invoice falls on an entity distinct from the Consignee.
4. The Shipper, without notice of the ongoing shipment fraud, ships the cargo to the Consignee located in Uganda through the Port of Mombasa, Kenya.
5. The Shipper dispatches the Original Bill of Lading to the Consignee through air courier. 
6. The cargo arrives at the Port of Mombasa where it is quickly cleared and loaded onto trucks and trailers for delivery to the consignee in Uganda. To avoid being traced, the truck or trailer that transports the cargo from the Port of Mombasa never makes it to the final destination. Instead, the Fraudster ensures to load the cargo onto 2 or 3 different trucks before it reaches its final destination. 
7. The Shipper, following the lapse of the credit period, sends its invoice for settlement. However, the Shipper receives no response or settlement. By this time, the Fraudster will have ceased all communication with the Shipper and began to erase its online presence.
8. The Shipper, who by this time has parted with possession of the cargo and the Original Bill of Lading, suspects that it has been the victim of a maritime scam.
9. The Shipper contacts the legitimate company that the Fraudster impersonated and receives confirmation that the legitimate company had nothing to do with the transaction. 

Potential Mitigation Measures 

Shippers engaged in international commerce can take the following steps to avoid falling prey to the aforementioned fraudulent scheme or any of its variations:

Conducting thorough due diligence on potential purchasers to verify their authenticity and legitimacy. This can be done through:

1. Inspecting the website of the potential purchaser for any red flags including spelling mistakes, unusual domain name or URL, newly registered domain name, wrong physical address, phone contact that does not match the physical address of the potential purchaser, etc.
2. Contacting the intended purchaser’s and consignee’s national registry of companies or relevant industry associations.
3. Reviewing the purchase orders issued by the potential purchaser with a fine-tooth comb to identify any red flags.
4. Requesting a meeting with the person placing an order for the cargo. In the event in-person meetings are impossible, insisting on a video call with the intended purchaser’s representative. Any slight reluctance by the purchaser’s representative to have a meeting should act as a warning sign that they may be implementing a fraudulent scheme.
5. Confirming that the representative placing an order for the intended purchaser is a legitimate representative of the company they claim to represent.
6. Purchasing export insurance or export credit insurance from reputable insurance companies to protect against the risk of non-payment.
7. Insisting on full payment for the cargo or issuing a short credit period of less than 30 days. This will ensure that the Fraudster does not take possession of the cargo before payment of the purchase price. 
8. Verifying the legitimacy of the entity listed as the Consignee by, inter alia, confirming that the physical address indicated is existent and registered in the name of the Consignee.

Even where the Fraudster succeeds in its scheme despite the Shipper’s compliance with the above due diligence measures, the Shipper will stand a better chance in convincing the Kenyan Port Authority and the Kenya Revenue Authority to waive significant portions of the demurrage, port charges, levies and taxes that will have accrued as a result of the fraudulent scheme. 

How WE can Assist

For cargo that has not left the Port of Mombasa, our firm has acted for several international clients in regaining ownership and possession thereof. 

Since time is normally of the essence in such cases, upon receipt of instructions, we immediately liaise with the port officials at Mombasa to ‘place a hold’ on the stolen cargo. Next, we approach the court for injunctive and reshipment orders. The injunctive order restrains the carrier from releasing the cargo to the Fraudster while the reshipment order allows the Shipper to reship the cargo to the Port of Origin or sell it locally.  Obtaining a court order is essential because the bills of lading are normally non-negotiable meaning they oblige the carrier to deliver the cargo the Consignee listed specified on the face thereon.

Upon obtaining the reshipment order, we work hand in hand with the Shipper’s appointed agent to apply for waivers of demurrage and other port charges and secure a successful reshipment or sale of the cargo. 

For any enquiries on this or any other matter do not hesitate to contact us via email at info@olmllp.com.

Disclaimer: This article has been prepared for informational purposes only and is not legal advice. This information is not intended to create, and receipt of it does not constitute a lawyer-client relationship. Nothing in this article is intended to guarantee, warranty, or predict the outcome of a particular case and should not be construed as such a guarantee, warranty, or prediction. The authors are not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information. Readers should take specific advice from a qualified professional when dealing with specific situations.