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Policy & Compliance


Due diligence in agency agreements


Due diligence is the key to ensuring you are not a victim of an agency agreement fraud


BIFA is grateful to the TT Club for allowing the republication of the following guidance.


During 2018, BIFA focused on due diligence concerning suppliers to ensure that they are capable of fulfilling the contract being offered to them and the customer, and consequently that they can give adequate instructions and meet their financial commitments to Members. BIFA has worked with the TT Club, with both parties supporting


the other at events and also sharing information. One area that we have not touched upon is freight forwarding agreements. BIFA has guidance on the preparation of agency and logistics agreements that should be read in conjunction with this article, as well as all the published information on due diligence. BIFA maintains a confidential non-attributable Enquiry Log; too


often problems relate to unsolicited shipments arriving in the UK from an overseas agent where there has been no previous trading relationship. This is particularly true in the maritime environment, so caution should be exercised in accepting such consignments. International trade inevitably involves multiple stakeholders in


different parts of the globe. Fraudulent activity has always been one risk to consider. Where fraudulent activity is concerned, the legitimate operator must be aware of the risks and erect defences to protect its business. Due diligence should be a fundamental component of any business risk management strategy. In fast- paced globalised markets, due diligence can all too easily be overlooked, resulting in significant financial losses. Whilst adept in the art of deceit, perpetrators prey on insufficient checks being undertaken prior to engagement. Where their own network of offices is not sufficient, freight


forwarders have always relied upon the services and support of other freight forwarders and agents for local expertise and presence. Many such relationships are long standing and often reciprocal. Issues may arise where arrangements need to be extended; then, effective due diligence is critical to counter fraudulent activity. A number of cases of fraudulent activity have recently arisen, in


particular involving Chinese freight operators. A common fraud follows this pattern: the fraudulent freight operator gains control of original bills of lading, refuses to release them, and holds the receiving freight forwarder to ransom for several thousand dollars. Where language, jurisdiction, time zone and distance separate


the stakeholders, expedient resolution in such circumstances can be both challenging and expensive. Ordinarily this risk involves a


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newly formed agency agreement, either where forwarders are exploring new geographical opportunities or simply changing their current agent. Frequently, once a signed agency agreement is in place


between the parties, business appears to operate normally for a period. When arranging shipments, the sending freight operator will invariably name itself as the shipper under the bill of lading to maintain control over the documents. The trigger point is when the cargo arrives at the destination port and nobody has received the original bill of lading.


Request for further payment The fraud comes to light when the receiving forwarder contacts the sending freight operator and requests the release of the bill of lading, resulting in advice that the documents are unable to be released without first receiving a further payment. The reasoning behind the additional payments may differ; a late payment to a third party, a penalty or unexpected fees due to a third party. The demands typically run into tens of thousands of dollars. This type of fraud has been used on both single shipments and


multiple container shipments; whilst higher value shipments may be more susceptible, the fraudsters appear to be indiscriminate. The process can be more onerous and complex where the fraudulent freight agent elects to spread multiple shipments across a number of shipping lines. BIFA has heard of instances where sums of up to $25,000 have been demanded to release the original bills of lading. The receiving freight forwarder now has the dilemma of


January 2019


www.bifa.org


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