TT Talk - Identifying and avoiding fraud
Stakeholders in the global freight supply chain can easily become victims of fraud - notably carrier fraud and procurement fraud – especially in today’s digital business environment that enables fraudsters to transact with reduced risk of getting caught.
Setting the scene
No-one – from freight forwarders, shippers, and carriers to container owners and logistics, ports, warehouse and depot operators – should underestimate how lucrative an industry fraud is. Using sophisticated, low-risk tactics, fraudsters can easily steal large amounts of money or consignments of cargo. TT Club has focused on various fraud issues previously, including fraud involving Chinese freight operators as well as fraudulent activity related to bills of lading.
“No-one… should underestimate how lucrative an industry fraud is”
The more prevalent fraud risks in the supply chain include those related to payments, procurement or billing, and identity of carrier.
This article kicks off a four-part fraud series, focusing on some of these risks:
- Identity of carrier fraud, which includes ‘round the corner theft’ and fake carriers
- Payment fraud, which includes mandate fraud and CEO fraud
- Procurement fraud/billing fraud
The aim of the series is, through giving practical examples of how the cons work, to assist in how to spot them and ultimately how to avoid them.
How do fraudsters commit such crimes?
Organised crime groups, who operate much like successful businesses, are more often than not behind these types of fraud. Their activities are planned, coordinated and collaborative. They have specialist defined functions and their structures are multi-layered, internationally extended and highly adaptive. The sophistication of their knowledge is sobering; not only are these criminals adept at avoiding detection, but many are skilled logisticians. They are able to procure the services of individuals with appropriate skills (e.g. truck driving licence), replicate intricate documentation and successfully manage time sensitive operations, with the confidence and competence that doesn’t raise suspicion.
As such, their very existence depends on successful avoidance of detection by law-enforcement and they employ a range of techniques to do this such as untraceable proxy servers, false identities and spoofed email addresses. Typically, none of a fraudsters’ identifiers will be genuine.
“their very existence depends on successful avoidance of detection by law-enforcement”
Fraudsters are well organised and operate internationally across multiple jurisdictions, making it very difficult for national law enforcement agencies to combat such crimes and making any post incident recovery of funds virtually impossible. As many corporates will know, money-laundering risk itself has to be a significant focus for legitimate business globally.
One of the most prolific scams – payment fraud – is a specific type of fraud that has been increased through the ease of the internet, targeting businesses (and individuals), getting them to transfer money to a bank account operated by the fraudster. The two main types of payment fraud – mandate fraud (seeking amendment of existing payment instructions) and CEO fraud (impersonation of senior authorised individuals) – usually target staff within accounts departments and use spoofed sender email addresses.
Procurement fraud preys on those with responsibility to authorise invoices and payments. By infiltrating systems and organisational structures, the criminals seek to convince them to respond to fraudulent requests for payment. As will explored in detail in the coming articles, there are common themes where payment frauds are concerned: the criminals will typically have a thorough understanding of your business, including the details of people in positions of authority and even when those individuals are absent. Such valuable information enables the criminals to exploit entities in ways and at times that show increased vulnerabilities.
Identity of carrier scams
Such fraud relating to the entity that actually carries the goods introduces another entire layer of sophistication on the criminals’ part. This requires an ability to deceive legitimate industry professionals into releasing valuable cargo to a bogus carrier (most often in trucking), often without question. Such criminals have mastered the entire process, able to falsify documents from insurance and incorporation through to freight documentation and licencing. Typically using sophisticated smoke screens to avoid suspicion, an increasing trend through 2020 was to present a driver and vehicle at a depot to collect a cargo without any prior correspondence. Such is the level of intelligence, knowledge and preparation that, in too many cases, the driver appears to be entirely credible and the cargo is duly released.
The planning, preparation and research which underpins the criminals’ activities is extremely cost efficient – time is the main investment. Infiltrating a target business, whether it be to develop an understanding of the hierarchy or learning about the movement of goods and the haulage companies whom routinely collect goods, might be time intensive, but it is all low tech and usually negligible risk.
When the potential gain is considered against the investment in preparation, there is little wonder that the criminals arm themselves with enough information to achieve their goals and avoid detection successfully.
The remaining articles in this series will consider these fraud risks in greater detail, including case-study examples of how they are perpetrated. At the end of this series, you’ll have a clearer understanding of the types of fraud that threaten your business, and the importance of:
- Fraud education and awareness
- Questioning suspicious requests
- Red-flagging urgent requests
- A clear due diligence and escalation process
We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.
We look forward to hearing from you.
Risk Management Director, TT Club