TT Club warns of fraud issues faced by Customs Brokers
- Date: 29/07/2016
Kate Hollis, Senior Claims Executive at TT Club in Sydney, discusses the risks faced by licenced customs brokers and mitigation steps to take:
“As the international trade regulatory landscape continues to change and the commercial environment becomes increasingly competitive, the balancing act for forwarders and customs brokers between providing services to clients and complying with obligations to customs becomes more complicated.
“Customs brokers assume responsibility for acting correctly between cargo interests and customs. As a result, there is the potential to provide advice to customers or carry out actions that result in the cargo interest suffering financial loss, for which you can be alleged to have been negligent. Closely related to the liability exposure of your customer is the potential for customs to levy fines or penalties through infringement notices.
“Identity fraud is perhaps a less obvious area of risk. In some cases authorities find that brokers have committed an offence where checks on the identity of clients have not been performed and that simple verification of the identity would have alerted the broker to the fraud. Consistent with previous advice, we recommend dealing with your clients directly (rather than through an intermediary) and always perform your own background checks, both in regard to the entity itself as well as the statements being made to customs.
“One recent incident saw rice wine being imported into Australia from Korea, but it was declared as apple cider vinegar. This directly resulted in extra costs for handling the container and for storage costs under the customs bond. Following the inspection, duty was charged at the rate for rice wine – not cider – which the freight forwarder pre-paid on behalf of the importer. It proved impossible to reclaim the duty and additional costs because it transpired that the consignee company no longer existed. There have also been cases of people fabricating an identity in an attempt to import goods without paying the full amount of duty. When the companies were not successful, they simply disappeared.
“Customs brokers also need to be aware of the risk of identity theft. While the variety of scams is broad, TT Club has identified three areas that require particular attention for Customs Brokers:
1. Piggybacking - where an unscrupulous entity uses the identifying details of a legitimate entity on a Cargo Report or Import Declaration, generally with the aim of importing consignments containing illicit substances or smuggled goods.
2. User access security - the nature of access to customs entry systems and digital certificates means that individual login details need to be carefully guarded to avoid misuse and illegal activity.
3. Mandate fraud – where fraudulent diversion of payments occurs. It is primarily the responsibility of the party making a payment to ensure that the bank details are correct.
“Customs Brokers should be aware that their licence might be at risk in a situation where the authorities consider that the broker has intentionally or recklessly facilitated a fraud. Such situations can also lead to fines being imposed on the Customs Broker as an individual, as well as actions against the forwarding business as a company.
“Mitigation of these risks is possible. In the first instance, it is important to review your own internal processes and systems. Recognise that the risk exposures are business critical and implement robust technology systems and standard operating procedures accordingly, particularly considering access rights and controls.
“Secondly, ensure that well drafted standard trading conditions are properly incorporated into your interactions with all clients. Many national trade associations provide ideal models You should seek legal advice to ensure that contracts are appropriate for your specific business. A third obvious mitigation is to purchase adequate and appropriate insurance. You should discuss this with your broker to ensure that your specific needs are properly covered.”