Monday, January 5, 2015

Know Your Charterer & Other Contractual Parties – Avoid Fraud & Sanctions Issues

IMPORTANT NOTICE -  Due Diligence – Know Your Charterer & Other Contractual Parties – Avoid Fraud & Sanctions Issues

There is a growing concern that ship owners are not performing sufficient pre-fixture investigations into the status and reputation of the charterers with which they are contracting. The lack of due diligence shows that ship owners are not checking the financial standing of their prospective contractual counter-parties, which is especially vital if a company is relatively new, or without an established track record. The message from the global P&I insurers is that ship owners should check before fixing and consider seeking updated information if it appears that a charterer is struggling to pay amounts due on time. There are a number of companies which offer a due diligence process and a list of such companies is available on the following link:- (follow Links then Profiling and Analysis)

For those ship owners who include FD&D / Legal Expenses insurance when arranging their P&I cover, please be reminded that this insurance is discretionary and insurers will have expected ship owners to have exercised care and due diligence when negotiating their chartering arrangements.

It follows from the above that ship owners should be extra cautious when fixing a ship to trade to a sanctioned state. This has greater impact on voyage charters where ships can be delayed for significant periods of time when the sale of the cargo on-board has been suspended, or delayed due to sanctions. A ship owner will be exposed to significant operational costs, without the certainty of receiving prompt payment of freight. Clearly an owner may not be entitled to collect demurrage until after a cargo has been discharged. On the other side the cargo interests will seek to secure a claim for the delay and losses from the ship owner and the ship owner, or its P&I insurer may be unable to pay a claim, or put up security without breaching sanctions. All insurances include strict Sanction Exclusion Clauses and ship owners are seriously exposed in this regard. It is highly recommended that all fixtures involving trade to sanctioned countries are checked carefully. P&I insurers can utilise their Compliance personnel to run checks on prospective shippers, charterers and receivers, although this can take time and ship owners should be aware of this.

Unfortunately there are fraudsters operating in the world and this is another reason why it is important for ship owners to accurately know their contractual counterparties. Below is a Circular issued by RaetsMarine Insurance outlining some of the common scenarios. What is known as “Intercept” fraud is being highlighted and utilises the hacking of email systems so that fake emails are sent giving notice of changes to bank accounts. Please study the fraudulent techniques that are listed, along with the methods of how to make checks and the warning signs. As mentioned in the Circular the best way to avoid these situations (which could be extremely costly) is awareness and sufficient time to review the information. A checklist is provided to minimise the risk of missing something out.