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Logistics providers and exporters are increasingly joining forces to manipulate shipping documents and swindle banks, the International Maritime Bureau (IMB) has warned.

The complicity is widely seen in Chinese steel exports, helping to make that commodity the most common in “suspect” bills of lading (BLs) flagged by banks to the IMB in the second quarter of this year, according to a fraud trends report compiled by the organisation and seen by GTR.

“Collusion between the importer, exporter and often the freight forwarder is an increasingly common occurrence seen in cases of misrepresented and suspicious documentation,” the IMB says in the report.

The IMB, part of the International Chamber of Commerce’s commercial crime division, investigates suspicious trade documents and attempts to verify whether underlying trades match the details given on BLs. It defines a suspect bill as one where it “has been unable to confirm that the shipment has taken place as per the BL”.

Overall, the IMB says there has been a “sustained increase” in the identification of suspicious trade documents, which jumped by almost 10% on the previous quarter and by 11.4% compared to the same period last year.

In addition to defrauding lenders, incorrect shipping documents can also facilitate trade-based money laundering.

China is by far the world’s biggest steelmaker, but its historically voracious domestic demand is ebbing amid a construction downturn, fuelling a shift to the international market.

The country’s steel exports hit 53.4 million metric tons in the first half of this year, a year-on-year jump of almost 25%, according to China Iron and Steel Association data.

The quality of steel products often degrades while stored on quays at Chinese ports, with the defects recorded on the original BLs, according to David Cuckney, IMB’s director.

But letters of credit issued by financing banks require the BL to be “clean on board”, and Cuckney says there are many port agents willing to cover up the dents or rust on the cargo and issue a new BL that misrepresents the condition of the steel in order to obtain a higher-value LC.

Such clean on board BLs will, however, not be recognised by the vessel owner and be useless as security for a financing bank if the LC is not repaid, Cuckney says.

In a recent investigation, the bureau identified six BLs issued to an international lender that wildly inflated the volume and value of steel cargoes. The genuine bills correctly showed 541 steel coils weighing 2406 metric tonnes (mt), while the bank was furnished with separate bills showing 768 coils were shipped, weighing 3651mt.

“It is concerning to see a charterer freely admit to issuing multiple bills of lading for the same cargo, and it raises concerns over what other details agents and charterers may be willing to misrepresent,” Cuckney tells GTR.

In a recent case, five banks separately referred documents for shipments from India to North Africa, made by an unidentified European sugar trader, to the IMB for investigation. The IMB found that the shipments had taken place several weeks earlier and the charterer, closely related to the trader, had issued back-dated BLs for the cargoes.

Shipping companies that were closely linked to traders, sometimes without the knowledge of financing banks, have featured in high-profile frauds such as those perpetrated by the UK’s Balli Steel and Singapore’s Hin Leong.

Conspiracy between traders and freight providers may circumvent the improved anti-fraud protections enabled by the gradual shift to digital trade documents such as electronic bills of lading.

Agriculture products and raw chemicals also feature prominently in suspected cases referred to the IMB, the report says, noting that outside Asia Pacific, Turkey, the UAE and Oman are the most frequently named countries of export on dubious BLs.