Fake letters of credit (L/Cs) are being used in a scam to book hard-to-come-by freight capacity in railway trucks in eastern India. Once an L/C has been used to book a truck to carry grain to Bangladesh, the booking is sold on at a huge premium to a third party.

According to local media reports, this particular scam is perpetrated with the connivance of Food Corporation of India (FCI) and railway officials who, according to local media reports, take a cut of the proceeds.

Rakes progress

Poor availability of the trucks known as rakes that are used to carry Indian grain lies at the root of the scam. Kolkata-based The Statesman quotes a railway vigilance official saying that those who perpetrate the scam make bookings for rakes on the basis of forged L/Cs and bank endorsements.

"Once a rake is allotted to them the same is transferred to a third exporter at a huge premium. The margin is shared by the exporter and some FCI and railway officials. Even the number on the L/Cs is changed with their help," the report in The Statesman, says.

Investigations

Investigations into the matter followed by several raids have taken place over the past few months according to the Kolkata daily. It says that railway vigilance officers have detected 107 cases of misappropriated rakes and dozens of forged indents.

According to The Statesman, a single company filed at least 76 forged indents in this scam in which several other companies have also participated. According to investigators, all of the forged indents found so far have been filed on behalf of public sector undertakings.

Stockpile

Exporters of commodities such as wheat and rice to Bangladesh have been complaining for some months that their consignments were being delayed due to a lack of rake availability.

As a result, the exporters say a huge quantity of outstanding stocks of wheat and rice is stored with FCI authorities.

Genuine L/C concerns

The FCI has signed release orders (ROs) on some of these stocks. According to Mr T M Saha of Krishna Traders, this means that indents have been placed with the railway authorities against L/Cs required by FCI. Saha's concern is that the lack of rake availability will delay the delivery of goods consequently some L/Cs may expire.

The negative fall-out for traders such as Saha could include mounting bank interest on the money that is paid upfront for lifting the stocks and the danger of losing regular customers who may have their funds blocked on account of the L/C.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.