Two Red Flag items I saw in FATF guideline as follows:
1)Does the LC/Collection include a condition for switch Bill of Lading or Bill of Lading consigned as "to be advised between applicant and beneficiary" or allow Freight Forwarder Cargo Receipt (FCR) involving large value transaction?
2) Does the transaction appear unnecessarily complex to obscure the true nature of the transaction?
Can some one give one example of above two?
Regards,
Shahed
Toronto
Red Flag
-
BillSlowinski
- Posts: 13
- Joined: Fri Apr 05, 2019 5:13 pm
Red Flag
This is something I looked into years ago. I have not seen this discussed in years so I do not know if the practice still exists with carriers as the regulatory environment continues to evolve and change. A switch BL is intended to replace the first set of BLs issued. This was usually used where a seller attempts to keep the name of supplier (named as the shipper on the original bill of lading) hidden from the buyer. So, at the request of the consignee (actually a middleman selling to ultimate end user), the carrier (bill of lading issuer) would accept the return of the full set of original BLs and issue replacement (switch) BLs that now show the seller as the shipper and the ultimate buyer as the consignee. For clarity, consider a middleman/beneficiary working a back to back LC.
The concerns are that entities are being hidden and this could be (a) facilitating a transaction that would be prohibited by a country’s law; (b) money laundering or terrorist financing; and (c) suspicious activity. Also on a switch BL there was discussion as to whether a switch BL is inaccurate and could constitute a fraud on the consignee and/or contain a fraudulent misrepresentation. I never followed up on this question. It may be a larger issue on Charter BLs should the charterer issue a switch BL rather than the owner. Would the charterer have authority to issue a second set of bills of lading on behalf of the owner(s) of the vessel?
Again, I have not heard anyone bring up this practice in years.
BLs consigned “to be advised between applicant and beneficiary” also hides the end user and leads to the same concerns.
FCRs – As they are not transport documents but receipt of cargo, the concern is if shipment is taking place, will it involve the parties listed, and therefore the concerns as stated above (second paragraph) are raised. This tracks back to knowing your customer, what is expected as normal activity, and does the transaction fall into their business model.
Unnecessarily complex transactions – It is difficult to provide an example in a short space. Think about a LC or LG to provide credit enhancement for the opening of a line of credit, requesting the involvement of multiple banks across international borders, transferring money yet the transaction should be simpler. LC or LG language is inaccurate and the underlying deal is unclear or does not make sense. These are not usually commercial LCs but could be.
The concerns are that entities are being hidden and this could be (a) facilitating a transaction that would be prohibited by a country’s law; (b) money laundering or terrorist financing; and (c) suspicious activity. Also on a switch BL there was discussion as to whether a switch BL is inaccurate and could constitute a fraud on the consignee and/or contain a fraudulent misrepresentation. I never followed up on this question. It may be a larger issue on Charter BLs should the charterer issue a switch BL rather than the owner. Would the charterer have authority to issue a second set of bills of lading on behalf of the owner(s) of the vessel?
Again, I have not heard anyone bring up this practice in years.
BLs consigned “to be advised between applicant and beneficiary” also hides the end user and leads to the same concerns.
FCRs – As they are not transport documents but receipt of cargo, the concern is if shipment is taking place, will it involve the parties listed, and therefore the concerns as stated above (second paragraph) are raised. This tracks back to knowing your customer, what is expected as normal activity, and does the transaction fall into their business model.
Unnecessarily complex transactions – It is difficult to provide an example in a short space. Think about a LC or LG to provide credit enhancement for the opening of a line of credit, requesting the involvement of multiple banks across international borders, transferring money yet the transaction should be simpler. LC or LG language is inaccurate and the underlying deal is unclear or does not make sense. These are not usually commercial LCs but could be.