- 20 Marks
Question
During the summer of 2020, Geneva-based Mercuria Energy Group said it had been the victim of cargo fraud following its purchase of 10,000 tons of copper blister. When the cargoes started arriving in China, it found containers full of painted stones instead. The bizarre case happened despite security and inspection controls. About 6,000 tons were loaded for shipment in more than 300 containers on eight vessels. But before its journey from a port near Istanbul, the copper was switched with paving stones, spray-painted to resemble the semi-refined metal. Once the vessels were at sea, Mercuria paid $36m over five installments. The fraud wasn’t discovered until the ships began arriving in the Chinese port of Lianyungang. Mercuria, one of the five-biggest energy traders in the world, is seeking redress in Turkish and UK courts against the copper supplier, Bietsan Bakir. Turkish police have taken a number of people into custody in relation to the fake copper scheme. “Suspects have been taken under custody who are thought to be involved in the various parts of this organised crime against Mercuria,” the company said in a statement while thanking the Istanbul Financial Crimes Department.
Note: All parties in all commercial transactions should be aware of the potential for fraud. In some cases, those parties you negotiate with may not even be aware of the liability they pose. The above fraud case gained global attention through social media on March 9, 2021.
REQUIRED
State five (5) remedies to fraud in international contracts.
[Total Marks 20]
Answer
- Use confirmed irrevocable documentary credits (LCs) under UCP 600 to ensure payment only upon complying documents, reducing risk of non-delivery or fake goods.
- Require independent third-party inspections and certificates (e.g., from SGS or Bureau Veritas) for quality, quantity, and loading to verify goods before shipment and payment.
- Conduct thorough due diligence and status checks on counterparties using bank references, credit reports, and verification of business registration to avoid dealing with fraudulent entities.
- Incorporate anti-fraud clauses in contracts, including representations on authenticity, penalties for fraud, and use of secure transport with tracking (e.g., blockchain for documents).
- Obtain trade insurance covering fraud risks (e.g., from export credit agencies or private insurers) and use escrow services or staged payments tied to milestones with verification.
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