A Study Of Maritime Frauds And Its Effects On World Seaborne Trade

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A Study Of Maritime Frauds And Its Effects On World Seaborne Trade


This study examined maritime fraud and its effects on world seaborne trade. The Nigeria port authority is in charge of seaport and other marine elements in Nigeria and responsible for the regulations of shipping and other international trade in the country. This study adopted a doctrinal method. That is, library oriented using a qualitative research design. The internet was also consulted. Materials consulted are statute books, international treaties, textbooks, journals and articles on the subject matter under consideration. Primary source of data involved the use of questionnaire. The Questionnaire was administered to 105 stakeholders, whose responses were used to determine the expected findings.For the purpose of this research, the population was defined as 105 stakeholders in the maritime cabotage industry in Nigeria. Out of the 105 questionnaires administered, only 54 were completed and returned. So, in all, therefore, 54 persons formed the study sample of which 24 are senior officials of various shipping companies, while the remaining 30 are senior staff of NPA, NMA, etc.Tables have been used for presentation of data and percentages to determine results from the data presented in tables.

The Nigerian Maritime Transportation System comprises seas and inland waterways and associated infrastructure (e.g. dams, aids to navigation etc.), which is linked to a network of international ocean trade routes.From the analysis made, it was rediscovered that the introduction of the Nigerian Maritime Cabotage law will help curb maritime fraud especially on national waters, the Nigerian entrepreneur lives to benefit from the various business opportunities opened by the Cabotage industry.It was also discovered that most stakeholders who are active participants in the Cabotage regime are fully aware of the Cabotage Laws and the benefits accruable to the participants. The study concluded that defective and distasteful as Cabotage regime might appear to others, the NMA and other stakeholders still have the statutory duty to assist the maritime development of Nigeria. The study recommended that a Maritime Business Development Unit should be established to determine the issue of availability of Nigerian ships and capability of indigenous operators whenever such matters arise from public cargo generators, shipping companies or other agencies.

Table Of Contents

Preliminary Page(s)

  • Title page
  • Certification page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of content

Chapter One:


  • 1.1 Background to the study
  • 1.2 Statement of the Problem
  • 1.3 Objectives of The Study
  • 1.4 Research Questions
  • 1.5 Significance of the study
  • 1.6 Scope of the Study
  • 1.7 Research Methodology

Chapter Two:

Literature Review

  • 2.1 Historical background
  • 2.2 Maritime fraud
  • 2.3 Resurgence of maritime fraud
  • 2.4 The nature of maritime fraud
  • 2.5 Types of fraud
  • 2.6 Nigeria Maritime Regulatory Institutions
  • 2.7 Meaning of Cabotage

Chapter Three:

Research Methodology

  • 3.1 Research Method
  • 3.2 Justifications for the Approaches
  • 3.3 Research Instruments
  • 3.4 Research Population and Sample Size
  • 3.5 Sampling Procedures Employed
  • 3.6 Justification for Sample Selection Procedure/Sample Size
  • 3.7 Statistical Techniques Used In Analyzing the Data

Chapter Four:

Data Analysis And Interpretation

  • 4.1 Introduction
  • 4.2 Analysis of Biographic Data of Respondents
  • 4.2 Analysis of data according to research questions
  • 4.3 Discussion of findings

Chapter Five:

Summary Of Findings, Conclusions, And Recommendations

  • 5.1 Summary of findings
  • 5.2 Conclusion
  • 5.3 Recommendations
  • References
  • Appendix
  • Questionnaire

Chapter One


1.1 Background to the study

Today’s international shipping involves people of many different nationalities with different laws, customs and institutions. Where world economies in the past were the result of empires, the present world economy grew out of relatively free exchange. Today’s shipping community comprises shippers, charterers, shipowners, bankers, insurers, importers, and exporters and the system designed for the transfer of goods is simple and efficient, with the sea remaining the life blood of trade. In international trade, as a matter of custom, the seller gets paid before the buyer receives the goods, as because the delivery of goods takes considerable time. The system of letters of credit involved with banks as the intermediaries has proved fruitful and documents rather than goods form the focal point of these transactions (Becka,2010).

An international marine contract therefore requires the intervention of several parties. Fraud is a very insidious crime and arises when one of the parties to the marine contract; succeeds in obtaining money or goods belonging to another party connected in the carriage and financing unjustly. The threat of fraud is that it undermines the system by putting trust’ at risks. The simplicity of the system of international trade makes it attractive and vulnerable to j forgersTj scuttlers and cheats. Maritime frauds takes place when any one of the various parties involved in an international trade transaction intentionally deceives another as to some fact or circumstance in’ connection with maritime activities which enables him to obtain money or goods dishonestly. In some cases, several of the parties act in collusion to defraud another (Slonw,2015).

Fraud in commerce is as ancient as commerce itself, with examples going back to the Roman world and before. The International Maritime Bureau defined maritime fraud as: “An international trade transaction involves several parties – buyer, seller, shipowner, charterer, ship’s master or crew, insurer, banker broker or agent. Maritime fraud occurs when one of these parties succeeds, unjustly or illegally, in obtaining money or goods from another party to whom, on the face of it, he has undertaken specific trade, transport and financial obligations (Skuld,2014).”
Maritime fraud is becoming more common due to a number of reasons: Criminals are increasingly turning to new methods such as computer hacking, ports are adopting new technologies that in the worst case can enable new types of fraud (such as automatise container operations) and as shipowners are under pressure to win new business, many have disregarded due diligence when dealing with new business partners. As both the greater reliance on IT and electronic trading platforms and documents increases, so does the need to stay ahead of the game played by the Fraudsters.

There is a “cost” of course, to greater security, both in terms of investing in better technology and processes, but also in potential business opportunities. In order to achieve the right commercial balance it requires experience, skill as well as knowledge of what scams and schemes are out there. Given that Shipping is a global business, with many players and jurisdictions involved in any single shipment of cargo, even a simple A >>> B voyage, there are a myriad of potential pitfalls where the unscrupulous seek to take advantage of the unprepared. As parties are often based in multiple jurisdictions, and necessarily deal with each other at “arm’s length” and / or through Brokers and Financial Institutions, there may be little or no opportunity to make “physical checks”(Skuld, 2014).

1.2 Statement of the Problem

Maritime fraud never has been so profitable and secure proposition than during the recent decades. In the late Seventies, maritime crime reached a new peak and the trend is going on in full swing. Now the question naturally arises as to how a maritime fraud occurs. We know that maritime transport plays an important role in international trade transaction where several parties such as sellers, buyers, shippers, shipowners, charterers, ship masters and crew, port authorities, inland howlers, bankers and insurers are involved. Maritime fraud occurs when one of these parties succeeds in intentionally and illegally obtaining money or goods from another of these parties. Maritime fraud is, therefore, that species of general fraud which is connected with the maritime field. It may take a variety of forms i.e. documentary fraud (by forging documents or signature) chartering frauds, intentional or non-existing loss of or damage to cargo, barratry, the scuttling of ships etc., etc (Kazi,2015).

Maritime fraud is truly international and the victim can come from any corner of the globe. The fraudster is indifferent to the colour, creed or political belief of his victim. There may be various form of maritime fraud and there is a great deal of evidence that a significant proportion of maritime frauds and related offences are perpetrated by organized groups. For years the shipping industry ran freely and well on spoken commitment, within a system. But there has been continuing infiltration by organized groups in the shipping industry and this is the single worrying factor to curb maritime crime and fraud. The deliberate destruction of the ship, whether by scuttling, fire or other means achieved a certain degree of prominence in the twenties. It then subsided until the Seventies, when it emerged as a totally new art. For example in the case of the Salem, not only was the cargo taken, but also the ship cast away. The days of the sinking of old and useless vessels by owners, if not past, have had to make way for methods employed by a much more intelligent, solvent, and organized group of fraudsters (Kazi,2015).

Maritime cargo frauds can range from the non-shipment of any cargo at all through to deliberate destruction of over insured cargo. Overvaluation as a means of fraud relates naturally to both vessel and cargo. For example, in the Medina Princess a vessel insured for a value at $350,000 was in fact worth only about$65,000 when insured (Kazi,2016).

1.3 Objectives of The Study

The purpose of this study is to show the various fraudulent practices in the maritime industry or the seaport and the perpetrators of this act and to expose what the law has to do in such situations. Although a number of studies have been undertaken on the phenomenon of fraud in seaports, the increasing pace with which frauds are being committed called for continuous research on the subject to keep track of new devices employed by the fraudsters in defrauding the system, hence the rationale for this research work. To achieve this objective, the following secondary objectives have been specified.

  1. To identify the cause(s) of fraud in maritime industry,
  2. To identify the various types of fraud perpetrators in martime industry,
  3. To identify the various means employed in defrauding maritime activities,
  4. To determine the effects of fraud on the business of international trade
  5. To recommend measures for reducing the incidence of martime fraud

1.4 Research Questions

How does a fraud practice in the bank affect the maritime sector?

  1. What are the impacts of fraudulent acts of maritime industry, over the transaction of their customers?
  2. What are the existence measures in maritime industry that can be used to check such fraudulent acts?
  3. What measures can be used for prevention and control of such fraud practices in maritime sector (seaport)?

1.5 Significance of the study

The significance of this study is in the fact that it highlights the immediate and remote causes of fraud practices, effects, prevention, and control in Nigeria Shipping industry with particular reference to Nigeria Seaport. Several attempts have been made by researchers, writers e.t.c. On how to minimize or eradicate it if possible. In various organizations but such efforts have been focused mainly on manufacturing and distributive as well as public finance management, while little has been done on areas of Banking and other services industries. The studies have been geared towards finding out causes and consequences, prevention and control of frauds in Nigeria Banking Industry.

Therefore, the suggestions that are advanced in this study would no doubt be useful not only to the shipping industry but to all shipping firm be it public or private sector of the Nigerian economy. The content of this research and the suggestions to be proffered will serve as resources for further study in the same or similar areas maritime in the area of fraud practices (internally) prevention and control.

1.6 Scope of the Study

The study which aims at looking at the effect of maritime fraud on world seaborne industry will make special to the Nigeria port authority. The Nigeria port authority in charge of seaport and other marine elements in Nigeria and responsible for the regulations of shipping and other international trade in the country.

1.7 Research Methodology

The methodology adopted by the researcher is the doctrinal method that is, library oriented using a qualitative research design. The internet was also consulted. Materials consulted are statute books, international treaties, textbooks, journals and articles on the subject matter under consideration. The sources of materials consulted are primary and secondary sources. The primary sources are local and international statutes, textbooks whereas the secondary sources are articles in journals and paper presentations at the international law. This research work wholly depends on textbooks, articles, journals and the internet.

Chapter Five

Summary Of Findings, Conclusions, and Recommendations

5.1 Summary of findings

Nigeria’s trade is dominated by foreign shipping companies. The trade is mainly import-oriented, except for crude oil, which accounts for over 90% of the export trade. The transportation of crude oil is largely carried out by foreign tankers as the terms of trade is on FOB basis.The non-participation of indigenous shipping companies in the transportation of crude oil and LNG means a huge loss to the Nigerian economy, amounting to an aggregate of USD 10.5 billion in 5 years.The vessel capacity of indigenous shipping companies is abysmally low with an average age distribution of 27 years. This places the Nigerian Shipping companies at a disadvantaged position in international competition.

There are enormous opportunities for indigenous participation in coastal and domestic trades which involve mainly the lifting of petroleum products from Nigerian oil terminals to West African countries and between Nigerian ports. There are also good opportunities for indigenous participation in offshore oil and gas vessel supply services.The Nigerian inland waterways are grossly underdeveloped, though they represent viable investment opportunities. The Nigerian public sector cargo represents over 70 percent of the total cargo output at the Nigerian ports.
It has also been discovered that Cabotage has attracted new businesses to the maritime sector.

The stakeholders in the maritime sector are fully aware of the benefits of the Cabotage laws.

It has been uncovered that many of the stakeholders’ companies may not part-take in the Cabotage business because of lack of capital, personnel, infrastructure, incentives (reduced cost of investment i.e. interest) and the ease with which to borrow funds. It is observed that the aims, objectives and purpose of Cabotage laws is known to the stakeholders in the Cabotage industry. From the investigations so far carried out, it has been discovered that the stakeholders have the view that the real role of the NMA in the new Cabotage regime should be regulatory in fighting maritime fraud.

It has also been unveiled that cargo reservation can develop and enhance maritime capacity building in Nigeria. That there is a possibility that cargo reservation principle will be acceptable in this era of Cabotage and globalization, if well harnessed, and articulated. During the cargo allocation regime, the NMA concentrated mainly on what may be seen as private cargo rather than working out an effective mode and control mechanism for major public cargo generators in Nigeria i.e. the NNPC, Ministry of Mines and Power, Ministry of Works etc. Distribution of export private cargo was quite negligible.

Import Private Cargo is quite less than Import Public Cargo. The total absence of control of Public Cargo resulted in the non-use of waiver powers conferred on the NMA and the Ministry of Transport. Indigenous shipping companies see the relevance of the NMA in terms of mandatory collections.

Indigenous companies were disillusioned with NMA during the cargo allocation era, because, they perceived that it encouraged a patronage system in which owners of ships were not getting cargoes. Rather, cargoes were allocated to “brief case shipping companies” and “Connected” public officers. This explains the reason why they felt unconcerned when cargo allocation was suspended.

Because of the implication arbitrage in Cargo allocation it was not favourable to any of the stakeholders in shipping. Rather, it increased the cost of doing shipping.

The NMA feels that indigenous shipping companies were lazy and relied solely on them for their cargoes instead of equally sourcing elsewhere. The NMA feels that indigenous shipping companies do not possess the required vessels for available cargoes.

That one of the ways that the Cabotage regime triggers economic activity and economic growth in Nigeria is through the entrepreneurship empowerment, job creation through restructured and reorganized NMA/NPA, hence, the increased earning of the NMA, through redefined, well-organized NMA working conditions and environment with professionals in place.

With the concession of the ports, the concessionaires would ensure strict enforcement of the Cabotage laws. The stakeholders would engage professionals who would be competent, resourceful and capable of taking advantage of the opportunities the Cabotage regime has created in the maritime sector to improve their lots, hence the nation’s economy.

5.2 Conclusion

The Nigerian experience revealed much confusion for several reasons. Apart from getting involved in the turbulent politics of ocean-borne trade right from the start without grooming and nurturing local competence, first, it totally ignored the need to create a learning curve with the sheer absence of a Cabotage legislation. In seeking to implement the National Shipping Policy Act, the NMA left out the bulk of section 14 cargoes, in pursuit of section 9 cargoes. Added to the fact that its application of section 18 was reduced to bureaucratic procedure, private cargoes by the fact of ownership, size and numbers were quite cumbersome to identify, control and allocate. It also tended to affect usual commercial trade practice. Moreover, the shippers were left to pay a high transaction cost incidental to the measure for the support of indigenous shipping companies. Yet there was no remarkable growth. Rather, the decline and demise of conference lines made cargo allocation procedure unclear to understand and control.
However, the study noted that defective and distasteful as Cabotage regime might appear to others, the NMA and other stakeholders still have the statutory duty to assist the maritime development of Nigeria. To do this, it was seen that public sector cargo size in Nigeria could provide a firmer and justifiable ground for the commencement of a credible programme. A more efficient cargo support programme then should focus on the control and involvement of Nigerian shipping companies in the carriage of section 14 cargoes. Not only are these easier to identify and manage, the resistance to the approach is not also expected to be high.

Two reasons account for this position. First, a review of the USA cargo preference revealed that the practice did not inhibit intended competition. It did not also affect usual commercial practice between a willing buyer and seller. All it did was to identify government – impelled cargo for competition amongdomestic shipping companies. In the event that no national flag could take up the cargoes, a waiver was issued allowing foreign vessels to lift on certain conditions. Although the US power and clout could account for the success of this approach and its seeming international accommodation, it is submitted that public institutions generating such public cargoes do have a contractual right to decide the terms of trade and the contracts they wish to choose. Besides, the linkage between national flag and defence and security needs can easily come handy as a precedence represented in the consideration of a nation’s interest, politics and survival.

5.3 Recommendations

A situation where government agencies are allowed to break laws and defeat policy goals should not be tolerated. In order to give meaning and seriousness to Caboatge laws and to the role of the NMA, the authority should immediately be made to pursue the following steps:

  1. The need to re-examine the organization’s structure to reflect its functional responsibilities as with other maritime regulatory agencies, instead of maintaining the existing bureaucracy induced organogram. Also, there is a need for a closer liaison between the NMA and major public sector cargo generators.
  2. The Minister is requested to delegate certain functions stated in the NSPA to the NMA. Such functions should include powers to establish regulations and procedures forgovernment agencies to ensure that the NSPA legislation is implemented as intended by the National Assembly.
  3. In addition to the need to strengthen liaison and co-operation with major public cargo generators, the NMA should also maintain desks assigned to such major public cargo generators for the purpose of identifying programmes, projects and contracts captured within the framework of the NSPA. Also, a close watch should be maintained by the NMA to support and gain from trade delegations, bilateral agreements etc. The critical role of this unit is important in the assessment and implementation of the NSPA.
  4. A Maritime Business Development Unit should be established to determine the issue of availability of Nigerian ships and capability of indigenous operators whenever such matters arise from public cargo generators, shipping companies or other agencies. Similarly, this unit should provide guidance on the issue of what is responsible in freight rates etc.
  5. The NMA should acting on behalf of the minister, give effect to section 26 of the NSPA by effectively monitoring compliance of government agencies with section 14 of the NSPA. In the meantime, it should commerce work with consultants to work out modalities for identifying major public sector cargo, and past abuses. Following from the exercise, a notification of waiver under section 14 (4) should be sent to public sector cargo generators who have been in breach. A programme should then be worked out between the NMA and such bodies on how best to approach their respective shipping needs.
  6. There is the necessity to start using certain statutory powers if the NMA is to achieve its objectives vis-à-vis the regulatory function of the Cabotage trade. A high powered interministerial team with presidential blessing may be necessary to agree at the need to understand government maritime policy thrust, expectations, obligations and sanctions for the purpose of ensuring the success of an effective Cabotage trade in an economy like ours.
  7. A strong ministerial and legislative liaison should be initiated to report to the latter, progress in public sector Cabotage trade performance for necessary legislation (where necessary), and review.
  8. The management of the NMA as a regulatory body of the Cabotage trade should develop a mission of Cabotage trade at a transitory phase in developing a competitive domestic shipping industry. All efforts must therefore, be concentrated on the possible release of all local potential, while discharging the patronage regime. To put it straight, the NMA should know where it is going before it “ends up somewhere else”. Management and board must then be bound by the ties described as Montgomery’s connect. This is like soldiers leading managers into battle with a clear understanding of the war aims with compass giving them direction and confidence.

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