RAMPANT FRAUD & SCAM NOW A WELL-ESTABLISHED REALITY IN THE OIL INDUSTRY
Put in the most simple and most unambiguous of terms, in the field of so-called international “secondary” market petroleum trade today, there’s ONE central FACT that has become almost conclusively established among virtually all experts and respectable traders alike — and that is, that today the field is notoriously infested with rampant and pervasive scam, fraud and fraudsters. And, furthermore, that in today’s market and market climate, if you are a GENUINE oil or petroleum products buyer looking for an equally genuine seller of product, it has become increasingly difficult, if not almost impossible, to find one, and vice versa. Most unfortunately, I must submit that that conclusion is one which I have painfully long come to, based not only on the general consensus among respected experts and traders alike, but on my own extensive research, studies and writings in the field.
THE “LOADED OIL VESSEL” SCHEME
In this writer’s considered view and assessment, one of the significant ways in which perpetrators of such fraud in the international petroleum trade deals attempt to carry it out today, is by packaging and presenting such offers as involving an already loaded vessel of BLCO crude or other oil products. We will simply call it: the Loaded Oil Vessel of BLCO Scheme in International Oil Trading. At the very least, a sales offer presented as a loaded oil vessel offer should promptly throw up a serious red flag and alarm for caution to its recipient, that the deal is, at best, quite questionable as to its legitimacy, and more likely and most probably is a FAKE and a scammy deal.
What is the basic nature of this scheme? Simply stated, the claim by Internet dealers who peddle such offers, is that the product (crude oil or some refined petroleum product) has already been “loaded” in a vessel that is located at a designated spot in the international waters and is ready and waiting for immediate transshipment (usually on a TTO arrangement) to the buyer who comes ready to buy it.
(As an accredited Mandate of several major crude buyers located both in the United States and Europe, this author literally can’t count the number of times per week that we receive such offers at our consultancy office email boxes or even via phone calls — offers from persons who claim that they are a crude oil “seller,” “mandate,” or other intermediary, and that they have some 2 million, sometimes up to 4 million, barrels of BLCO or FLCO available to sell, per month, and all of it already “loaded” on a vessel in the international waters).
A TYPICAL LOADED VESSEL PROCEDURE
A typical offer of such type, which clearly describes the nature of this fraud in petroleum trade deals, is the one which was recently received at the writer’s consultancy office from a supposed dealer who claimed having an “already LOADED VESSEL for Bonny Light Crude Oil (BLCO),” and pledged that “We can perform at any quantity demanded.” THE OFFER READS AS FOLLOWS:
PROCEDURE LOADED VESSEL:
1. Buyer and Seller sign and seal Contract including banking coordinates and exchange the signed copy by electronic mail. The electronic signed copy by both Parties is considered legally binding and enforceable and MUST not be changed. The executed SPA is lodged in their respective banks.
2. Seller’s captain issues marine ATB to buyer’s nominated inspectors and super cargo and takes supercargo on board loaded vessel for product confirmation.
3. Buyer issues Payment of Forty MILLION NAIRA (N40,000,000.00) in favour of seller for logistics upon product confirmation.
4. Seller confirms Payment and then clears and moves the vessel to Cotonou waters for Q and Q analysis.
5. Buyer’s Inspectors go on board the loaded vessel in Cotonou international waters for the conduct of quality and quantity inspections (at the buyer’s expense).
6. Q and Q report released to the buyer and the seller’s nominated bank as stipulated in the contract and buyer places voyage re-charter on the vessel.
7. Buyer issues Letter of Credit (LC) for the entire cargo and the brokers’ commission.
8. Final payment is effected with Operative Letter of Credit or Swift KTT Wire Transfer of 100% payment for cargo to seller and commissions to all intermediaries nominated bank accounts (as specified in the SPA) simultaneously against agreed shipping and cargo documents submitted by the seller through his bank
TRANSLATION: In essence, what this offer promises is that:
== the seller will pay for and charter an oil tanker ship,
== he will load it with the product (in this specific case, the Nigerian BLCO crude oil), and transport the cargo to a designated location on the international waters just off the Nigerian coast,
== and at that spot the Seller’s captain will issue a marine ATB (Authority to Board) to the buyer’s nominated inspectors and super cargo to invite them into the loaded vessel to confirm to the buyer that the vessel is actually “pregnant” with the loaded cargo.
== And, in this case, with a payment by the buyer of Forty MILLION NIGERIAN NAIRA (N40,000,000.00) [appx. $280,000 in USD] to the seller “for logistics,” the Seller then moves the loaded vessel farther to the Cotonou waters for Q and Q inspections to be undertaken to confirm the actual quantity and quality of the cargo that’s aboard the vessel to the buyer.
== Thereupon the buyer places a voyage charter on the vessel (i.e., it re-charters the pregnant vessel from the vessel Owners/Handlers), and issues the Letter of Credit (LC) in payment for the value of the entire cargo confirmed by the Q and Q.
THE FUNDAMENTAL HOAX & FALACY INHERENT IN THIS PROPOSITION
Already loaded vessel of BLCO schemes such as the one outlined above, and others like it, are typically riddled, however, with many serious operational and practical business problems which make such schemes problematic, almost impracticable, susceptible to, and ready-made for scamming and fraud.
FOR ONE THING, NO LEGITIMATE SELLERS WOULD GENERALLY EVEN OFFER SUCH A DEAL. As a practical matter, it will be difficult, if not impossible, to find even a single seller in the entire Nigeria crude market, if he is a LEGITIMATE supplier that paid for and legitimately obtained product via the NNPC, that can make a TTO sale of his product under such procedures. Why? Because selling crude under such TTO terms strongly implies that, somehow, a seller of BLCO crude would submit, or shall have submitted, to selling his crude product under the following selling conditions that would be considered rather a very difficult, non-prudent, even impossible, and abnormal set of selling conditions for any seller of product anywhere in the world:
== The seller shall have (presumably) paid for the product, the NNPC-owned or controlled Nigerian oil (BLCO), and had a vessel loaded to the full with the product on a Nigerian shipping terminal,
== He shall have gone ahead and hired and paid for a crew of highly-paid vehicle operators to navigate this loaded vessel through
== the ship operators shall have navigated this vessel through all the strict security apparatus and protocols of the Nigerian port, and to have sailed the vessel through the Nigerian loading terminal and harbor (apparently after having made a pre-payment not only for the crude, but also for the administrative as well as logistical costs that are generally involved in such operations, all of which usually involve very huge sums of money),
== and the ‘loaded’ ship shall have been moved out to the designated location on the international waters where they’ll meet up with some unknown interested “buyer” to transact the sale of the cargo.
As a practical matter, however, the REALITY of the matter would make the possibility of the above scenario occurring almost absolutely impracticable, unreal, financially imprudent for any seller, and very unlikely. For example, contrary to what the above TTO selling scenario strongly implies or suggests, the fact of the matter is that in REALITY the strictly enforced policy and practice of the NNPC is that it will not approve of or permit any vessel to be loaded on its Nigerian loading terminals — and this same policy, by the way, is the general NNPC policy that applies, just as well, in every other type of transaction (CIF or FOB) — UNLESS the buying party shall have first placed a verified banking payment instrument that has a “blocked funds” provision with it by which the crude shall have been wholly paid for.
Consequently, for a Nigerian re-seller of the Nigerian BLCO (or any other brands of its oil) to obtain any cargo from the NNPC and to transport it out of the Nigerian harbor, you can be certain that he shall have expended humongous sums of money, as well as efforts, to do so. And so, it would be virtually unthinkable that you would find such a re-seller of the BLCO crude, assuming he is a LEGITIMATE re-seller who legitimately got his product, agreeing to sell his crude under such procedures as the above in a TTO deal. Leading one to think that this could only possibly happen where and when there’s some fraud in petroleum trade deal.
In deed, this is one major reason why Nigerian BLCO oil deals, in general, but most particularly any that are packaged and marketed as so-called “TTO” or “TTT” deals, are quite often viewed within reputable traders’ circles, as being of questionable validity and are frequently associated with suspicion and uncertainty as to the fundamental legitimacy of the source of the product, or of the supplier. Basically, such negative view of such transactions arises out of the fact that the premise and implication which underlie such a deal fundamentally goes against all odds and the basic general principles and accepted norms of trading, and against the normal and usual ways in which all BLCO sale transactions are generally known to be made with the NNPC. Simply stated, the notion here — which is one that immediately seems patently unrealistic and too naïve, even for the Nigerian business environment that’s often viewed as corrupt — is that any seller at all of the Nigerian BLCO crude — a product which is, in addition to everything else, the premium oil at the very top of the list of the world’s most prized brand of crude and one that’s highly sought after by oil traders around the world — is going to pay for, elaborately arrange for, and load, a BLCO vessel all with his own money, with costs running in the several hundreds of millions of dollars, and then put that loaded cargo of oil in international waters waiting for a supposed “buyer” to suddenly show up to buy it from him.
Absolutely most, most implausible and most improbable, to say the least!
IS THE LOADED VESSEL CARGO “STOLEN” CARGO? OR FAKED DEAL? OR BOTH?
In deed, one known industry fact regarding these two hybrids of deals (the TTO & TTT), is that most reputable and legitimate traders of Nigerian crude oil would generally shy away from such deals, preferring to do an FOB or CIF deal, in stead, as their best choices, as they view those as being a far more straightforward and safer or more reliable method of transaction than the TTO or TTT transaction. Further more, in fact, some analysts have taken to characterizing the TTO and TTT deal — which, by the way, is a style of oil transaction that is somewhat peculiar with just the Nigerian oil market in the entire world oil market — as deals or trades in “stolen cargo” of oil. Such analysts explain that, in reality, at least in theory, generally the only way a buyer can realistically get a TTO cargo is through a so-called “broken oil transaction” or “abandoned oil vessel” situation — that is, a situation when, by some set of circumstances, after a buyer shall have tendered his “blocked funds” banking payment instrument to the NNPC to make a legitimate NNPC-sanctioned BLCO purchase, and shall have had the vessel legitimately loaded with cargo for him, the payment does not then, for some reason, process and the seller is left sitting with a loaded vessel and no buyer for it, causing the “pregnant” vessel (so the thesis goes!) to sit out off the harbor awaiting someone else, a second buyer, to come along and buy the cargo from the original buyer.
In fact, in offering an explanation as to the source of their product, that’s precisely the selling rationale and sales pitch that many Internet traders and their intermediaries who peddle such deals often present, and is the way such parties often advertise and present their TTO or TTT deals to prospective buyers — precisely that it’s an ‘abandoned vehicle’ situation, the usual claim being that the crude on sale which is supposedly sitting on the high seas awaiting a buyer’s bid, had been the object of a loaded vessel oil cargo whose original buyer that had originally put up the necessary banking payment instrument on the cargo, had for some reason fallen short of executing the banking instrument, thus needing a new buyer who comes along to simply fulfill the original buyer’s financial obligation and the cargo is his!
And, consequently, considering the apparent improbability and dubious and implausible nature of such rationale and explanation as the above offered by peddlers of the “abandoned vehicle” or “abandoned cargo” deals in explanation of the basic source of their TTO or TTT cargo, analysts who are of the negative disposition concerning such deals, characterize such deals, in general, as dealings in “stolen” cargoes. There is, such analysts say, no other realistic or logical or likely business way by which the peddler of such deals could otherwise come by such cargo other than to have essentially stolen them. Or, other than by such deals being outrightly FAKE deals simply founded on mere fraud by their peddlers. If you have documents purporting to be so-called “loaded vessel” documents that claim you are the rightful owner or seller of the BLCO cargo aboard the vessel, they say, and you paid for and legitimately obtained the crude from the NNPC, then you would not, and could not, possibly accept to sell your cargo to buyers under such unrealistic, implausible, and economically too risky set of terms and conditions as are offered by the TTO (or TTT) peddlers. And, they say, if, on the other hand, by any chance or any set of circumstances of whatever kind you’re in possession of a TTO cargo that you did not yourself directly pay for, then what you have, they say, is almost certainly a FAKE deal backed by fake documents — basically, most probably forged documents copied from a legitimate transaction by international conmen from hijacked vessel that is already on its way to its Port of Destination. A classic case of fraud in petroleum trade deal!
THE FACTS & LOGIC OF THE LOADED VESSEL TRANSACTION
In point of fact, the objective facts of the matter available, strongly militate against the fundamental logic or rationale underlying having a so-called “loaded vessel” deal. First, the sheer logistics of crude oil trading and shipment are awfully capital- intensive, and vessels loaded with such Nigerian BLCO product are just not left on the high seas awaiting any unknown “buyer” to come along and buy it. Secondly, in point of fact, every single vessel in the Nigerian ports is meticulously accounted for and monitored by the Nigerian port authorities, and is heavily guarded by the Nigeria navy and other special task forces to ensure and guard against any possible theft or diversion of cargo, and every vessel that is cleared for cargo delivery going in and out of the Nigeria territorial waters, much less its operating terminals, is cleared and accounted for not only by the Nigerian Customs, but nowadays (as of the recent stringent reforms instituted by a new, aggressive team of newly-appointed Nigerian authorities in 2012) by the Nigerian EFCC investigative team, the Navy fleet, and other high level government special task force now in operation to control such matters in Nigeria. And thirdly, there are virtually no ‘stranded’ loaded vessels of BLCO lying around, and there is highly unlikely to be one, in Nigeria or off the Nigerian coast bearing Nigerian oil, for if there were to be any such vessel loaded with the Nigerian crude – a commodity which, without question, is one that is of the highest crude quality, and hence of the highest premium and the highest demand in the world oil market today – it would not last even for a split minute on the market for it to be rapidly snatched up by anxious refineries and international oil traders of the highest class and financial capability.
Quite to the contrary, the REALITY is that every single vessel lying in any of Nigeria’s crude oil export terminal that’s loaded with oil, is loaded for a specific buyer – a buyer who shall have paid the NNPC authorities in full for the crude. Think about it. Who in this whole world — even in Nigeria — who, after all, remains primarily a businessman out to make a profit on his invested money, would load a vessel of, say, 2 million barrels capacity with over $200 million worth of oil cargo, and have it sitting on the sea paying some US $ 50, 000 for each and every single day that the vessel is on the sea in additional costs in ship maintenance expenses, only for that businessman to get the vessel to the sea and then start shopping around for a buyer of the cargo while on the high seas? Think about it – even if it is in the good, old Nigeria and its classic notoriety!!! The conventional tale among its Internet peddlers of the loaded vessel of BLCO scheme in the international oil trading, just doesn’t add up, pure and simple!
Davide Papa, a well-respected expert in the protocols and procedures of the modern Internet trading in oil and other commodity products, speaks about the general fact of the rather inherent unconfirmability of the “loaded vessel” deals with the legitimate Nigeria oil authorities. He asserts that, generally, “You can’t [confirm loaded vessel document of Nigeria crude oil],” adding that “such suggestions that one exists, are always offered by a fake seller – either you a have an offer directly from NNPC or you don’t – it’s that simple… The FTN [his trading company] has seen hundreds of such NNPC offers as you have defined – all fakes.”
THE RECENT FINDINGS OF THE IMB INVESTIGATIVE TEAM
A recent report released in January 2012 by the globally respected ICC International Maritime Bureau (IMB), the anti-crime arm of the ICC Commercial Crime Services (CCS) of the International Chamber of Commerce, the London-based organization that is tasked with combating all forms of commercial crime, ranging from fraud in international trade and insurance fraud, to financial instrument fraud, money laundering, shipping fraud and product counterfeiting, reported on the findings of its investigative team on cases of precisely similar subject matter as the topic of this essay that the Bureau’s members regularly referred to it involving vessels belonging to them that become caught in the disputes over oil cargoes ordered by them.
According to a summary of the findings released by the ICC Commercial Crime Services (CCS), “Most cases [that are the subject of the Bureau’s investigations], involve small companies based in either Nigeria or Ghana and feature poor quality documents that IMB analyses quickly proved as fake. The documents purportedly show the ownership of cargoes carried on board certain vessels and the scam centres around these spurious documents being sold on to unwitting buyers, often at a heavy discount or for a hefty advance fee,” while it strongly warned its members “over the ongoing scams involving the fraudulent sale of Nigerian petroleum products.”
Citing a recent case which it investigated on behalf of a German buyer which was said to involve a “much better quality documentation, including one apparently confirming that the Nigerian National Petroleum Company (NNPC) had indeed supplied the seller with the goods,” the IMB’s findings stated as follows, that “Furthermore, the details of the cargo appeared to match that of a genuine shipment which had taken place. More detailed checks, however, confirmed that the deal was nothing more than an advance-fee fraud.”
The report on the IMB’s findings added, that:
“Often, the sellers suggest to victims that they contact the vessels themselves and verify that the cargo is on board. It is possible, with relatively, minimal effort to confirm the cargo that a vessel is carrying. Confirming the ownership of such cargo, however, is more problematic.
[The] IMB has recently seen cases where vessels have been detained at West African ports on the basis of false documentation regarding the ownership of cargo. Whilst innocence is quickly proved, there is still an impact in time and resources that could have been avoided were it not for these spurious transactions.” (Underlining added by the present author for emphasis).
TRANSLATED: In a word, as a general proposition, determination of the authenticity and genuineness of such deals, particularly its actual or true sellers (owners), are fraught with, and susceptible to, significant uncertainties and serious risks, and not only is it often difficult to determine when it is that a vessel is actually loaded with cargo, but, more importantly, the bigger problem about which there is often a greater deal of difficulty finding the answer for, is being able to determine who actually owns or has the rightful title to such cargo. Or, to put it more simply another way, the loaded vessel scheme in international oil trading is, at the very least, a major predictor of potential fraud in petroleum trade deal which should always be seriously taken into account by any buyer of product.
And hence the basic message here? That at the very least, the buyer of such cargo had better just extremely beware and cautious and exercise the utmost due diligence when trying to buy crude in a “loaded oil vessel” scheme, or any TTO or TTT deal!
As Mr. Michael Howlett, the IMB Deputy Director, put it, rather succinctly summing it up, “These scams often rest on the fact that the victim is not well-versed in commodity trading. An experienced oil trader would recognise these scams for what they are. However, someone less experienced may well be tempted by the low price and apparent authenticity of the documents.”
NOT ALL TTO, TTT OR LOADED VESSEL DEALS ARE NECESSARILY BAD, HOWEVER
A relevant but important question that logically follows from the above analysis, is this: given the above rather dreary but negative and objective portrait painted in respect to the realities of such types of petroleum deals, are each and every and ALL deals involving TTO, TTT or the so-called loaded vessel transactions, automatically bad and ill-advised and should be automatically rejected outright on sight? Actually, NO. Not at all! In point of fact, quite to the contrary, there are, and could be, actually many deals of the TTO, TTT or the loaded vessel types (or at least the appropriate versions of them) that are perfectly genuine and legitimate, and are being safely transacted every single day today — at the hands of the proper trader trained, knowledgeable and experienced in undertaking such trades. Such a trader can, and does, upon doing the requisite due diligence, readily spot, identify and select out those transactions having the proper terms and the proper safe procedures to merit being safely transacted.
A trained eye in search of a TRUE or legitimate loaded vessel of BLCO type TTO or TTT deal, knows (or should usually know) EXACTLY what to look for, and how and where, in order to determine the legitimacy of a given transaction, or lack of one. In deed, in this writer’s consultancy office, we have mapped out a specific set or criteria and markers that we’ve found quite accurate as a predictor of a TTO deal that has some merit and a high probability of being a legitimate one. This methodology is beyond the scope of this essay and will not be gone into here. But, just for merely an idea of it, if a transaction is really a TRUE loaded vessel transaction — what we call a “TRUE loaded vessel” situation or deal — then, very simply, this means (from the perspective of the intending buyer involved) that a ship shall have ALREADY been loaded, and is now presumably stationed at a spot on the international waters as it awaits a buyer. This, in turn, implies many other things of great significance and instruction for us — so, for example, there needs never be for the deal an SPA signing by our buyer; and given that, such a deal should be expected to be more of a spot type deal; and, perhaps most importantly of all for us, that means that the seller shall have ALREADY incurred all the costs associated with the product lifting, the loading, inspection, chartering, etc. Hence, given the above scenario, there are certain specific key documents and proofs that the prospective buyer of this loaded cargo should demand and expect to get, and which the cargo’s “seller” (and especially the supposed Captain of the pregnant ship) should be readily able (and willing) to provide him. And if a skilled and experienced crude trade professional versed in such matters and in tanker tracking methods could undertake a proper and thorough due diligence work on such proofs and documentation (coupled with a few other specialized business intelligence efforts), one should generally be able to determine when what one has in hand is a TRUE loaded vessel case, and hence possibly a legitimate transaction, as opposed to when it is a fake and non-legitimate one, at least in a great deal of instances.
Note that a TRUE ‘loaded vessel’ deal, when one is had, could usually be wrapped up within just 8 hours, or 24 hours at the most, depending. It all depends on when the documents are received, the time zone, and what the seller has and can credibly show they have and get VERIFIED.
This essay deals with analyzing the realities of fraud in petroleum trade deals, with particular emphasis on the loaded oil vessel scheme in international oil trading as one significant illustrative example of such fraud — basically the claim advanced mostly by Internet dealers who peddle such offers, that the Nigerian crude oil (BLCO), and in some cases, some refined petroleum products, that they offer, have already been “loaded” in a vessel located at a designated spot in the international waters and are ready and waiting for immediate transshipment (usually on a TTO arrangement) to the buyer who comes ready to buy it. We conclude, based on objective analyses and the facts of the trade relating particularly to transactions of that kind, that the “loaded vessel schemes” of the types often peddled on the Internet, are typically riddled with many serious operational and practical problems which make such schemes problematic, almost impracticable, and susceptible to and ready-made for scamming and fraud. In a word, as a general proposition, determination of the authenticity and genuineness of such deals, more especially its actual or true sellers (owners), are fraught with, and susceptible to, significant uncertainties and serious risks, and not only is it often difficult to determine when it is that a vessel is actually loaded with cargo, but, more importantly, the bigger problem about which there is often a greater deal of difficulty finding the answer for, is being able to determine who actually owns or has the rightful title to such cargo
And, the central message of the essay: at the very least, a selling offer presented as a loaded oil vessel offer should promptly throw up a serious red flag and alarm for caution to the recipient trader that the deal is, at best, quite questionable as to its legitimacy, and more likely and most probably is a FAKE and a scammy deal.
Does that mean that ALL such offers are automatically fraudulent or fake and should be avoided and rejected outright, just at sight? The conclusion, is emphatically, NO. Not at all, for there are, in fact, some TTO or TTT deals of a particular quality that are safe and legitimate and authentic which continue to be transacted by TRAINED traders today as we speak, who are knowledgeable and experienced in how and where to mine for them. And, consequently, it is merely asserted that the buyer of such cargo had better just extremely beware and cautious and exercise the utmost due diligence when trying to buy crude in a “loaded oil vessel” scheme in international oil trading business, or any TTO or TTT type deal at all!
The report on the findings of the IMB cited in the essay, succinctly sums it up this way:
“Stringent due diligence checks on all parties involved in any major [TTO or loaded vessel types of] transaction are strongly recommended by IMB, even on parties with established trading records. Furthermore, the Bureau advises that all details of the shipment appearing on the documents are verified independently to prevent losses.”
FOR A FOLLOW UP.
WISH TO FOLLOW UP ON GETTING A CRUDE OIL OR PETROLEUM PRODUCTS SELLER OR BROKER WITH ASSURED SAFE, SCAM-FREE PROCEDURES THAT IMMEDIATELY SELECTS OUT THE GENUINE, LEGITIMATE SELLING OR PURCHASING DEALS & DEALERS WHICH THE CREDIBLE BUYER OR SELLER CAN SAFELY WORK WITH? Please see the instructional information in the author’s resource box below.