There is hardly a branch of the shipping industry that hasn’t experienced some kind of fraud, from importer customs fraud present in every country to tax fraud and agreement evasion. But, one of the scams that is not often talked about is warehouse fraud. You might be surprised to learn that warehouse fraud is by no means uncommon. In fact, there have been quite a few intentional fraud cases involving warehouse management that hurt not only the parties involved but the industry in general. In this article, we will go over the two largest warehouse fraud cases in recent history: the Qingdao scandal and the Nickel warehouse fraud.
Notable warehouse frauds in recent history
While these two cases are pretty sizable, it is essential to remember that they are by no means the only warehouse scams in history. Nor will they be the last. While we have modern safety equipment and high-tech features, keep in mind that willing participants carried out these actions. One can hardly create a technology that will overcome human greed. So, while these cases may seem considerable now, expect that we’ll be reading about even bigger scams in the future.
Qingdao scandal
The Qingdao scandal in China was based on using receipts multiple times to raise finance. While now Quingdao is considered one of the best factories in the world (Haier), it was under quite a bit of scrutiny during this scandal. The effects of it are manifold, but most were to the metal industry. To help you understand this fraud, we will go through it in a chronological timeline.
June 2014
Qingdao receives allegations of fraudulent use of warehouse receipts. The main accusation is that companies are using receipts multiple times to raise finance. The investigation focuses on bonded warehouses in the Dagang port terming. But, it neglects to take note of other bonded and non-bonded areas. Several banks like Citi, Standard Chartered, and Standard Bank claim that they are monitoring the investigation and reviewing the financial activities in Qingdao.
July 2014
Citic Resources Holding files a claim against the operator of a warehouse at Qingdao port. They wish to recover copper and alumina from it. Qingdao experiences significant postponement and rerouting of shipments, which causes copper premiums and prices to firm up in Shangai.
August 2014
Qingdao faces a court case. Glencore’s warehousing division sues them over undelivered aluminum. Shanxi Coal Import & Export sues Citic Recourses Holdings for $89.75 million, plus interest. Their primary claim is over undelivered aluminum ingots.
September 2014
Qingdao port states that the fraud contains 400,000 tonnes of material, including 80,000 tonnes of aluminum ingots, 20,000 tonnes of copper, and 300,000 tonnes of alumina.
December 2014
Trading company Mercuria and banking firm Citi give their arguments as they face a $270 million exposure due to Qingdao.
March 2015
Wanxiang Resources (Singapore) and Impala Warehousing & Logistics (Shanghai) face each other in UK courts. That is because Impala brought a claim against Wanxiang, forcing them to impose an anti-suit injection. To prevent Wanxiang from pursuing a proceeding, Impala is granted the anti-suit injunction.
May 2015
UK High Court settles the dispute between Citibank and Mercuria. The main subject of dispute was the missing metal from Qingdao.
August 2015
The People’s Bank of China slashes interest rates. Furthermore, it lowers the bank requirements for the deposit reserve ratio. They do this mainly to help many Chinese metal companies under considerable financial stress due to the Qingdao scandal.
Nickel warehouse fraud
The Nickel warehouse case mainly revolved around the Access World company owned by Glencore. They revealed that at the end of January 2017, numerous forged warehouse receipts bearing its name were in circulation. Fortunately, this was mostly contained in Malaysia and South Korea. The main difference between this and the Qingdao scandal is that no nickel has been physically delivered against the forged receipts. It was large-scale fraud involving multiple people and happening in different locations. The effects of the scam can be hard to evaluate, but the rough estimate is over $300 million. Therefore, it is fair to say that it is one of the largest warehouse fraud cases in recent history.
June 2016
Access World issues the original nickel warehouse receipt to the Straits (Singapore) Pte Ltd, the trade facilitation arm of Straits Financial Group. Unidentified parties make copies of Straits’ nickel warehouse receipts at some stage between 2016 and January 2017 to raise finance from banks.
January 2017
London-based Marex Spectron brings receipts of failed authentication from Access World, revealing the forgery. This prompts other receipts holders to check whether their documents were legit. Access World reveals that there are forged receipts in circulation in Asia. The London Metal Exchange then tells the warehouse operators to stop warranting metal where ownership is not assured. This includes any possible links to forged warehouse receipts such as those reported by Access World.
February 2017
Authorities confirm that Straits Singapore held the original Access World nickel warehouse receipts.
March 2017
Authorities identify France’s Natixis and Australia’s ANZ as being among the banks that agreed to provide cash against the forged warehouse receipts. Furthermore, Brokerage companies EDF Man and Marex Spectron are found to be caught up in the scheme.
May 2017
Natixis files a lawsuit against Max Spectron to recover $32 million in losses.
June 2017
Marex Spectron files a defense, claiming no liability in the case filed by Natixis. They claim that warehouse operator Access World incorrectly authenticated forged documents as genuine, which involves them in the lawsuit.
Conclusion
When reading about warehouse fraud cases in recent history, it is vital to keep in mind their scope. They usually involve large-scale companies, numerous participants, and millions of dollars. Therefore, if you feel worried about your warehouse, don’t be. Just get the necessary insurance, and use the recommended safety measures. Those two are the best possible protection from warehouse fraud.
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Cory Hooker worked as a moving coordinator and long-distance moving consultant for many relocation companies. His most recent engagement was with Movers Toronto. He now focuses on writing helpful articles and raising his two daughters Megan, and Pauline.
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