1.15 FRAUD AND CARGO THEFT

This handbook was written during a period of depressed tanker earnings, when owners, managers and crews have been under severe economic pressures for some time. In such an environment, the temptation to reduce fuel costs or increase incomes by stealing cargo can be very strong. Even in the best of times, there will be some crews and/or owners who believe that a few tonnes of cargo missing here or there will not be detected in the uncertainties of cargo measurement. Some of the cargo theft or fraud schemes may be temporarily successful, but the vigilance of cargo interests and the methods of detection are continuously improving, reducing the chances for success to the level where even the most brazen miscreant should be deterred.

1.15.1 Theft by owner
Owners may have in place a program for recovering slops and ROB cargo for use as fuel, when suitable. (See sections 2.12.9, 5.35.2 and 5.42.5). Such procedures are lawful so long as the cargo is safe for use and the crew is not encouraged to artificially increase ROB quantities by poor discharging technique.
In some cases, the amounts available as fuel from ROB do not meet the owner's/manager's 'needs' and the owner may encourage the crew to increase the amount of ROB cargo at completion of discharge. The encouragement may be in the form of indications of continued employment, or as cash payment for the 'sweepings' achieved during the ballast voyage.
In some cases, the owners or managers conspire with the crew to sell cargo en route. The physical and safety risks of impromptu lightering operations and the commercial risks of discovery and exposure make such ventures suitable only for fools and idiots. Certainly, it is better to wind up a business that is losing money than to put ships, crews, the environment and professional reputations at risk in a vain effort to stay financially afloat.
One method of attempting to confuse the calculation of cargo on board and thereby concealing a subsequent theft, is to have a separate set of ullage tables for the ship's tanks. The false tables reflect a smaller quantity in the tank(s) than the vessel's true ullage tables. At the discharge port the ship's correct ullage tables are presented for the cargo calculation, with a result that no cargo appears to have been removed from the tanks. Ullage tables should not be accepted by cargo inspectors unless they have the imprint of an independent petroleum inspection company or other accepted authority.

1.15.2 Theft by the crew
There are several cases on record of the master and officers of a tanker selling cargo en route without the knowledge of the owner. This kind of fraud has all the perils mentioned above plus the chance of discovery by owners or managers. This type of theft is rarely found in companies which have a program of careful crew selection, development and retention. However, where the employment policy is to engage the cheapest of available alternatives for officer or crew replacements, with resulting high turnover of masters and officers, then the crew can be expected to put their own interests well before those of the owner. Because public disclosure of such theft can be nearly as damaging to the owner's reputation as direct involvement, owners have another reason to implement employment practices aimed at increasing crew retention, development and loyalty.
Sale of cargo en route is usually discovered, although sometimes not until the results of the voyage have been evaluated by the shipper. The sums of money realised from a single cargo theft are rarely large enough to keep an entire crew and their fellow conspirators silent. When the master and officers keep the proceeds for themselves, it is not unusual that someone in the crew will inform the owners or managers.

1.15.3 Detection and consequences
Cargo theft or fraud can be discovered or disclosed in a number of ways. Independent surveyors and out-turn audit specialists are routinely engaged to give the vessel's cargo measurements and outturn the closest scrutiny. Discrepancies from previous performance will be noted and evaluated. The cargo discharge report will call attention to any unusual result.
Computers have now given major cargo interests the ability to perform detailed and sophisticated analysis of the results of their shipments. The performance of individual vessels, of fleets of a particular owner and even of individual masters and chief officers can be evaluated. They can examine the outturn results of the same cargoes moving over the same routes and determine by statistical analysis, the loss allowances that should be expected. The Institute of petroleum guide voyage loss allowances of 0.5% to 0.63%, are no longer accepted by the major cargo interests. Cargo interests now know the loss a properly operated vessel will experience for a voyage and are fully prepared to defend a claim in arbitration or in court for any excess loss. Voyage cargo losses are now expected to average closer to a range of 0.35% to 0.15%. The amounts available between best outturn performance and acceptable loss allowance are not large, being in the range of 2000 bbl on a 250,000 DWT tanker. The crew might realise $20,000 by selling this amount of cargo clandestinely, hardly a sum which (when divided three or four ways), should tempt a professional officer to risk his career.
It is not surprising that masters who have sold cargo en route have not been the kind of leader who inspired loyalty from their crew, especially if the proceeds of the diversion were not shared with the crew. In some cases, masters guilty of cargo diversion have been discovered through reports by the crew to owners or managers of the ship.
The consequences of cargo theft can range from loss of career to loss of life (Section 2.12.9). When crude oil is diverted for use as fuel, the low flash point can lead to catastrophic engine room fires or explosions.'Underwriters will withdraw cover from vessels which are discovered to have low-flash fuel in their tanks, leaving owners totally exposed for any incidents which result. Port authorities will evict such a ship from the berth or port until the fuel is removed and tanks are cleaned and gas freed. Authorities will initiate action to suspend or revoke the license of a chief engineer whose vessel is found with low-flash fuel on board. Criminal conviction for fraud or theft of cargo will prejudice the license of any officer. All things considered, it is better for the vessel to be content with recovering whatever fuel-suitable ROB comes to hand in the normal course of its trade and to seek economies in other areas such as preventive maintenance programs, engine efficiency analysers, weather routing and detailed work planning.
In cases where vessels are discovered with false, or even uncertified, ullage tables, authorities of some countries impose drastic penalties against the vessel. In one case the chief officer was arrested for fraud and a fine of USD 250,000 was imposed against the owner, because the vessel was discovered to have on board a set of tables for another ship.