HOW TO AVOID BECOMING A VICTIM OF A FRAUDULENT PICK-UP IN RUSSIA

In Russia nowadays, cargo theft is a multi-million-dollar problem that plagues supply chains and disrupts local and international businesses.

Incidents range from small scale pilferage and curtain slashing at numerous unsecured parking areas across the country to full-truckload theft and warehouse burglaries. Organised crime networks are continuously seeking ways to bypass security controls to steal, transport, and profit from the sale of legitimate goods on the grey market. There is practically no category of goods left in Russia that is not at risk of being stolen in whole or in part during road haulage. 

The modus operandi organised crime groups utilise are striking in their diversity, but most risks are posed by complicated multi-stage fraud schemes involving fake carriers, smart front drivers, forged registrations of vehicles, and “involved” logistics managers in specially-created accounts of shipping companies on web-based freight exchanges. 

Given the lack of basic risk awareness and efficient preventive security tools, protocols, absence of meaningful cargo crime data and its analysis, the logistics and manufacturing industries operating in Russia are now two steps behind the sophisticated fraudsters. Recent examples of identified thefts prove that fraudulent pick-ups allowed offenders to make a profit equal to USD 1 million in just a week. 

Statistics

Historically, cargo theft in Russia has been a heavily under-reported type of crime dominated by Fraud. The official cargo crime statistics in Russia are collected and reported monthly by the Ministry of Interior. 5-year analysis indicates a very important trend – a steady decrease in the total number of thefts reported and a constant share of fraud cases which highlight the dominance of fraud in the domestic cargo crime trends in Russia. However, the publicly available official statistics do not differentiate incidents by dates, locations, modus operandi, value and types of goods being stolen. Neither do they reveal the regions with the lowest and highest numbers of incidents or crime hotspots. So, this type of data provides very little value to business security and risk management functions or to state authorities to enable meaningful risk assessments or the development of efficient security countermeasure strategies.

According to unofficial statistics collected through Russian arbitrary court proceedings related to cargo losses and reports in various media outlets, the financial cost of fraudulent pick-ups reaches €20 million for the 700-800 such cases collected annually. But this constitutes only 15-20% of all cargo thefts in Russia. The average loss of a fraudulently stolen truck is €40,000. On a more positive note, it is also important to say that the level of crimes involving violence against drivers in Russia is decreasing year-to-year.

Fraud prevalence

Possibly the most frustrating way for any manufacturer or importer to lose a load is through a fictitious pick-up: when the shipper responsible for the care of the product willingly - but, unknowingly – hands over the cargo to criminals, even loading the trailer for them, and watches the truck leave the premises - only to find out hours or days later that the goods never reached their intended destination. Whether referred to as a deceptive pick-up, a fictitious pick-up, the use of fraudulent documentation or other various names, the general concept of this M.O. is the same. In Russia, this modus operandi has become the major way to steal any type of cargo, not just because of a lack of security awareness. This is possibly due to widespread multiple subcontracting and a very controversial process of shared responsibilities for cargo in transit in the multiple layers of logistics. In many cases, companies’ security staff do their jobs properly, but complexities of the industry and the sophistication of fraudsters can by far outperform the competencies of most security managers and supervisors. To hide their true malicious intentions, criminals act in a way so that even the drivers they use to carry out the crimes do not know that they are being employed in a fraudulent mechanism and are likely to become victims as a result of the subsequent police investigation. 

THE DISAPPEARING LOAD

A typical fraud scheme that is seen in Russia involves the following major steps:

1.     Criminals rent a cargo vehicle with or without a driver. Sometimes, gangs buy trucks and hire the drivers to operate them. In most of the cases drivers are manipulated blindly and do not know they are part of a criminal plot;

2.     Criminals create or buy an active account on one of the freight auction portals and place available transports for different routes and commodities. Further on, they wait for cargo orders placed by goods owners or their forwarders. Usually criminals offer a lower price service to get the order, which attracts logistics managers concerned with lowering their budgets. When they got enough quotes, criminals select those that require a long-haul delivery with a transit time of at least two days or longer;

3.     After an order is confirmed, the next step is to receive the authorisation for the driver from the forwarder that enables him to pick-up a load at the shipper site. At this stage criminals receive the shipment paperwork with all necessary details and information;

4.     Next, the criminals position the truck at the loading site to pick-up the goods. The driver collects the load and gets the paperwork that indicates the destination. However, after a short while, he receives a phone call from a person who pretends to be the owner of the goods, asking him to deliver the load to a new location, normally not far from the place the cargo originated from;

5.     At the same time, the criminals inform the forwarder of a minor delay in delivery due to the truck breaking down or because the driver has become ill. In this subsequent period of time, the goods are diverted to a planned third-party location or reloaded en route to another vehicle(s) and further split to smaller consignments;

6.     After the theft is ‘successfully’ completed, the driver and carrier’s phones usually stop answering. The forwarder eventually becomes suspicious that something has gone wrong, and, hence, starts enquiries about the cargo and turns to the police for investigation.

7.     Clearly, in such circumstances, there is very little chance of the goods being recovered or finding the criminals. 

According to information obtained from court decisions, it is obvious that such cases occur with a certain regularity, for example: 

from court decision: А40-23265/2015

“The driver, following directions of unknown persons who are not listed in any of the transport documents, proceeded to a third-party location (not indicated in the shipment paperwork) instructed by these individuals and transferred the cargo to unauthorised persons.”

from court decision: А83-3319/2016

“The cargo indicated above was unloaded by the drivers of these vehicles at location that does not coincide with the addresses indicated in the paperwork agreed by the parties, and then stolen by unidentified persons.”

Drivers voluntarily diverting cargo on the instructions of unknown persons - instead of complying with the transport orders and forwarding and transport industry regulation - has now become a threatening trend in Russia. It is the carriers’ failure to comply with the requirements of special legal norms that naturally cause losses to manufacturing, retail, insurance and freight forwarding companies. 

A useful source of intelligence

On average, more than 400 court decisions involving the theft of cargo through fraudulent pick-ups and falsified ID and paperwork appear on the website of the Arbitration Court of the Russian Federation annually. As experts specialising in supply chain security risks in Russia and CIS, our assessment is that this figure represents only the tip of the iceberg. Ministry of Internal Affairs’ data shows more than 1,700 similar episodes per year. 

Unfortunately, industry is not consolidated in Russia to be able to fight back against this alarming trend. Instead of combining information on the same site for similar episodes, as is customary in Europe, notably through TAPA’s Incident Information Service (IIS) resources, Russian businesses stand alone and each continues to reinvent the wheel which, due to the diverse and uncoordinated nature of their efforts, will never produce a proper positive effect to counter cargo fraud.

Fortunately, three years ago, for the first time in the Russian Federation, specialists from St. Petersburg started a project www.controlrisk.su that carries out complex analysis to combine information taken from court decisions and information published on various Internet sources into a single information system.

The data contains the truck license plates, VIN numbers, ID details (forged in many cases) and pictures of individuals involved in fraudulent pick-ups. This information is collected and stored in accordance with the local personal data protection laws, which are quite strict in Russia. This information is collated in a form of a database that provides users with searching functionality on various criteria.

The service is carried out jointly with partners in Moscow by IDX company, which is engaged in remote digital identification and online verification of documents. With the help of a joint solution, you can not only get acquainted with the information about carriers regarding their compliance with special legal provisions, but also verify the documents of the driver, vehicle, etc. There is no similar solution to this project so far in terms of transport logistics security, neither in Russia nor Europe.

Control Risk and its partners have created a tool that allows users to not only assess and take into account the regions presenting the highest risk but which also identifies types of stolen goods and locations of theft. It also enables them to get acquainted with information about a potential partner for the implementation of special legal norms. It is the cost of the cargo (and it can reach several tens of millions of rubles) that can determine the final financial result.

An English language version of the tool is currently being developed by Control Risk and its partner in Europe - RIFT Advisory International.

About the Author

Ilya Smolentsev is a security professional with more than 10 years’ experience in supply chain, loss prevention and business resilience in a global high-value manufacturing company. In his recent position in Japan Tobacco International (JTI), Ilya held a senior security and risk management role to protect the company’s global supply chain from any type of current and emerging security threats and disruptions. In his work Ilya has managed to establish innovative practices that enabled the company to deal with ever increasing threats and maintain a robust cost-efficient security program.

Currently, Ilya runs his own security consultancy business, RIFT Advisory International, focused on supply chain security, business resilience and anti-illicit trade in Russia and the greater CIS region. He is permanently based in Germany.