Fighting Fraud in the Petroleum Products Market: Basic Principles and Methods of Checking Counterparties

The oil products market, where huge sums of money are involved and numerous intermediaries are active, unfortunately attracts not only serious participants, but also fraudsters who are ready to use it for their own benefit. These fraudsters pretending to be buyers, sellers, oil storage facilities or logisticians break the law and cause serious damage to the credibility of the market as a whole.

One of the main tasks of every market participant is to determine if they have contacted a fraudster. Large corporations have huge security departments with substantial budgets to maintain them. However, even for small and medium-sized businesses, there are basic methods available for checking counterparties that can be effective at the initial stage of a transaction.

In this article, we will cover basic principles and methods of counterparty screening that, although simple, can help to quickly weed out obvious fraudsters. Whilst these methods are not 100% effective and can sometimes be error prone, we will provide examples and techniques that have been proven to help weed out the majority of fraudsters in the initial stages of contacting contractors.

You meet people by their clothes

There is a saying that “you meet people by their clothes”. When you first get acquainted with a counterparty – buyer or seller – you pay attention to basic things – look at the company’s website, read articles about the counterparty in the public domain, call the corporate phone number, look at how the documents are drawn up on letterheads, pay attention to correspondence with corporate mail and similar intuitive actions. The goal of scammers is to make a beautiful picture, a beautiful wrapper of their fake business. They create beautiful websites and register companies in respectable jurisdictions.

Methods of initial counterparty due diligence in petroleum products trade

There are no clear rules. There are as many people as there are opinions. Each company and team has its own way of checking counterparties when dealing with petroleum products. The methods of verification depend on the company’s approach, its experience in this area, the professionalism of its security staff and the existing budget.

Here are some basic methods of checking a counterparty, which take literally 10-20 minutes of time, but can tell you a lot about your partner:

1. Company website – date of creation. In today’s internet world, the first thing one looks at is a company’s website. Scammers make colourful websites just as good as the industry leaders. Do a very simple action look at the date of creation of this site. If the site was created a month ago, then you can already conclude that this is not a company with a twenty-year history. Every website has a WHOIS network protocol. There are many resources for checking WHOIS, where you can type in the domain name of the site and see in a few seconds data about this site – when (date) and by whom it was created. For example, here you can see it:

2. The company’s website is a mirror copy. Often scammers make a mirror copy of the site of the real company. Fake other people’s sites buying almost identical domain name and the difference in literally one letter and make a mirror copy of the real site of the supplier. The method of verification is very simple – type in a search engine, such as Google, the name of the company and see what site will give you the search engine first. If the site that the search engine gives you the name of the company and the site that is listed in your documents differ by at least one letter, you are likely to have fallen on a fraudulent mirror copy.

Also look at the corporate mail with which you correspond, that the name (domain name) of the real site coincides with the name of the mail with which you correspond, not differing by one letter.

There are also special hacker programmes that allow attackers to write on behalf of other people’s mailboxes. Pay attention to the structure of your corporate mail correspondence. In most of these cases, attackers write ostensibly from the corporate mail of the refinery and put in a copy of some other mail that in case of your response to this letter to see this response, as customers in most cases in the response also leave other mail in the copy. If you have such suspicions – always reply to these letters, but do not put other suspicious mails in the copy and call back on the official phone to clarify whether such a letter was sent or whether your reply was received.

3. Company – verification of registration data from public sources. In most developed countries trade registers of companies are publicly available and anyone can find data on a registered company. If the registers are closed in the country of incorporation, there are private sites-catalogues of companies in the public domain. By simply typing the name of the company or its registration code into a search engine, you are likely to get links to various catalogues and extracts from the registers, with basic data about the company. Pay attention to the basic things in the company data:

  • Date of incorporation. It’s unlikely a company set up a week ago has $100 million worth of merchandise in port;
  • Director. If a UK company has a Moroccan director who is a director of twenty other companies, you have to wonder;
  • Principal activity. If the register says that the company’s principal activity is street cleaning, it is unlikely to be a real trader in petroleum products;
  • Office address. On Google maps for a long time there is an option to visually see the street or a satellite map. By specifying the office address, you can visually see what is so located. As you realise – if the office address is, for example, a McDonald’s, you are unlikely to find a serious counterparty;
  • Jurisdiction of incorporation and service bank. It should be realised that it is very difficult to open, for example, a company in Switzerland with a false director, and it is practically impossible to open a current account with a false director in a Swiss bank. But opening a company for a front director in Seychelles or Panama is easy. Pay attention to the country of incorporation of the company, and even more to the name of the bank in which the company is serviced.
  • Telephone numbers of the office. By phone number you can check – from what country this number is from and whether it is a landline or mobile phone number. For example, if you are dealing with a German company, its main phone number cannot be a mobile number registered to a Malaysian.

4. Financial condition of the company. In most developed countries, there is publicly available data on the financial condition of companies. Financial statements are mostly not published, but the main indicators can be seen. Even in Kazakhstan or Hong Kong you can find these data in public registers. Pay attention to them – if the company’s revenue for the past year 20 thousand dollars, it is unlikely that it has in stock diesel fuel for 100 million. Also separate registers, such as Kazakh for example, show the number of employees in the company. This is also an important indicator – if a company has 2 employees, it is unlikely that the company sells billions of dollars worth of goods.

5. Articles on the internet. Google the name of the company and actually read the first 10-20 articles about the company. If you get only the company’s website and links to company catalogues or company announcements, but not a single independent thematic article from the oil products market on this company, then you should think about whether this company is on the market.

6. Checking fraudsters’ industry websites. Due to the large number of fraudsters in the oil products industry, many market participants share their bitter experiences on specialised websites, where they describe their experience of working with fraudsters, specifying their coordinates, websites, etc. Check your counterparty to see if there are any publications about it by other companies that have already become victims.

  • For example, about fraudulent suppliers, a large catalogue:
  • About fraudulent oil storage facilities, e.g. the Port of Rotterdam has launched an official blacklist of oil storage facilities:

7. Transaction Procedures. Read carefully the transaction procedures that the counterparty offers you. As soon as in the transaction procedure you are offered to pay for something before you see the goods or documents for the goods, immediately pay attention to it. For example – if a supplier offers you to extend his tanks for the duration of the DIP test, and only after paying for the extension of the tanks will show you the documents for the goods, with a probability of 90% it is a fraud. Soon we will release a separate article about the varieties of transaction procedures and possible nuances to pay attention to in the procedures. Read our website.

8. Face-to-face meetings. In the vast majority of cases, petroleum product scammers do not meet their victims in person. They conduct telephone conversations, write e-mails, but they are afraid to meet in person. The best thing to do before making payments is to go to the counterparty’s office yourself to meet him or to send your employee under the pretext, for example, of the need to exchange original documents. If you have fallen for fraudsters, you will most likely be refused a meeting. But there are more fearless scammers who agree to a personal meeting – then pay attention to where this meeting takes place. For example, if you have a salesperson from a Dutch company and a Nigerian in a boulevard cafe, you should think twice.

9. Fiduciary accounts for accepting payments. When issuing an invoice, pay attention to the payment details and the recipient of the funds. In most cases, scammers negotiate on behalf of a well-known company, and when it comes to payment, then in the invoices indicate another company as the recipient of funds, explaining that they work through fiduciary accounts. As soon as you see a fiduciary account 90% of the time it’s a scam. If more sophisticated schemes where fraudsters register a company with an identical name as a real refinery, only in a different country. Look at the jurisdiction of the recipient of the money. For example, the Kazakh state-owned refinery Kazmunaigas cannot have a legal address in the Bahamas.

10. People’s personalities. Pay attention to who you negotiate with and who signs documents. In today’s world it is very easy to superficially check a person, using social networks such as Facebook, LinkedIn, Instagram and the like. In our practice we attempted a deal with a Dutch company, but when we opened the Facebook profile of the signatory, it turned out that he was a refugee from Morocco who was working as a baker in Spain and did not know that he was listed as a director in a Dutch company.

There are many schemes and techniques for checking counterparties. Surely expensive professionals in the field of corporate security know dozens of times more methods of verification. Above in the article we have given you those methods that do not require special training, methods that can be used in their work by an ordinary Internet user, but which will help at the initial stages to make a superficial check, allowing to identify the majority of fraudsters in the field of trade in oil, oil products and energy carriers.

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