News of increased policing of ships in and around the Red Sea brought back memories of a story I read in the Financial Times many years ago that the Swedish police were investigating the disappearance of a ship somewhere off the coast of Western Europe. The crew had reported being attacked by pirates off Sweden’s Baltic islands before they vanished, along with their Maltese-flagged general cargo ship, which was heading from Finland to Algeria.
This reminded me of another story I heard in Turkey years before. I had come to know a Turkish businessman whose family started a manufacturing facility in the 1960s on what later became prime land in Istanbul. After some years, Mr F, as we shall call him here, developed other business tastes. He operated the factory on an ad hoc basis, only running the machines if there was a sizable order. And he became a loan shark.
As a result, Mr F had a lot of cash and was always looking for ways to make more. Others knew this and someone approached him with what seemed to be an amazing offer to buy sugar from a certain South American country at prices well below the international marketplace.
I used to call on Mr F when I had some free time during my visits to Istanbul. I found him and the whole environment that surrounded him fascinating; a character out of Kafka or Dickens.
On one of my visits for tea in his office, Mr F was eager to explain to me the details of the sugar offer he received. The price was well below the international market, which meant that he could make a handsome profit selling it. He had to purchase a whole ship full of sugar, around ten or twelve thousand tons. He was asked to open a letter of credit and was told that he would only have to pay for the sugar when it arrived at the designated port in Turkey by a certain date, verified as per international shipping procedures. The South American company Mr F was dealing with told him that should the sugar not arrive, they would compensate him for the cost of the letter of credit, which for a ship of that size at the prices he was being offered amounted to something like twenty thousand US dollars. And they provided Mr F with an irrevocable bank guarantee to cover this cost.
Mr F consulted with his lawyers and bankers and realized that he had nothing to lose by opening the letter of credit. If the sugar arrived, he would pay for it and sell it at much higher prices. If the sugar did not arrive, the bank guarantee from the seller in South America would compensate him for the cost of the letter of credit. It was a win-win situation.
Several months later, I met Mr F again and he was eager to follow up on the sugar story. A few days before the ship was scheduled to arrive at the designated Turkish port, Mr F sent a few of his nephews to be there to meet and greet it. The date came and passed and no ship arrived carrying sugar for him. Mr F instructed his bank to make good on the guarantee and he did receive every penny he spent in fees for opening the letter of credit.
Now, being a man of this world, Mr F knew that he was had, he just did not know how. His nose told him that something stunk in Hamlet-land and he wanted to know what happened. Mr F sent a small entourage of his nephews and business associates to the South American country to find out. The story they came back with was nothing less than fiction-like.
Mr F’s nephews and business associates carried the news to him that the whole thing was an insurance scam. According to them, the selling company in South America bought an old ship that was scrap material, loaded it mostly with sand, got some corrupt official to validate that the shipment was all sugar of certain specifications, and insured the shipment value at official, international prices. Once the ship was beyond the horizon, a few speedboats appeared, the crew were taken back to shore and the ship was dynamited and sank. When the ship did not arrive at the designated port in Turkey, the seller claimed the insurance. The seller needed a willing buyer who could open a legitimate letter of credit to start the whole process.
Mr F was incensed. And pleased. He was taken for a ride but he did learn something new!