What is a warehouse receipt? It is a title of goods stored by a warehouse. This title, or warehouse receipt, can be in a bearer form or it can be issued to in entity specific form.
From the UCC Act of 2003:
“Bailee” means a person that by a warehouse receipt, bill of lading, or other document of title acknowledges possession of goods and contracts to deliver them.
“Carrier” means a person that issues a bill of lading.
“Consignee” means a person named in a bill of lading to which or to whose order the bill promises delivery.
“Consignor” means a person named in a bill of lading as the person from which the goods have been received for shipment.
“Delivery order” means a record that contains an order to deliver goods directed to a warehouse, carrier, or other person that in the ordinary course of business issues warehouse receipts or bills of lading.
“Good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing.
“Goods” means all things that are treated as movable for the purposes of a contract for storage or transportation.
“Issuer” means a bailee that issues a document or title of, in the case of an unaccepted delivery order, the person that orders the possessor of goods to deliver. The term includes a person for which an agent or employee purports to act in issuing a document if the agent or employee has real or apparent authority to issue documents, even if the issuer did not receive any goods, the goods were described incorrectly, or in any other respect the agent or employee violated the issuer’s instructions.
“Person entitled under the document” means the holder, in the case of a negotiable document of title, or the person to which delivery of the goods is to be made by the terms of, or pursuant to instructions in a record under, a non-negotiable document of title.
“Shipper” means a person that enters into a contract of transportation with a carrier.
“Warehouse” means a person engaged in the business of storing goods for hire.
So who uses warehouse receipts? Mostly people in industry. Cotton brokers, grain silos, gold warehouses, oil brokers, sugar plantations, shipping companies, etc… A vast majority of the warehouse receipts are issued in bearer form. They are issued in bearer form so that they are fully negotiable making them eligible to be used as collateral for loans. Non-negotiable receipts are issued with a registered owner and must be properly endorsed before transfer. This endorsement may or may not be needed on the books of the given warehouse holding the goods or not. It is very specific to the terms of the warehouse receipt. That is to say, the term warehouse receipt may be a generic term – but each is very unique.
So how can a warehouse receipt be used in the OPSEC process? They are just about as awesome a tool as any tool that can be used.
Mr. Smith ships – under any name he wishes – via a carrier to a warehouse. Carriers typically do not check most shippers and if they do the checks they are usually very shoddy. The carrier deposits the goods in a warehouse and a warehouse receipt is delivered to the shipper. The shipper can then keep the warehouse receipt or use the warehouse receipt as collateral for a loan. The receipt also acts a bit like cash. The warehouse receipt can be mailed to creditors to settle a debit. This can help keep the nature and origin of the shipment obscure.
Many warehouse operations have been set up in Free Trade Zones (FTZ) around the world. The advantages are obvious. A FTZ is not considered within a custom territory. Admissions to the zone are covered under the FTZ operator’s customs bond. Foreign and domestic goods may be placed in a FTZ. Manufacturing can even been done in a FTZ. So now goods can enter a FTZ and be warehoused, transformed and leave with value added never having entered a customs zone and counted or reported. The warehouse receipt can be transferred to a new party. The new party can negotiate the receipt – claim the goods or/and have the goods shipped to a new FTZ. The goods can be reclaimed in a new zone. The goods can then be shipped to another FTZ or exchanged for other goods in the FTZ or the receipt can be sold.
The warehouse receipt is an important tool for commerce. Its creation and use have facilitated commerce for centuries and modern refinement to the receipts process have made them more fungible and liquid or in short – easier to use.
A creative OPSEC process is required as opposing competitive intelligence professionals are willing to spend more and more time and money to find our competitive advantages. The use of warehouse receipts is an excellent tool for acting anonymously or as a tool of misinformation. Goods can be moved from different locations, titles can pass to several intermediary companies without public declaration and little is known about giving goods before the company is ready to disclose or market these goods.
This ability to move goods, shift ownership or to add value or not, does come with some unintended consequences. Any mechanism deployed to make a transaction look confusing or lack economic sense can cause the problem of appearing like a trade base for money laundering.
Money laundering is leaving the cash world behind. It is using the greater tools of securities and commercial finance to move ever larger amounts of money between ever more disparate parties. From recent investigations, warehouse receipts have been fabricated, counterfeited, transferred, used as currency and moved across the world just as any other document of value. Warehouse receipts are the next front in trade based money laundering.
Using warehouse receipts and FTZ can, as a tool for being anonymous or a tool of mis-information to drive competitive intelligence specialists to distraction and criminal investigators to your doorstep.