FMCSA says it has too little data to assess double-brokering fraud
Report to Congress also highlights agency’s struggle to penalize illegal brokers
John Gallagher Monday, July 22, 2024
WASHINGTON — Federal regulators have told Congress that the administration is struggling to get a handle on broker fraud due to a lack of data as well as jurisdictional issues.
In an “Unlawful Brokerage Activities” report sent to Congress last week, the Federal Motor Carrier Safety Administration confirmed that it continues to assess the relationship between motor carrier safety and unlawful brokerage incidents.
However, “While the agency has received multiple expressions of concern from stakeholders regarding fraud related to ‘double brokering,’ it lacks data to quantify or confirm a safety impact,” the FMCSA report states.
The report noted that the agency “does acknowledge an association between motor carriers with poorer safety performance and carriers that lack a verifiable ‘brick and mortar’ principal place of business (PPOB). And the agency has also received comments and other information asserting that use of a virtual PPOB is more common among entities that engage in unauthorized brokerage.
“As brokers do not typically engage in the actual transportation of goods, however, the direct safety impact of failing to register with FMCSA as a broker is unclear.”
FMCSA is considering additional research into “any safety nexus with unlawful brokerage” as required by an appropriations bill passed by Congress in 2022.
Much of the report refers to FMCSA’s oversight of broker violations that occur in the household goods-moving sector of the trucking industry. But because an administrative law judge with the U.S. Department of Transportation held in 2019 that FMCSA does not have statutory authority to assess civil penalties for violations by unauthorized brokers, the agency’s ability to combat broker fraud generally is “significantly limited,” FMCSA stated.
New Bill Lets FMCSA Fine “Shady” Double Brokers $10,000
Go By Truck News Wednesday, May 22, 2024
A bipartisan pair of lawmakers on Wednesday introduced a bill that would empower the Federal Motor Carrier Safety Administration to impose $10,000 civil penalties on registered entities that violate its commercial regulations.
The title of the bill, the Household Goods Shipping Consumer Protection Act, references the consumer-facing HHG trucking niche, but the legislation has big implications for all registered carriers and brokers and the load boards on which they connect.
Importantly, the bill seems to echo calls from anti-freight fraud crusaders: Enforce the rules on the books and actually penalize bad actors.
Currently, a 2019 Department of Transportation Administrative Law Judge ruling means FMCSA lacks authority to assess civil penalties for violations of commercial regulations and registration requirements, though they are indeed codified regulations.
If the bill is passed and ultimately signed into law, carriers brokering loads without broker authority would be subject to fines. The legislation could enable FMCSA to more readily block or revoke the authority of carriers or brokers/forwarders without a proper principal place of business address (sometimes a hallmark of scam operations). Registrants also would be required to disclose ties to other operations or face the same $10,000 penalty.
Widespread double brokering wreaks havoc on brokers and carriers in Q2
Different approach to payment process could help combat double brokering
Jenny Glasscock Thursday, October 19, 2023
In Q2 2023, 85% of respondents to a survey — consisting notably of freight brokers and carriers — were impacted by double brokering.
That financial impact to their spend was steep, with nearly 56% of businesses experiencing a loss up to $50,000 and 18% seeing a drain of $50,000 to $150,000. An additional unlucky 10% experienced costs that ranged from $150,000 to $500,000, and 1% saw a loss greater than $500,000.
These results were among the most telling findings in FreightWaves and TriumphPay’s survey of freight brokers, 3PLs and asset-based carriers on the impact of double brokering. The findings, and potential solutions, were reported in depth in the white paper “Freight’s Breaking Point: The Double Brokering Dilemma.”
Double brokering often works like this: A broker posts a load to a load board and assigns it to a carrier who then re-brokers it to another carrier without informing the other parties involved. The first carrier makes money by double brokering the load for a lower rate. Often, the second carrier is never paid for the load, resulting in a financial loss for the original carrier.
Double brokering: what’s the impact of this rising trend in cargo fraud?
Jim Heide & Ted Calligeros Monday, Aug 28 2023
Double brokering has always been an issue in the freight industry but it’s taken an alarming upward turn in the last year. The statistics speak for themselves — Truckstop reported a huge 400% increase in double-brokering complaints between Q4 2022 and Q1 2023, while The Loadstar states that it’s costing the US market more than $500m a year.
With that in mind, it’s vital we assess exactly what’s causing the surge in double brokering, and what the implications are for the wider industry, including everyone from shippers to insurers.
How does double brokering happen?
Essentially, double brokering is when an entity bids on a load posted by a broker, and then brokers it out to a third party carrier. In the past, there have been instances where this has happened by necessity — for instance, the last-minute replacement of a carrier that doesn’t have the right credentials or equipment for a certain shipment.
With criminal double brokering, a freight broker awards the job to a fraudulent motor carrier, who could be posing as a 3PL. This motor carrier then re-brokers the load to a second carrier, who they’ll either underpay or fail to pay at all, so they can pocket the difference. It happens without the knowledge of the shipper, the original freight broker, and sometimes even the secondary carrier, who could end up shipping the load for free.
Neither the shipper or the original freight broker has any idea of the conditions the load is being transported in, who’s driving it, or whether it’ll arrive at its destination, which causes all kinds of complications for the supply chain.
Tijuana Man Pleads Guilty to “Double-Broker” Scheme Targeting San Diego Truckers
Assistant U. S. Attorney Joseph Green
Thursday, October 6, 2022
SAN DIEGO – Tijuana resident Alexis Castillo Padilla pleaded guilty in federal court today to criminal charges stemming from his scheme to defraud interstate carriers and brokers operating in the trucking industry.
According to his plea agreement, Padilla conducted what is known as a “double-broker” scheme. As a part of the scheme, Padilla stole the identity of a Spring Valley interstate carrier and agreed to make deliveries using the company’s stolen identity. Then, rather than delivering the loads, Padilla posed as a shipper and re-brokered the same loads to other carriers who delivered the freight. Padilla then collected the payments for the completed deliveries but did not pay the carriers who actually delivered the loads and were unaware that Padilla was running a double-broker scheme. Padilla orchestrated most of the scheme from Tijuana, Mexico.
Padilla pleaded guilty to these charges following his extradition to the United States from Italy. Padilla was arrested in Italy and extradited to the United States on May 27, 2022. As a part of his plea agreement, Padilla has agreed to pay restitution to his victims, estimated to be at least $239,904.
“Padilla used deceit and deception to defraud freight brokers and interstate carriers trying to make an honest living moving goods throughout the United States,” said U.S. Attorney Randy Grossman. “He will now be held to account for his crimes even though they were committed from outside the United States.” Grossman commended the prosecution team as well as the Department of Transportation, Office of Inspector General agents for investigating and prosecuting this case.”