Freight brokers and truckers are critical partners in today’s supply chains, but that doesn’t always make them a happy couple, especially when accusations of fraudulent re-brokering of freight by carriers and withholding of payment by brokers begin to fly.
So it’s no small thing when organizations representing owner-operators and third-party freight brokers join forces to back legislation aimed at defeating brokerage fraud.
The Owner-Operator Independent Drivers Association and the Transportation Intermediaries Association are supporting the Motor Carrier Protection Act of 2010, a bill introduced in the Senate this month. The industry groups helped develop the legislation after congressional leaders urged cooperation rather than confrontation.
The bill would impose harsh penalties for freight fraud, tighten regulation and raise the surety bond required of licensed brokers from $10,000 to $100,000.
The tenfold increase “is about being properly capitalized for modern business,” said Robert A. Voltmann, president and CEO of the TIA. “This isn’t about re-regulating brokers. It’s about fighting fraud, and creeps.”
Fraudulent brokerage is a widespread problem, and it’s getting worse, Voltmann said. Legitimate freight brokers and independent truckers have been victims. “TIA and OOIDA are an unusual pairing, but our members absolutely needed each other,” he said.
Here’s how a broker scam often works: A fraudulent company represents itself as a motor carrier to a shipper or to a freight broker, and then brokers a load to a trucker. It then pockets the payment owed to the carrier that actually delivered the freight. When that carrier comes looking for the $3,000 or $4,000 it’s owed, the scammer is long gone.
Take, for example, the case of Nicholas Lakes and Viacheslav Berkovich, who were arrested, tried and sentenced to 10 years in prison last year. Operating in Southern California, they used dozens of aliases and a web of false companies to cheat hundreds of trucking industry victims out of millions of dollars, and they did it for years.
“We’ve had complaints from members about brokers that are able to get away without paying for loads hauled, over and over, because of lack of oversight,” said Norita Taylor, an OOIDA spokeswoman. “After changing the name, and sometimes location, of their businesses, they get multiple authorities, sometimes in multiple states.”
The bipartisan bill introduced by Sens. Olympia Snowe, R-Maine, and Amy Kobuchar, D-Minn., aims to stop that, both by tightening regulation and funding stricter enforcement of broker rules by the Federal Motor Carrier Safety Administration.
The bill would require forwarders and brokers to obtain fully funded surety bonds and provide proof of compliance with the law each year to the Department of Transportation. They would be required to obtain five-year licenses or permits and pay an annual licensing fee to the DOT that would support enforcement.
At least $10,000 of the $100,000 surety would have to be in cash, with the remainder consisting of assets readily available to pay valid claims.
“If passed, this law would put a stop to a system that allows rogue brokers and scam artists to operate unchecked,” said Todd Spencer, executive vice president of OOIDA.
The law also tightens the rules for financial companies that provide surety bonds for brokers and forwarders. To help ensure those bonds are fully funded, only companies approved by the Treasury Department would be able to offer them.
The bill also would prevent motor carriers from brokering freight without obtaining a brokerage license and a $100,000 surety bond — a major complaint at the TIA.
“It drives our members crazy that they go through all this work to vet a carrier’s safety record and then the carrier flips the load to someone else,” Voltmann said. Carriers often claim “re-brokering” isn’t brokerage, he said. “They call it by another name, such as interlining or leasing. But nobody has really interlined since the Motor Carrier Act of 1980.”
Under the Motor Carrier Protection Act, carriers “wouldn’t be able to duck and dodge,” Voltmann said. Neither would bonding companies. “We’ve seen companies lose their licenses as financial institutions and continue to offer broker licenses.”
The Senate bill has its origins in talks between OOIDA and TIA that began at the urging of Rep. Peter A. DeFazio, D-Ore., chairman of the House highway subcommittee. “We’ve been working with Chairman DeFazio and his staff for the past year, in what has turned out to be a vain hope that there would be a surface transportation reauthorization,” Voltmann said. With the transportation bill in limbo, “The senators reached out to us to get the ball rolling.”
Voltmann expects similar legislation will be introduced in the House or included in the next multiyear highway bill — which means the anti-fraud legislation may have a long road to travel before it becomes law.
Contact William B. Cassidy at firstname.lastname@example.org.