China Law Blog

China Business Blog just posted on how to avoid getting scammed by purported Chinese buyers, entitled, "How to Scupper a Scammer."  "Scupper" is Brit-speak for destroy.  Quick summary: 1) If it seems too good to be true, it is; and 2) conduct due diligence before spending money. 

China Business Blog describes the scam as going something like this: 

China Business Blog/China Business Services says it is usually called in at step 2 or step 3 to do some due diligence.  My law firm often gets called in after the trip has been made and the money has been paid and the company that has been scammed wants us to help in their getting their money back.  Unless the amount at stake is quite large, however, our advice is usually to chalk it all up to experience.

The post points out some of the typical red flags:

• Company is just a few months old
• Company is ready to spend several million dollars
• Company has no trade references
• Company is good on technical questions, but lacks market knowledge
• Company is in an odd location
• Company's business scope does not match the current deal
• Company has no website or has a suspicious one
• Company has no online listings promoting its sales
• When you Google the company, questions from other potential suppliers appear on BBs

In our experience handling international fraud cases there has always been something that should have given the scammed party real pause before sending money.  We have seen the following:

• "Islands" was misspelled on the letterhead of a company purportedly from the Virgin Islands
• Wrong Country code on the letterhead of a company purportedly from Vietnam
• Letterhead of a purported Chinese company was entirely in English
• Company was in a Chinese town that made absolutely no sense for its line of business
• Company's bank did not exist
• Two day old website for a purportedly large company that claimed to have been in business for 15 years
• numerous complaints on Google for exactly the same thing for which our client was scammed

I find it amazing how many times we have been able to deem an international deal to be a scam just by spending 15 minutes or less on Google.  There is no excuse for failing to conduct at least a Google search on the company to which you will be sending money.   

China Business Services recommends various tactics to guage the legitimacy of a Chinese company: 

• Delay the trip on a suitable pretext – Chairman is making a sudden visit? In bed with avian flu? (Expect a request for commission payment).
• Invite the buyer to visit the overseas factory and offer to deduct the costs of the trip from the contract price. 
• Pass on a “request” from the overseas bank, which wants to speak with the buyer’s on some boring procedural issues

The Going Global Blog did a post about a month ago, entitled, "You're Not Alone -- Or, There is More than One Person in China Who Knows Your Business," which noted the following about small and medium businesses (SMEs) seeking to do business in China:

The more distant and foreign a market is, of course, the more you need someone you can trust to help you navigate the unfamiliar waters.  It seems, however that the more distant and foreign a market is, the more small businesses latch on to the first contact they make who speaks passable English and expresses a genuine interest in their business.  It's a paradox -- and a dangerous one at that.

A lot of small business people are used to going it alone.  They're independent and resourceful and frequently they wing their way into international markets the same way they've winged their way into other business opportunities -- through grit and force of will.  Unfortunately in these strange and foreign lands, you still need the right partners and personal resourcefulness generally isn't enough.

The post concludes with the following sage advice: "Find the right partner and just as in a business deal here [in the United States], run, don't walk, from the bad ones."