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Ancient China Business Scam With A New Hollywood Twist

Posted in China Film Industry, Legal News

Chinese company emails US company about buying a few million dollars of the US company’s product.  The terms of the deal are quickly worked out and the Chinese company suggests the American company go to China to sign the contract and celebrate the consummation of the deal.  The American gets to China (usually some fairly out of the way city in China) and is treated to what appears to the American to be a really expensive meal at which the contract is signed. At which point, the American company is told that Chinese custom requires that it buy the Chinese CEO an expensive gift and pay the notarization fee. The American is then either taken to purchase a nice piece of jade and requested to pay a couple of thousand dollars for the notarization fee. Sometimes the American just gives the Chinese company people cash to go off and buy the gift on the American company’s behalf.

It isn’t until weeks later that the American learns that there is no deal and, in fact, there is no Chinese company either. The big lure of this scam is that nobody wants to fly all the way to China, have a great meal at someone else’s expense, and then be too cheap to spend less than $10,000 more to seal the deal.

This China business scam was really popular four or five years ago, but it seemed to have really declined since then, presumably because word had spread among American manufacturers.

It appears China has found a new set of victims.

CMM-Intelligence (a must-read for anyone in a media related business) just did a story entitled, “WARNING: Alleged Fraud Scheme by Chinese Company Targets International Media Companies,” on how this scam (with a slightly new twist) is being played on foreign media companies:

CMM-I last week became aware of an alleged fraud scheme that currently appears to be prominent in Mainland China. A Chinese company that claims to be a Zhengzhou-based investment firm contacts Western media companies involved in video production via email to signal interest in co-producing a TV documentary series about the foreign party’s home country. Once the deal terms are negotiated the foreign company is invited to come to Zhengzhou, Henan Province, to sign the contract. At the signing ceremony the Chinese reveal to the foreign representatives that the latter are expected to pay a certain “notarization” fee. Moreover, the foreigners are “encouraged” to purchase presents worth several thousand Euros in order to “save face” vis-a-vis the Chinese company’s CEO.

CMM-I is aware of two German companies that have fallen victim to this alleged scam thus far. In addition, several Austrian companies seem to have been targeted. We post this message here to warn our subscribers and business partners — as well as their associates and partners — of this alleged fraud, and we will continue to contribute to putting a stop to such shady games to the best of our ability.

I find it very interesting that the companies that have fallen prey to the scam are German and Austrian and to a certain extent, that does not surprise me. American companies, far more than German companies (fairly or not, I am just going to assume Austrian companies are more like German companies than like US companies) tend to work closely with their lawyers. It would be the rare American company that enters into a big international deal without working with their international legal counsel.  That being the case, I would think that the American company would have been warned by their lawyer before going to China of the possibility of such a scam (we have done that a few times with our clients) or have called their lawyer to ask about the legitimacy of the Chinese company’s payment request. Just a thought….

What are you seeing/hearing out there?

Update:  A reader sent me a link to an article, Beware: B2B Scam from China, listing out more people/companies (mostly European) hit by this scam.  This article names a company allegedly propagating the scam.  I would stress that most of the time when we have researched/investigated China scams such as this one, the named company is not actually involved at all.  The scammer has simply traded off the name of a legitimate company as part of the scam.

  • Sargon

    One Chinese company that I know of recently offered a young American bloke a ”second wife” in China.  The idea, I suppose, was to have the American bloke get her pregnant in China as a way to control the American guy and pressure him to sign dubious documents. Fortunately, the American bloke, unbenownst to the Chinese partner, had a vascectomy several years ago.

    • bystander

      and unbeknownst to the American bloke, there are video cameras all over his second wife’s apartment.

  • Records2002-ttt

    well, i believe i fell to another more horrible scam
    i negotiated with a very famous video company in China to supply them with video for close to 500.000 USD, after 4 months negotiations they asked me to send them the signed contract and then for no reason that i can see, they did not sign it, and the deal fizzled out i consulted with an American lawyer situated in HK and he told me that most probably they took my signed signature and either sent the money for the videos to themselves, claiming that i never supplied the goods or they used that signed contract for another bad reason.
    lesson to learn: never send a signed contract first.
    I m now going to demand an official letter of cancel to get to the buttom of it.

  • Hong Kong Law Dude

    You state: “Interesting that German & Austrain companies fall for this rather than American”. But the scam was in German language. It was specifically targetted that is why it was more effective.

  • Mike

    I was contacted by at least four separate UK companies who were asking advice on similar unsolicited email offers of contracts in the first few months of this year.

    All took on a familiar process ending in requests for notarization fees – with the Chinese company stating they were splitting the notarization fee 50/50 as a sign of good faith. Requests for gifts usually only happen if the foreign company makes a visit.

    The scammers could be playing a numbers game but in my experience usually target SME’s in the full knowledge that dangling a $150,000 or $250,000 carrot in front of a relatively small company whom may be operating in difficult domestic market conditions  presents too good an opportunity for the company to dismiss it immediately … just in case they have let a big fish get away.

    How often do we say it? The key word here is unsolicited. If any SME receives unsolicited enquiries that lead very very quickly to purchase requests of significant numbers … then if it looks like it’s too good to be true …

    In the examples with the UK companies, one suggestion was they contact the Chinese party and tell them that as they were unaccustomed to doing business in China they would be contacting the UK Consulate in Shanghai and requesting one of the Consulate’s commercial team to act as an advisor to the deal – he may even be present if/when the two companies meet in China. Nine times out of ten there would be no response. I am too polite to report on some of the language used in the other 10%. 

  • Mark Jefferis

    Hi,

    We’re a small video company in the UK, and we were almost hit by exactly this spam until we came across the handful of articles on the net that called it out. I know this is a pretty old news story, but I thought we should point out this scam is still alive and well!

    It fits exactly the format as described. The company wanted to co-produce a set of 20 tourist/language learning videos for £15,000/piece, which was sent to us in a very specific e-mail with requirements, etc, that we would be lucky to ever get out of one of our real clients.

    Apart from the Engrish and weird formatting, there wasn’t anything to immediately tip it off as a scam. We have legitimate Asian contacts who struggle with the same! They weren’t asking for money up front, and they said they would instead be happy to pay us up front for a large percentage of the work prior to shooting commencing. When we asked about the specifics of the brief they had sent, they effectively said we had free reign to produce on topics of our choosing.

    We’re a tiny micro business so £300,000 was the deal of the year. We spent a few man hours putting together proposals and sent it off. They replied promptly saying they would put it through the board of directors, and within a couple of days they sent this back:

    “Because it is our fiirst cooperation,we would like to invite you to come to
    Xi’an China ,so we can discuss the details face to face and sign the contract
    formally. After we signing the contract,we can declare foreign exchange
    formalities. According to the contract,we will pay 40% deposit ,TT,the balance will be paied per month.”

    Things started to get suspicious. There had been no discussion of a contract, nor the terms of payment – merely the budget and the work proposal. We brushed it off and pushed on because… well, £300,000.

    We got in touch with one of our contacts in China, who acted as a ‘representative’ of our company to communicate with the scammers’ office, to try to work out if it was legit. He called the numbers provided and checked out whether or not the company existed, and – to our surprise – it seems that, on face value, everything seemed to be in order. They reiterated their intent with our contact who then forwarded it onto us.

    We mailed a job confirmation sheet, and they returned it, signed and stamped, so the next step was going to be to go over and sign the contract. We asked them if they could pay 1% up front to cover travel expenses. Of course, they refused ironically citing that they needed to make sure of our businesses legitimacy by meeting us in person first! They then mentioned the involvement of notarization fees, again sticking to the exact same numbers and formula we’re reading on all these articles in regards to the scam.

    So – thanks once again to the Internet – despite us being a few man-hours down in terms of documentation and communication, we saved ourselves a costly business trip to potentially lose money, a kidney, or both.

    I’ve attached below the details of the scammer who contacted us. As mentioned in the article above, it’s possible that the company mentioned is legit, and the scammers are merely ‘piggy-backing’ off their legitimate status, however our contact did find and call the company directly and seemed to get through to the same people.

    The companies website has since mysteriously vanished… perhaps they pull it and change names whenever they get a ‘hit’!

    [Company Information Removed]

  • Rob Di

    Another scam company is ___________from Shenzhen China. We
    were also victims in the same way. We received an email from Elsa Xu
    and also travel to China to sign the contract. After we signed the contract of 330.000 Euro we were invited to pay the restaurant dinner and buy some present for CEO. We’ve stop at the right
    moment. Do not go to China to sign contracts if you are the seller!