Archives: scam

Not sure if the number of China bank fraud cases is increasing due to China’s declining economy or if the China lawyers at my firm are simply getting more emails on them simply because we so often blog about them, but the number of these emails definitely started accelerating rapidly a few months ago.

Just finished responding to yet another China bank scam email (I am so used to dealing with these China bank scam emails these that the whole series of communications took us less than five minutes), as per the following (modified slightly to camouflage the victim):

First email from the U.S. based victim, a not insubstantial manufacturing company:

I found you via your law blog. I am a current victim of Chinese payment fraud.

I have contacted my foreign exchange company to recall the wires–but I’m not very optimistic. What additional steps should I be taking?

I sent the payment only a few days ago. Any tips you can provide is much appreciated and I’m not asking for anything for free.

I immediately responded as follows:

What you are doing is most important of all. How much are we talking about? Was this a company with which you had a previous relationship?

 The U.S. company immediately responded to me with the following:

The company I intended to send the wire to is a company I have been buying from for almost two years. It was a balance payment on an invoice.

I believe that someone hacked their email.

It was around $55,000.

I then responded with the following:
1. Talk to the Chinese company and pressure them to share in the loss by insisting that it is their fault that this happened as they should not have allowed their computers to get hacked.

2. Report this to your insurance company. I know a lawyer who has handled a number of these cases against insurance companies and if your insurance company balks, you should consider hiring him. We wrote about this option in Cheated By China. Check Your Insurance.

3. Spend a lot of money trying to track down who got the money and then using a lawyer and maybe the police in China to try to get it back.

We can take over the above for you but we will charge American attorney rates for this and I would suggest you start out doing it by yourself. But move QUICKLY.

Good luck.

For more on this particular scam, check out the following:

One month ago, in China Fraud Season Starts Early This Year, we wrote about seeing a massive increase in frauds emanating from China.  I write again regarding one of those frauds because just since last month, we have dealt with two instances of that fraud and one of those involved a very sophisticated client of ours.

More than anything, I want to emphasize how easy it is to fall prey to this one.

The fraud which we are discussing is what I call “the new bank account scam” and we described it as follows in our previous post:

“The new bank account to pay us scam.”  This is the scam on which we focused last year and it is still around and scary as ever.  I really really hate this scam because I have seen far too many smart companies fall for it and I view it as maybe the most difficult to detect.

This scam is usually employed against a foreign company that has been making purchases from a Chinese company for an extended period. The foreign company has been making its payments pursuant to purchase orders that specify the company bank account to which payment should be made. Suddenly, the “Chinese company” (note the quote marks here) sends an email to the foreign company requesting funds for outstanding POs be made to a new bank account. Often, the name on the bank account is not the same as the name of the Chinese company. Often, the bank account is in a different city or even in a different country. Often it is for Hong Kong.

What is the scheme here?  Well, it is always possible that the Chinese company has changed its bank account, but you had better be quite certain of this before you switch your payment.  In the old days, the scheme was either that the Chinese company had hit hard times and was seeking a double payment or an employee at the Chinese company was seeking to get your payment instead of the company.  The Chinese company would get the money in Hong Kong and then claim that you had never paid and that you still owed them money because it was completely your fault for having made the payment to someone other than to them.

Then last year this scam became even more sophisticated when computer hackers started hacking into Chinese companies’ computers and sending out invoices that purported to be on behalf of the Chinese company.

How can you avoid getting caught up in this type of fraud?  Take note of the following:

  • The computer networks of many Chinese companies are not secure. The networks are subject to abuse by employees of the Chinese company and by outsiders. This means that you can NEVER trust an email communication from a Chinese company. Email is inherently insecure in China and you never know with whom you are really dealing when engaging in electronic communication with Chinese companies.
  • Chinese companies tend to be very loyal to their banks and so you should view with extreme suspicion any request to make a change in the payment bank. You should not even consider following such a request unless the request is made in writing on a revised purchase order stamped with the company seal. Even in that case, it is important to contact someone you know in the company with supervisory authority to ensure that the request is valid. Email requests to make a change should be ignored, but the request should be forwarded to your trusted Chinese company contact for an explanation.
  • Carefully review all bank account information. Monitor both the name of the payee and the location of the bank. Where the payee is even slightly incorrect, do not pay. Where the location of the bank is in the wrong city or country, do not pay. I have seen cases where foreign buyers paid to bank accounts outside of China to payees with no connection to the seller. These cases were all obvious frauds and the buyers lost their entire payment. I have seen millions of dollars vanish into thin air with this sort of scam.  The Chinese parties committing the fraud will explain the need for this irregular payment as part of a plan to hold foreign currency outside of China. This kind of arrangement is no longer required in China. Explanations of this kind are indicia of fraud and should be ignored.

If you think you are immune to this scam, you are just flat out wrong.  This scam is hitting serious, savvy, large, internationally experienced companies and it is doing so because it is just so hard to stop.  Our client who got hit with it was dealing with a large multi-national company based overseas (not in China).  This company’s email got hacked and my client received an email with the PROPER invoice and a message saying that the company was consolidating its payment processing and going forward all payments should be made through its Guangdong office and to the following Guangdong bank account.  Someone at my client’s company did exactly as told and now there is a problem between my client and this multi-national.

Yesterday, Casey Xiao-Morris, a very experienced and very savvy China consultant I know left the following comment:

Recently I received an email from Yvonne, my long-time distributor partner in Shanghai. I got suspicious of the email because the signature looked different ( Her email signature is always in English, this particular email had modified signature). I also recognized the writing style was strange too.

I called her right way. It turned out her company email system got hacked. She did not write that email content. Since then, Yvonne company moved to a more secure email system. I hope it is the end of it. Boy, it was close.

She escaped because she was so smart and so careful.  Yesterday, one of our China lawyers got an email from someone who lost around $20,000 via such a scam. If you are doing business with China, be afraid.  Be very afraid.

Or are you immune to this scam, and if so, how have you managed that? What are you seeing out there on this one?

Last December, in a post entitled, Payment Fraud In China. This Season’s Edition, we wrote of how it has “become somewhat of a December tradition to write about China payment scams in December because history shows this is the biggest month for those.  Last December, it was Ancient China Business Scam. Back With A Vengeance This Season.”

This year it seems that China fraud season has started earlier than usual for those doing business with China and, near as I can tell from my completely unscientific non-survey, it seems that the diversity and ingenuity and number of scams is way up as well.  In other words, don’t say we didn’t warn you.

We are seeing the following old scams in quantity this year:

1.  “The come to China to celebrate our deal scam”  In this scam an alleged Chinese company emails a foreign company to express a desire to buy a few million dollars of the foreign company’s product or service.  The terms of the deal are quickly worked out and the Chinese company suggests the foreign company come to China to sign the contract and to celebrate the two parties having cooperated so well in inking their deal.   The foreigner(s) gets to China (usually some fairly out of the way city in China) and is treated to what appears to the foreigner to be a really expensive meal at which the contract is signed. At which point, the foreign company is told that Chinese custom requires that the foreigner buy the Chinese CEO an expensive gift and pay the notarization fee. The foreigner is then either taken to purchase a nice piece of jade and requested to pay a couple of thousand dollars for the notarization fee. Oftentimes the foreigner just gives the Chinese company people cash to go off and buy the CEO gift on the foreign company’s behalf.

It isn’t until weeks later that the foreigner 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 USD$3,000 to $8,000 more to seal the deal.

I keep getting emails from people asking me if “their” deal looks real to me.  My answer is always the same: I have no idea but before getting on a plane, I would do some due diligence on the company AND if the company shows up as real, I would contact them to make sure that they are really the ones with whom you are dealing.  Sometimes just one email to the company that is purportedly behind the deal is enough to determine that a scam is being perpetrated.
It should go without saying, but real Chinese companies are a heckuva lot less likely to perpetrate this sort of scam than someone posing as a real Chinese company.

2.  “The new bank account to pay us scam.”  This is the scam on which we focused last year and it is still around and scary as ever.  I really really hate this scam because I have seen far too many smart companies fall for it and I view it as maybe the most difficult to detect.

This scam is usually employed against a foreign company that has been making purchases from a Chinese company for an extended period. The foreign company has been making its payments pursuant to purchase orders that specify the company bank account to which payment should be made. Suddenly, the “Chinese company” (note the quote marks here) sends an email to the foreign company requesting funds for outstanding POs be made to a new bank account. Often, the name on the bank account is not the same as the name of the Chinese company. Often, the bank account is in a different city or even in a different country. Often it is for Hong Kong.

What is the scheme here?  Well, it is always possible that the Chinese company has changed its bank account, but you had better be quite certain of this before you switch your payment.  In the old days, the scheme was either that the Chinese company had hit hard times and was seeking a double payment or an employee at the Chinese company was seeking to get your payment instead of the company.  The Chinese company would get the money in Hong Kong and then claim that you had never paid and that you still owed them money because it was completely your fault for having made the payment to someone other than to them.

Then last year this scam became even more sophisticated when computer hackers started hacking into Chinese companies’ computers and sending out invoices that purported to be on behalf of the Chinese company.

How can you avoid getting caught up in this type of fraud?  Take note of the following:

  • The computer networks of many Chinese companies are not secure. The networks are subject to abuse by employees of the Chinese company and by outsiders. This means that you can NEVER trust an email communication from a Chinese company. Email is inherently insecure in China and you never know with whom you are really dealing when engaging in electronic communication with Chinese companies.
  • Chinese companies tend to be very loyal to their banks and so you should view with extreme suspicion any request to make a change in the payment bank. You should not even consider following such a request unless the request is made in writing on a revised purchase order stamped with the company seal. Even in that case, it is important to contact someone you know in the company with supervisory authority to ensure that the request is valid. Email requests to make a change should be ignored, but the request should be forwarded to your trusted Chinese company contact for an explanation.
  • Carefully review all bank account information. Monitor both the name of the payee and the location of the bank. Where the payee is even slightly incorrect, do not pay. Where the location of the bank is in the wrong city or country, do not pay. I have seen cases where foreign buyers paid to bank accounts outside of China to payees with no connection to the seller. These cases were all obvious frauds and the buyers lost their entire payment. I have seen millions of dollars vanish into thin air with this sort of scam.  The Chinese parties committing the fraud will explain the need for this irregular payment as part of a plan to hold foreign currency outside of China. This kind of arrangement is no longer required in China. Explanations of this kind are indicia of fraud and should be ignored.
My law firm recently drafted a settlement agreement between an American company that had been tricked by someone (presumably outside the Chinese company) into sending a six figure payment to a “new” Hong Kong bank account. The Chinese company continued to seek payment from the American company for product the Chinese company had produced and delivered to the American company.  Initially, the Chinese company sought full payment, but it agreed to compromise both because we noted that it had been  negligent in allowing its computers to get hacked and because it wanted to maintain its relationship with the American company.

3.  “The fake company scam.’  This is a tried and true favorite and it comes back in new forms every year.  My personal favorite is the fake law firm or fake trademark/copyright/patent agent scam.  Under that scam, a website appears proclaiming really cheap trademark, copyright and patent registrations in China.  Foreign company sends some money and nothing ever gets filed.  There are two variations on this one, one much more sophisticated and harmful than the other.

The first and more simple version is for the fake China law firm or China IP agent to get a one-time payment and then do absolutely nothing further.  Under this scenario, the foreign company quickly realizes it has been scammed and, more importantly, knows that it still needs to register its IP in China.

Under the more sophisticated version, however, the fake Chinese law firm or IP agent keeps updating the foreign company and keeps requesting more money along the way.  Many (probably even most) legitimate law firms and IP agents charge for registrations in stages so even savvy foreign companies see nothing wrong in this.  The smartest of these sophisticated scammers even eventually send the foreign company a fake trademark registration certificate or copyright registration certificate (I am personally not aware of this having gone so far with a patent registration, but I would not doubt that it has).  The foreign company then thinks it is covered for its China IP registrations and does not learn for many years later that it is not. By that point, of course, there are no further traces that might lead to the scammers.

This years most popular edition of the fake company scam seems to be that of fake freight forwarders.  I did some research on this scam  after getting my second email on it in a month and came across this article, Forwarders put on alert over new Chinese freight scam.   One version of this scam is not all that different from the fake IP registration scam in that both involve gaining trust, getting money, and then disappearing:

Fraudulent forwarders pose as legitimate companies with spare capacity. They arrive on-time to collect loads and then disappear.

Another frequently seen scam involves organized gangs creating their own websites and advertising themselves as freight forwarders. These sites are characterized by very basic information, freemail accounts, and mobile phone or Skype contacts only, Mr Yarwood warned.

A third type of fraud commonly seen is where criminal organizations buy failing operators and continue to trade under their name in a state of virtual insolvency. They are able to identify and accept cargo which is subsequently stolen in transit.

Many years ago, a company came to us after its multi-million dollar cargo had disappeared.  All we had to do was look at the shipper’s business license to know that it was a complete fake.

What is the best way to prevent falling victim to this scam?  Pretty much the same as with most other scams.  Make sure that you know with whom you are doing business.  In other words, do your due diligence.  For more on what that means, check out the following:

One of our China lawyers is about ¼ the way through what is appearing to be a very thorough and systematic book on China Due Diligence, called, Due Diligence in China.  We will be posting a review of that book soon.

What are you-all seeing out there?

About a year ago, in Ancient China Business Scam With A New Hollywood Twist, we wrote of how we were hearing about film and media companies getting hit with an old-fashioned scam from China.  Things then went quiet for a while, but in the last month, we have received two emails from two US film companies seeking “our thoughts” regarding contemplated “deals” and then, this morning someone left a comment on another such “deal.”  In other words, this scam seems to be back in full force right now.

What is so interesting about this scam is its constancy and its simplicity.  The comment we received today on our initial post reinforces both notions:

We’re a small video company in the UK, and we were almost hit by exactly this scam 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 English 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 rein 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.

The above fits exactly what we described in our previous post:

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.

Bottom Line:  Once again, the advice is simple.  If it smells bad, it almost certainly is bad.  Do your due diligence like it matters, cause it does.

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.

Just got my third email this week from someone who bought tens of thousands of dollars worth of “iPhones” from someone in China only to receive rank fakes. All three emailers were so blinded by the idea of buying iPhones at ridiculously low prices that they did nothing to make sure the sellers were legitimate, which of course they were not. There is just no way to get REAL Apple products from China for any less than you can get those products from the United States. There just isn’t. If someone is offering to sell you an Apple product, be it an iPhone, iPad, MacBook Air, or anything else, for way less than you can get it elsewhere, it virtually has to be a fake or else you will never get anything at all. Get it through your head now: you ain’t gonna get Apple products for less than anyone else does. It isn’t going to happen. It just ain’t.

It is easy to buy Apple products at retail in China. You can buy them from the ever increasing number of Apple stores (if you are willing to bust through the crowds) and there are also many authorized retailers throughout China. So yes, one can absolutely buy Apple products in China. What do the retailers charge for their Apple products? Pretty much what you would pay for those products in the United States. My law firm just bought a couple of MacBook Pros for our people in China and the prices on them were so close to what we would have had to pay in the United States that I did not even bother trying to figure out if it would ever be cheaper to buy in one country for the other. We buy Apple products in China for our people in China and we buy Apple products in the United States for our people in the United States. There’s no point in doing it any other way.

The fake apple product problem stems from the strange belief by many in the United States that everything is cheaper in China. Or as the people who have gotten scammed on these things are always telling me, “I thought I was getting the China price.” They read about factory workers in China getting paid one tenth what factory workers in the United States get and then figure that the iPads in China must cost about one tenth of what they do in the United States.

That’s some really bad economics. More importantly, it is just flat out wrong.

Yes, most Apple products are made in China. But so what? Apple’s margin on those products is not 1000%, which is pretty much what it would need to be if they were to sell them for one tenth in China as in the United States. Also, what about arbitrage? Do you really think the market for iPads is so inefficient that there could be such an incredible price disparity for more than a few days? Trust me when I tell you that Apple would never allow such price disparities and that it does an amazing job overseeing its supplies and its pricing around the world. Is it possible that some iPad factory somewhere in China is making iPads during a secret third shift and then selling them at a discount out the side door? Of course it is possible, but I very much doubt that is happening and even if it were, that factory would not be selling its grey market iPads for much if anything below the real market price. Why would it not sell them for as much as it can get? Why would it reduce the price to shockingly low levels when doing so would only alert Apple to what it is up to?

This whole pricing thing reminds me of a counterfeiting case my firm handled a few years ago. We were retained by a large U.S. online tech selling company that was under a federal investigation for selling counterfeit products. Our client had purchased large amounts of a particular product from a Chinese supplier and my firm was handling the China-side issues. Our client had paid $190 per product from the Chinese supplier and that was pretty much the same price it would have had to pay had the product not been a fake. Working with a criminal lawyer, we were able to convince the Justice Department that either our client had to be incredibly stupid (which it clearly was not) or else it was telling the truth when it said it had no idea that it was buying counterfeits. Why would anyone in their right mind pay the full price for something they know to be counterfeit? The Feds dropped all charges.

If you think you have found someone in China (online or otherwise) who is claiming to sell Apple (or other name brand products) at a price way lower than you can get those products in the United States, do not fall for it. There has to be a catch. If it sounds too good to be true, it almost certainly is.

These product scammers are getting more sophisticated too. Their new trick is to assure you that they are for real by letting you pay only 30% or 40% upfront, making you think that they would never put their final payment at risk by sending you anything less than the real thing. But this payment delay offer should mean nothing to you.  30% of anything is a lot of money to someone with no intention of providing you with a thing and it isn’t all that bad for someone who plans to provide you with a near worthless fake either.

Oh, and if you do ever fall for one of these scams, please do not bother to contact my law firm because all we will tell you is the following:  (I am pulling this straight from the form email we use for these):

We get dozens of emails just like yours every year and though I wish I could tell you otherwise, there is probably nothing we can do for you. The odds are good that whoever sold you this fake product [failed to deliver your product] is long gone and even if we were able to find him, the odds are good that he has no real assets, or at least no assets subject to easy collection. You can pay us a lot of money trying to chase whoever took your money, but my advice to you is that you instead spend that money to conduct the requisite due diligence and quality inspections the next time you buy anything from China. If you still wish to try to get your money back, we would be happy to assist you on an hourly basis, with a hefty upfront retainer.

And then there are the cases where the scammed buyer has to deal with customs accusing them (rightly, of course) of dealing in counterfeits. What is their defense? I don’t know but I doubt it is that they thought they would be getting a real iPad for their $50?

Bottom Line: Don’t do it. Just don’t do it.

It happened again last week. Multiple calls from the same person, wanting to speak with me urgently, yet refusing to provide any information to our receptionist on the nature of his issue.

I eventually called this person back and here’s pretty much what we discussed (which was essentially what I have heard from two other callers in the last 6-8 months or so):

Caller:  I’ve never done this before and I feel terrible.

Me:  Done what? Talk to a lawyer?

Caller:  Gotten that kind of massage.

Me:  Okay. But why are you calling me? Can we start at the beginning? 

Caller:  They took my passport and said that I would never be able to enter the country again unless I paid them USD$4000.  I didn’t have that money so I went to an ATM over the next few days and kept paying them and I had the rest sent to me by Western Union.

Me:  Wait a second. Can we please start at the beginning. I am totally confused.

Caller:  I went to get a massage. I was tired and my back was hurting. I’m never going to do that again, I swear to you.

Me:  Okay. Look, what you do is really none of my business.

Caller:  I know but what I did was wrong and it led to a lot more than that and I have never done that before and I am really ashamed.

Me:  Okay.

Caller:  And right after it all happened, the owner and two others burst into the room and one of them looked like he was a police officer. They told me that what I had done was illegal and they demanded by passport and I gave it to them.

Me:  Okay.

Caller:  They then told me that they were going to hold my passport and press charges against me unless I paid the USD$4000 fine. I gave them all I had on me and told them that I would need more time to get the rest.

Me:  Did you pay them the rest? 

Caller:  Yes.

Me:  Did they return your passport?

Caller:  Yes.

Me:  Are you now back in the United States?

Caller:  Yes.

Me:  Then why are you calling me now? When did all of this even happen?

Caller:  Three months ago, but my company is sending me back to China and I am worried that I am going to get arrested for what I did. I swear I will never do anything like that again.

Me:  Yeah, that would be wise. But what do you want from me?

Caller:  Do you think I’m going to get arrested?

Me:  I have no idea. Those guys are probably just so delighted to have made USD$4000 off of you that they don’t care about you anymore and who knows if the guy in the uniform was a police officer or not and since what they did was almost certainly illegal, I doubt if they ever reported you to anyone, much less border patrol, but I don’t know. 

Caller:  But should I go to China?

Me:  That’s your call. We could spend all kinds of effort trying to find out if you are on any police or border lists or not, but no matter what we do we’ll almost certainly never know for sure. 

Caller:  I’m never going to do anything like that again. I really do feel so ashamed.

Me:  Okay. Well. Good-bye. 

Caller:  But should I go or not?

Me:  I really can’t tell you one way or the other.  You are the one who is going to need to make that decision. But if you do go, I would stay away from the neighborhood in which that massage parlor is located. Good-bye.

Caller:  Good-bye. And I was being serious when I said I would never do anything like that again. I really have learned my lesson.

Me:  I understand. Good-bye.

It seems this scam is becoming fairly common. Were you aware of it?

Oh, and if you need another reason not to do what this guy did, check out this article.

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:

  1. International company (big or small) receives an inquiry about their product.
  2. Inquiry quickly turns into an order.
  3. The Chinese “buyer” invites the foreign firm to China to sign the contract.
  4. Unwary seller flies to China (Yunnan, Guangdong and Hainan are among the favorite destinations) for the signing and a big dinner. Buyer wants some cash for the event and/or a “commission” payment to get the deal through in the face of some internal politics, or whatever . . . .

China Business Blog/China Business Services says it is usually called in at step 2 or step 3 to do some due diligence.  My international 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:

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

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 gauge 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 buyers 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.