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.

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.