China ScamWe long ago instituted the rule that if we got three blog comments and/or emails on a subject in a week, we would write about it. We have received three emails and one comment from people about to get scammed by a classic (but obviously resurgent) China scam. The below blog comment came in today:

So pleased to have found this blog. I have been contacted recently by this company from Kunming asking that I fly to Kunming to sign the Official contract. They were proposing that we organise a 20 day tour of France for 89 retired military veterans. We had provisionally booked the hotels and reserved the coaches so had spent quite a lot of man hours on the project.

After sending me the official contract they then asked me to pay my own expenses to China in order to meet them to sign the official contract in person before they would release 30% deposit into our bank account.

This does not normally happen in our Industry so a Chinese colleague phoned the companies that were on the contract and nobody from either the Kunming Tourist Board or the Government Department for retired veterans new who the man was that had signed the contract.

So that’s when I did a bit more research and found this Blog. Halleluya, great to get closure.

BEWARE OF “CON-MING”

This scam has been around forever and yet Western companies are still falling for it. It though seems to be rapidly accelerating of late, which is absolutely par for the course whenever China’s economy starts slowly, which it has been of late.

The scam consists of the Chinese company (actually, in every instance when our firm has done any investigation at all we immediately learned that there is actually no real company there) luring in the Western company with promises of big money for services (or sometimes products) to be supplied by the Western company. There is just one small hitch: the Western company must go to China (near as I can remember, it’s always some third or fourth tier city in China, never Beijing or Shanghai or Shenzhen, or even Tianjin or Qingdao) to sign the contract.

Why must the Western company go to China to sign a contract when China deals constantly get done without an in-person signing ceremony? The following are the reasons typically provided:

  1. Chinese custom. It would be rude if you don’t come. Note that of the thousands of contracts in which my firm’s China lawyers have been involved, less than ten percent have involved an in-person signing.
  2. We need to do this in front of Chinese government officials, for one reason or another. Note that I can recall only two instances where our contracts were signed in front of government officials and those didn’t need to be. They just were because the transactions were so large and so vital to the local economy and doing so was a way of improving government relations going forward.
  3. The contracts need to be notarized by a Chinese notary and for that they need to be signed in front of a Chinese notary. Complete lie.

Why does the Chinese company want the Western company to go to China? How does the Chinese company possible benefit from this? Based on the Western companies that report back to us after they have been scammed, the following are the most common:

  1. Western company personnel will be put up in a local hotel for 4-5 days and the bill will be maybe ten times what it should have been. The hotel and the scammers then split the take. This is not to mention the multiple celebratory banquets that also are grossly over-billed.
  2. The fake notary charges a percentage of the deal, typically USD$8,000 to $15,000. The Western company believes it must pay this for the deal to go through.
  3. The Western company is subtly told that for the deal to go through, government officials must be paid and it is legal for a foreign company to pay them. Complete lie. If these were really government officials and you do really pay them, you are risking jail time in both China and most likely in your home country as well.
  4. Some third party is necessary for the deal for some reason and the Western company must pay that third party. Really?

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

How do you prevent this scam from happening to you? Easy. You conduct basic due diligence on the Chinese company before you get on the airplane. Long before. The first thing you do is determine whether your China counter-party even exists as a registered China company or not. And when you discover that it doesn’t, you end all communications.

You have been warned. Again.

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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.