China Business

China Scam Week

China scam fraud

Though my law firm constantly gets calls from companies scammed in their China dealings, it is rare that I learn of three scams in one week (and it is only Wednesday). It is also rare that they are as interesting as the ones I will be describing.  Add in this Reuters article from yesterday that quotes me on fake [Ikea] stores in China and it truly has been China scam week — for me anyway.

The first scam is about a Chinese due diligence company that contacts companies overseas and tells them they have a Chinese company lined up to buy their business. The foreign company (I understand that this company mostly focuses on Latin America) is then told that before the Chinese company will reveal itself, the foreign company must submit to a due diligence inspection, with the Chinese company and the foreign company splitting the due diligence fees and each party paying $20,000.

What makes this scam more sophisticated than most is that the Chinese company uses Americans as its salespeople. These American salespeople either do not know that they are engaged in a scam or they do not want to know. The American salespeople do the deal and the Chinese company even sends someone out to the purchasing company and conducts a bit of work. A few months later, the foreign company is informed that the potential Chinese buyer is no longer interested.

There are a lot of smart things about this scam. First off, virtually nobody knows they have been scammed. Second the amount scammed is just about perfect. It is enough to make it worth the scamming company’s while, but not enough for the company that was scammed to bother investigating further or to bother reporting it and looking bad for having been duped.

The second scam would have been completely routine, but for the large amount of money involved and the sophistication of the company scammed. I learned of this one from a China consultant friend who asked me if there is anything the international litigators at my law firm could do to try to get the money back.  Here’s the story:

An American manufacturer receives unsolicited offers from two Hebei-based companies for chemicals. This American manufacturer had been seeking out chemicals via Alibaba and that is presumably how it had been brought to the attention of the Hebei companies. The Hebei companies send the American company samples of three chemicals. The American company tests them and finds them acceptable to purchase.

The American company subsequently places an order for $750,000.00 worth of two of the three chemicals from the two Hebei companies. To protect itself (but not correctly), the American company uses an Irrevocable Letter of Credit, documents at sight.  What this means is that the Chinese banks must pay the Hebei companies as soon as the banks are presented with documents showing the products have been put on a ship for shipment to the United States. Or to put it even more simply, the Chinese companies get their money as soon as the material is on the boat.

And of course, this is what they do. The Hebei companies secure bank payment as soon as their materials are loaded.

Five weeks later, the American company receives its product in the United States, but upon opening it, realizes it has been sent 100 drums of water and 50 tons of some unidentifiable white powder.

The Hebei company that sent the white powder no longer responds to emails, faxes, or phone calls. A quick googling of their name reveals that it is a frequent topic on anti-scammer message boards. A quick search of China official company records then reveals there is no such company in China. After a few days, communication is lost with them as well. There are some indicators the two “companies” are one and the same.

My law firm does a quick search of China official company registrations and determines neither company ever existed.

Please note that I secured permission from my friend to write the above.

The third (probable) scam is also fairly routine, but it is one of my personal favorites because it emphasizes the benefits of doing due diligence on your “lawyers.” An American company contacted me after sending a cease and desist letter to a Chinese company accusing it of using its China trademark and demanding that it cease doing so. The Chinese company responded by saying that it owned the trademark, having registered it a couple of years ago. The scam here is that the American company had paid a “lawyer” (I put this in quotes because I am skeptical it was actually a lawyer) to register its brand as a trademark in China and it had the Chinese certificate of registration to prove it.

Now, however, when it did a China trademark search for its brand name it did not show up anywhere as the owner, but its Chinese rival did. For more on China scams involving fake lawyers check out China: Where Even The “Law Firms” Are Fake.

Our international IP lawyers explain that the Chinese company (which by all appearances looks completely legitimate and had nothing to do with the scam) now owns the trademark for its brand name in China and if the American company does not stop using that brand in China it will likely get its own cease and desist letter soon. We then work with them on securing a new trademark for a new brand name.

Is this sort of thing actually getting worse or is it just an aberrant week?

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32 responses to “China Scam Week”

  1. In the second scenario:
    How did the bank approve the Bill of Lading documents? Shouldn’t there be some sort of chemical declaration or dangerous goods on the bill of lading stating the contents of the cargo container?
    How would the purchaser in the US protect themselves in addition to issuing a Letter of Credit? Would they have to be present to see the stuffing of containers?

  2. T,
    There are a number of things the buyer could have done to have prevented this. Just by way of example with the Letter of Credit, it could have set it up so that it didn’t get triggered until after the product hit the dock in the US and had been inspected.

  3. In the second scenario:
    How did the bank approve the Bill of Lading documents? Shouldn’t there be some sort of chemical declaration or dangerous goods on the bill of lading stating the contents of the cargo container?
    How would the purchaser in the US protect themselves in addition to issuing a Letter of Credit? Would they have to be present to see the stuffing of containers?

  4. T,
    There are a number of things the buyer could have done to have prevented this. Just by way of example with the Letter of Credit, it could have set it up so that it didn’t get triggered until after the product hit the dock in the US and had been inspected.

  5. It seems a little rash to buy $750,000 of anything from an unknown supplier anywhere in the world. Budget in a little extra to do some proper due diligence and either send a company representative or retain a trusted third party to facilitate the sale.

  6. I just got scammed by china scammer website _________.com, [deleted by editor] which off now.
    The modus is sending wrong spec in wrong quantity, the reason they sent this junk products must be to defend from SCAM case to a DISPUTE case, in case they get caught.
    Domain name and website hosting is cheap, so the list will be keep going high since they keep creating new website after get victim.
    Some of them are still running even after reported as scam, such as ________.com [deleted by editor] and ________.com [deleted by editor. They must be not aware that their website already reported on some forums, and still waiting to get a victim.
    May God punish them to HELL.

  7. I too like the fake lawyer one the best as that one had just never occurred to me. I’m going to go back and make sure I actually have the trademarks I filed for.

  8. I’m with Richard. You say the company in scam #2 was sophisticated, but sending $750K on spec to someone you’ve never done business with, don’t know anything about, and will have no remedy against seems crazy to me. I’d hate to see what unsophisticated companies do!

  9. Yes, the scammed party in example #2 blew by a number of prudent DD steps. The scam itself is very close to what Afriyanti Huang refers to.
    The fact that the material even made it out of China, passing through outbound customs, commodities inspection, is very curious. As for the banking part, when all is said and done, the local bank branches may even be complicit. But a “documents at sight” LC with a new supplier from anywhere is just asking for trouble.

  10. Well, this is kind of small potatoes compared to your examples, but still, I’ve run into this scam twice in the past couple of months. It’s purely local and aimed at any kind of sucker although I think they get a disproportionate number of ex-pats.
    A business is set up that offers some kind of membership. In one case it’s an expensive gym membership in a pretty nice-looking gym. In another case it’s a travel company that offers a membership plan whereby you get steep discounts on future travel. To get the best deal, you have to buy the longest membership. The travel company offers membership terms of up to 10 years! And they give you some “free” travel up front just for buying the membership.
    Couple months later, no company. What was a beautifully furnished gym or office full of busy employees is now boarded up and padlocked. No one responds to phone calls etc.
    The gym guys got me, sad to say, but in the case of the travel company I saw it coming since the gym experience was fresh in my mind.
    FWIW, the gym members got together (on the order of a thousand members) and mounted a legal case but the judge threw it out for “lack of evidence” haha.
    -LH

  11. We have been scammed 3 times and all 3 were from Alibaba. Each one ensuring they are good people and so sorry we got scammed prior. I guess we were the fools. These were shame on me! Buyers beware an escrow service will reimburse you but Alibaba is the worst!

  12. Shortly after registering my WFOE, I got an early morning phone call from (a Beijing land line) someone who identified herself as being with the Tax Bureau in Beijing. I’m a night owl who frequently works on US time so I missed most of the details due to still being asleep and her ignoring all of my “I’m asleep, please don’t talk to me now” comments.
    It wasn’t until the next phone call (a Jiangxi cell phone number) identifying themselves as being in Hainan that I caught the gist of them saying they had a published copy of the tax code that all new enterprises were being required to purchase for 2000 rmb and change, that they would be mailing it to me whether I wanted it or not, that the bank details would be in the mailing, and if I didn’t pay I’d be in big trouble.
    All comments along the lines of “don’t want,” “don’t need,” and “can’t use” were ignored and a couple days later the books arrive by courier.
    My first hint that something was wrong was the package label. It wasn’t addressed to my company. It wasn’t addressed to the 22 letter English name that causes me all sorts of headaches with every single official bureau that must use the name on my ID. It was addressed to my Chinese name. Not only that, but they got the family name wrong.
    Inside the box I find some very official looking books (on very flimsy paper) with a (still ridiculously huge) price tag that doesn’t match the number they gave me on the phone.
    I also find a fake fapiao.
    The local police got involved and, at one point, were trying to set up a sting to get the scammers to come and meet me if they wanted to get paid but although they agreed a couple times, they’d never show up.
    I continued to get early morning phone calls off and on for the next month. In one phone call, the people on the other end threatened to have my visa revoked if I didn’t pay up immediately. In another, I got death threats.
    A few months later, a company I’m involved with (but which isn’t in my name) did a change of address. The Chinese person whose name is on the documentation is the listed contact person but the number is mine. When I got a phone call asking to speak to him so they could tell him about the important tax materials they would be mailing, I just hung up the phone.
    -M

  13. I too was hit by a fake lawyer not registering my IP and I have since learned that this is fairly common. It is the perfect scam because a company sets itself up as a trademark lawyer or agent and then takes a bunch of trademark registration orders and then is gone by the time its customers start asking about the progress of the registration.

  14. I have a customer who had exactly the same experience with 2 chemicals he ordered from China (before he decided to hire my company). The companies were both based in Tianjin and he got exactly what the customer in case 2 got, black water (instead of Glycerine) & white powder (instead of Titanium Dioxide). It seems there is a shockingly high proportion on fraud companies in the chemicals industry in China. In my customers case, the experience was exactly the same, i.e. one of the companies responded but very slowly and eventually stopped responding while the other one never responded at all.

  15. I have a customer who had exactly the same experience with 2 chemicals he ordered from China (before he decided to hire my company). The companies were both based in Tianjin and he got exactly what the customer in case 2 got, black water (instead of Glycerine) & white powder (instead of Titanium Dioxide). It seems there is a shockingly high proportion on fraud companies in the chemicals industry in China. In my customers case, the experience was exactly the same, i.e. one of the companies responded but very slowly and eventually stopped responding while the other one never responded at all.

  16. i want to register my complain about how two chinese company scammed me of usd1000 each,i was so tired because they took away from me the money i used to survive in business circle here in africa,the name of the companies are (1)_________com and _____.com,the contact person for ______ is _______and the contact person for ________ is _____,please people beware of these two companies and individuals because they are scammers,they set up nice website to steal from people.

  17. i want to register my complain about how two chinese company scammed me of usd1000 each,i was so tired because they took away from me the money i used to survive in business circle here in africa,the name of the companies are (1)_________com and _____.com,the contact person for ______ is _______and the contact person for ________ is _____,please people beware of these two companies and individuals because they are scammers,they set up nice website to steal from people.

  18. HI FRIEND
    BE AWARE of fraud Chinese company like
    ___________and ____________. They are both the same company with different names. They cheated me. Their contact information is _________.
    i paid them $4882 (US Dollars) for 2gb memory cards at the rate of $2.37 per card, and after receiving my money, they never sent the goods and also will not take my calls.
    Anyone who wants to know more can call me at_______.

  19. I am a victim of a company with the name:
     __________________. They are scammers. Watch out everybody. They took my money but they never sent my order.

  20. I am a victim of a company with the name:
     __________________. They are scammers. Watch out everybody. They took my money but they never sent my order.

  21. It seems a little rash to buy $750,000 of anything from an unknown supplier anywhere in the world. Budget in a little extra to do some proper due diligence and either send a company representative or retain a trusted third party to facilitate the sale.

  22. I’m with Richard. You say the company in scam #2 was sophisticated, but sending $750K on spec to someone you’ve never done business with, don’t know anything about, and will have no remedy against seems crazy to me. I’d hate to see what unsophisticated companies do!

  23. I too like the fake lawyer one the best as that one had just never occurred to me. I’m going to go back and make sure I actually have the trademarks I filed for.

  24. I just got scammed by china scammer website _________.com, [deleted by editor] which off now.
    The modus is sending wrong spec in wrong quantity, the reason they sent this junk products must be to defend from SCAM case to a DISPUTE case, in case they get caught.
    Domain name and website hosting is cheap, so the list will be keep going high since they keep creating new website after get victim.
    Some of them are still running even after reported as scam, such as ________.com [deleted by editor] and ________.com [deleted by editor. They must be not aware that their website already reported on some forums, and still waiting to get a victim.
    May God punish them to HELL.

  25. We have been scammed 3 times and all 3 were from Alibaba. Each one ensuring they are good people and so sorry we got scammed prior. I guess we were the fools. These were shame on me! Buyers beware an escrow service will reimburse you but Alibaba is the worst!

  26. Yes, the scammed party in example #2 blew by a number of prudent DD steps. The scam itself is very close to what Afriyanti Huang refers to.
    The fact that the material even made it out of China, passing through outbound customs, commodities inspection, is very curious. As for the banking part, when all is said and done, the local bank branches may even be complicit. But a “documents at sight” LC with a new supplier from anywhere is just asking for trouble.

  27. Well, this is kind of small potatoes compared to your examples, but still, I’ve run into this scam twice in the past couple of months. It’s purely local and aimed at any kind of sucker although I think they get a disproportionate number of ex-pats.
    A business is set up that offers some kind of membership. In one case it’s an expensive gym membership in a pretty nice-looking gym. In another case it’s a travel company that offers a membership plan whereby you get steep discounts on future travel. To get the best deal, you have to buy the longest membership. The travel company offers membership terms of up to 10 years! And they give you some “free” travel up front just for buying the membership.
    Couple months later, no company. What was a beautifully furnished gym or office full of busy employees is now boarded up and padlocked. No one responds to phone calls etc.
    The gym guys got me, sad to say, but in the case of the travel company I saw it coming since the gym experience was fresh in my mind.
    FWIW, the gym members got together (on the order of a thousand members) and mounted a legal case but the judge threw it out for “lack of evidence” haha.
    -LH

  28. I too was hit by a fake lawyer not registering my IP and I have since learned that this is fairly common. It is the perfect scam because a company sets itself up as a trademark lawyer or agent and then takes a bunch of trademark registration orders and then is gone by the time its customers start asking about the progress of the registration.

  29. Shortly after registering my WFOE, I got an early morning phone call from (a Beijing land line) someone who identified herself as being with the Tax Bureau in Beijing. I’m a night owl who frequently works on US time so I missed most of the details due to still being asleep and her ignoring all of my “I’m asleep, please don’t talk to me now” comments.
    It wasn’t until the next phone call (a Jiangxi cell phone number) identifying themselves as being in Hainan that I caught the gist of them saying they had a published copy of the tax code that all new enterprises were being required to purchase for 2000 rmb and change, that they would be mailing it to me whether I wanted it or not, that the bank details would be in the mailing, and if I didn’t pay I’d be in big trouble.
    All comments along the lines of “don’t want,” “don’t need,” and “can’t use” were ignored and a couple days later the books arrive by courier.
    My first hint that something was wrong was the package label. It wasn’t addressed to my company. It wasn’t addressed to the 22 letter English name that causes me all sorts of headaches with every single official bureau that must use the name on my ID. It was addressed to my Chinese name. Not only that, but they got the family name wrong.
    Inside the box I find some very official looking books (on very flimsy paper) with a (still ridiculously huge) price tag that doesn’t match the number they gave me on the phone.
    I also find a fake fapiao.
    The local police got involved and, at one point, were trying to set up a sting to get the scammers to come and meet me if they wanted to get paid but although they agreed a couple times, they’d never show up.
    I continued to get early morning phone calls off and on for the next month. In one phone call, the people on the other end threatened to have my visa revoked if I didn’t pay up immediately. In another, I got death threats.
    A few months later, a company I’m involved with (but which isn’t in my name) did a change of address. The Chinese person whose name is on the documentation is the listed contact person but the number is mine. When I got a phone call asking to speak to him so they could tell him about the important tax materials they would be mailing, I just hung up the phone.
    -M

  30. HI FRIEND
    BE AWARE of fraud Chinese company like
    ___________and ____________. They are both the same company with different names. They cheated me. Their contact information is _________.
    i paid them $4882 (US Dollars) for 2gb memory cards at the rate of $2.37 per card, and after receiving my money, they never sent the goods and also will not take my calls.
    Anyone who wants to know more can call me at_______.

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