How to Distinguish Between a Real Chinese Deal and a Fraud

Our China lawyers have been seeing a massive uptick in frauds allegedly coming from China. I say “allegedly” from China because there is no way to know whether the con artists on the other end of the internet are really in China and many times I am fairly certain they are not.

Recently, an American travel services company wrote one of our China transactional lawyers to get us to review and revise a contract so as to protect her company’s interests. Changing the facts a bit to hide identities, the American company was in the business of providing high-end tours of Italy and Spain and the “Chinese company” wanted to do a deal that would involve the Chinese company running huge numbers of Chinese tourists through this American travel services company.

Nothing smelled right about any of this (more on that later) and our lawyer essentially said this by stating that if our law firm were to be retained, “we would first do some due diligence on the Chinese company to confirm this is not a scam.” The American company then sent the draft contract and asked what our lawyer thought of it. Our lawyer responded by saying “there’s a  98% chance this is a scam and rather than pay us to run this to ground, you should consider just walking away.” The American company then asked what in the contract led our China lawyer to reach that determination and the lawyer responded with the following:

1. Chinese companies almost never send out the first draft of a contract. This supposed Chinese company did.

2. This contract is way too long and way too specific for any normal first draft from a Chinese company.

3. There is a provision at the end of the contract about how the CEOs [of both companies] must meet in person in ________ city in China where no foreigner ever goes. This is to get you to go to China where they can charge you an exorbitant amount for the hotel and for dinners, splitting these costs with the hospitality providers.

4. The business you are in, a small service business that could conceivably operate internationally.

5. The state you are in — a Southern state that does not do much business with China.

6. Your gender. Not sure why, but a huge number of these scams we are seeing lately are directed at female-owned small service businesses.

7. Why are they going to someone in Louisiana for tours of Italy and Spain when they can go directly to Italy or to Spain and save money by not using you as an additional payment layer?

8. The contract has a provision about notarizations and says the two companies are to share in the notarization fees. This makes no sense and is a classic scam. China doesn’t do notarizations and this is to get you to pay a lot for fake notarizations.

9. The contract does not even mention the name of the Chinese company.

10. The contract mentions the need for the Chinese company to put its company chop on the document. No Chinese contract would ever mention this because it would be a given and would be done in the signature portion.

11. The contract says the English language portion will control. Our law firm has done thousands of contracts with Chinese companies and though it is actually very unusual for the Chinese side to provide the first draft, we have never seen a first draft from a Chinese company that called for English to control the contract. And of the other thousands of contracts we have done, I cannot remember one instance where the Chinese side ever suggested English control.

12. The contract includes all sort of things that seem intended to make the contract look real but are rarely if ever in this sort of contract. Chinese contracts tend to be a lot shorter than this and it just does not read like a Chinese contract.

13. As long as it is (I mean, two pages describing the sort of hotel in which you are to put the Chinese tourists!) all sorts of crucial provisions are missing, like contract damages, choice of law, and jurisdiction.

14. Everything. I’ve seen enough of these to know. It just doesn’t feel like a Chinese contract at all. The Chinese is weird and the English is bad in a different way than the bad English we see on real Chinese contracts.

The above is based on a five minute scan. I’m sure I could find more reasons to doubt this company and this transaction if I were to spend another ten minutes on it and I’m sure I could give you concrete proof if we were to conduct due diligence on this “company.”

The American company wisely chose to just walk away from the deal/scam.