New and Improved PPE Scams

The world of sourcing PPE from China is a sordid one. Fake companies and fake products abound. See How to Buy PPE from China Without Getting Ripped Off.  To make matters worse, many good and bad, real and fake, Chinese PPE companies demand full payment upfront, especially from private for-profit companies — as opposed to governments and hospitals, which tend to get better payment terms.

This all means that one of the most important things my law firm does for our PPE clients is to research their potential China PPE suppliers and make recommendations on whether they should or should not go forward with their purchase. This research (a/k/a due diligence) usually consists of the following:

1. Making sure the Chinese company proposing to sell the PPE to our client is authorized by the Chinese government to export the specific PPE our client seeks to purchase. If we determine the Chinese company is not authorized to export the PPE product or products our client seeks to buy from it, we usually suggest our client ask the Chinese PPE company how it proposes to get its PPE products out of China when it is not authorized to export those products from China. Sometimes, the Chinese company has a good explanation, but usually it does not. If we determine the Chinese company is authorized to export the PPE product or products our client seeks to buy from it, we then conduct a due diligence investigation to gage whether the Chinese company can be trusted not to walk away with a large upfront payment either because it choose to keep it just because it can or because the product gets stuck at customs or for whatever reason fails to make it to our client.
2. Conducting a due diligence investigation on our client’s potential PPE sellers. This investigation typically consists of one of our experienced China lawyers reviewing various Chinese government databases to confirm the Chinese company from which our client is seeking to buy PPE products actually exists and is licensed to sell what it is proposing to sell to our client. These investigations also seek to determine whether the Chinese PPE company is well capitalized, is in good standing with the Chinese government regarding fines and taxes and not involved in lawsuits that would make us doubt its reliability/credibility. We also look at what trademarks and patents and other IP the Chinese PPE company holds, because these can be valuable assets and companies with valuable assets are less likely to walk away with someone else’s money than companies with few if any assets. This is also why we look at their property holdings as well. We also look at the PPE company’s ownership because that sometimes gives additional good insight about the company. After we search the Chinese government databases, we do an internet search on the PPE company in Chinese and in English to try to get any additional relevant information about its overall reputation. We then compile a 4-8 page report on our findings. Because our PPE buying clients are invariably in a hurry, we strive to turn around these reports in 5-8 hours. Not surprisingly, we are also finding that the better the company, the greater the likelihood their PPE products clear customs in both China and in the importing country.

But lately we’ve been discovering something really quite incredible. Sophisticated scammers posing as real companies. Let me explain.

Since day one, the murky world of PPE has been filled with brokers who have nothing and offer nothing. Now just to be clear, this is not true of all PPE brokers but it is true of enough of them that just about everyone with any involvement in the industry has either dealt with one of these brokers or knows someone who has. I’m talking about brokers who claim they have a million masks at x dollars and in reality they do not have a single mask. If you take up one of these brokers on their “offer” and pay them 100% in advance, they will find you the million masks for less than you paid them and pocket the difference. The risks in dealing with a broker like this is that you know nothing about the manufacturer (the broker doesn’t usually know anything about the manufacturer either), the product quality, or about the validity of any certifications. But it gets worse.

Some of the brokers who make these million mask offers without having a single mask intend simply to pocket the money and run. And those sorts of thefts have become quite common in the PPE industry as well.

But generally, sophisticated PPE buyers can nowadays see these sorts of broker situations coming from a mile away and they wisely run away from them.

But with so many people literally desperate to spend money on PPE and fast, we are seeing increasingly sophisticated and difficult to spot scams. First it was the people who claimed to be inside salespeople for one of China’s two or three largest manufacturers. These people were not claiming to have a million masks they could sell you, they were claiming to be able to manufacture and sell you a near unlimited and constant supply of masks. `These people would show potential buyers all sorts of documents from “their” massive PPE manufacturing company and thereby trick them into sending them money for nothing. These scammers were relatively easy to catch because they typically limited themselves to just China’s biggest companies and they all tended to use the same documents (supposedly bought off the internet for about $5 each). Their bank accounts were often usually good tells as well. Why are they asking you to send $3 million to a Xiamen bank account when they are in Shanghai? And if ever our lawyers ever had any doubt, we could and we would just call the Chinese manufacturer directly to determine whether it was or was not about to sell our client a million masks. No big deal.

But as in any war, the enemy’s tactics eventually mutate to avoid detection or annihilation and that is true of the PPE war as well. The new scam we are seeing consists of the following and damn but it is hard to detect:

1. Individual tells potential buyer that its alleged employer can supply it a million masks a month at X price. Usually the price will be a good but not great price — something middle of the road to repress suspicions.
2. Individual sets up bank account in the city in which its alleged employer is located.
3. The alleged employer is not one of the two or three biggest PPE companies in China. It is instead a legitimate company that within the last two or three months switched from making widgets (usually shoes or clothes or some other sort of medical product) or expanded to making PPE. In other words, the companies used for these new scams are not ones we know are no longer taking new orders or simply have no need even to market. No, these new companies are ones we have never seen before and take effort to learn about.
4. And here’s the beauty of the new scam. All of the company documents look real because they are. And that is because the scammer is in fact an employee of the company gone rogue or a rogue employee who is working with the scammer. As you can imagine, this makes detecting the fraud far more difficult and time consuming, but fortunately, not impossible. We have found the best way to suss out these frauds is to examine the papers closely and notice what might be missing and request it. Is it the company’s certification papers? Is it the test results the company needed to provide to the Chinese government to get certified? Is it something else? Whatever it is we ask for it and if it is a scam, the scammer usually will then give us a badly faked document or a document that does not answer our question. So for example, if we ask for what should be a one page government document and we get back a 25 page employee manual in return, we know something is up. And yes, this sort of thing does really happen. And if we remain suspicious but not fully convinced, we call the company directly via its main phone number and ask to speak with the “employee” there. Usually there is no such employee with the name our client has been given. The employee is probably there but our client was given a fake name. If the employee is there we ask what his (it is pretty much always a he) position is and that sometimes tells us all we need to know. If that is not determinative, we ask to speak with someone to confirm some aspect of our client’s order. In other words, we keep going until we are able to make a clear determination. Usually though, there is some tell much earlier along the way.

Sourcing PPE from China? What could be fina (pronounced like China)?