• Payment Fraud in China – How to Avoid Going Bankrupt

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    A true story from Qingdao

    Afraid of losing (all) your money when you’re importing from China? You should be, and you’re not alone. Paying frauds are one of the most common forms of scam, and they are targeting small to medium sized businesses sourcing products on Alibaba.com and other online B2B platforms. In the last few years I’ve seen small importers losing hundreds of thousands of dollars in this type of scam.

    The first time I had to handle a payment fraud case was in late 2011. It was late on a Friday evening and I’d barely opened my first beer when I received a desperate phone call from a long term client. She had, without telling us, contacted a suppliers, in Qingdao, selling food supplements. They had previously imported the same product from this supplier and my client experienced no problems whatsoever. This time she wasn’t so lucky. The supplier stated that they did not receive a single dollar from her, something which made my client nervous considering she had transferred around US$ 40,000 two weeks before she called me.

    How I spotted the payment fraud

    Before we hung up I told my client to send over every single (digital) document and email conversation they’ve had with the supplier. The next day I had a closer look on the proforma invoice and noticed that the bank account beneficiary name didn’t match the supplier name. Neither did the location – the supplier was supposed to be a Trading Company operating in Qingdao, but the beneficiary bank account was registered in Hong Kong.

    I quickly realize that what the supplier said was right – they didn’t receive any money, the client paid somebody else. This somebody else is a professional scammer, possibly even part of an organized crime network.

    Why this fraud still works

    So how did they do it? Simple. All the scammers had to do was to hack the suppliers email account, check the sent box and then replace the beneficiary, the bank account number and the SWIFT code. The next thing they do is to resend the invoice, often together with a simple excuse for sending the same invoice twice. The client did what most small importers would have done in a situation like this – she paid the invoice. She lost every single dollar.

    How can a fairly successful business owner fall for such a simple scam? How can it be so easy to cheat somebody out of tens of thousands of dollars? Because most small business owners simply assume that “this is the way things are done in China”.

    As part of our Supplier Screening service, we always verify both the suppliers business license and bank account details, before you place an order. Click here to watch a demonstration video.

    How to prevent this type of payment fraud

    Let me ask you a question. Would you be suspicious if you were about to buy products from a supplier in a neighboring state or country and all the sudden you are requested to pay to a bank account registered in Barbados? I certainly would! You’ll get a long way by using some common sense, even in China.

    Preventing payment frauds when importing from China is very easy if you follow these two rules:

    1. NEVER pay to a bank account where the beneficiary name does not match the company name of the supplier you’re buying your products from

    2. NEVER pay to a bank account that’s registered in a completely different city, province or country than the supplier you’re buying your from

    So, what happened to the client?

    As expected when somebody lose 40,000 dollars, she was devastated when I told her that she won’t see her money again.

    She still wanted the products though, and I told her that there’s a slight chance that the Qingdao supplier could accept a price reduction. The following week I caught a flight from Shanghai to Qingdao and met the Legal Representative of the company. They refused to take any responsibility for the scam, considering they’re a small trading company I concluded that they simply don’t have the money to do so.

    The products were stored in a port warehouse and everything was fine. In the end we managed to negotiate a price reduction of 25% for our client. The supplier protested, because we were basically asking them to lose money, even though it wasn’t their fault. In the end they had no choice, because they had no other buyer for the products and dumping them would have cost them even more money.

    Every now and then I get emails from suppliers warning us for payment frauds. I assume this is because they were recently exposed to one. The first issue is that the importers are not using enough common sense when importing from China. The second issue is that most Chinese suppliers couldn’t care less about basic email security.

    Watch out for the suppliers’ employees

    There’s also another problem. Many Chinese suppliers request payments to bank accounts that are not operated by their company. It’s very common that suppliers in China’s southern Guangdong province have offshore companies in Hong Kong, often owned by the Legal Representative or a relative of this person. In some cases I’ve seen individual employees acting as middlemen by asking the client to pay to them first where after they pay their employer for the products. As expected, they pocket a handsome commission on top of their salary.

    But I know of at least one case where an importer was not only paying more than they should have, they actually got scammed. The employee simply took their money and ran away without paying the actual supplier. So what did the supplier say when the client asked about their products?

    “Sorry, we didn’t receive your money”.

    You have been warned.

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  • 7 Responses to “Payment Fraud in China – How to Avoid Going Bankrupt

    1. Michelangelo Aragon at 9:29 am

      Dear Sir,

      TIhe supplier involved is [COMPANY INFORMATION REMOVED] and i paid the supplier already for the agreed 30 % downpaymemt but always promise to deliver but nothing happens even until after 3 from the moment I paid. This company is from Qingdao and is engaged in importation of paper. I would like to ask if there is a chance to collect back the money I paid and file a complaint in dept of trade in Qingdao with this company?

      1. ChinaImportal at 3:44 am

        Unfortunately there is no simple and cheap way to collect the money.

        If you have the documentation (i.e., a contract), you may be able to sue them and win in court, in China. But that will cost you, and even if you win, they may not be able to collect any assets for you.

        Probably a lost case, unfortunately.

    2. Vicky Liu at 4:04 am

      So whenever you receive an email to change the payment recipient’s details, be careful!
      Call the supplier directly.
      In addition, it is important to find a sales rep. with rich experience in exporting that she/he must know how important to protect their email passwords.

    3. Deb at 11:36 pm

      Dear Sir/Madam,

      I been cheated by a Chinese company Vei Xi Trade Co., Ltd., I have placed order for computer parts worth $7,000.00 however this company cheated me and did not sent anything.

      I request, kindly please assist me to take legal action against this company so that no more innocent peoples are cheated by same way again.

      Also, please please help me getting my money back and black list this company so they can not cheat again and file a case against this company and cancel the registration.

      I have taken loan from ICICI Bank to start business however due to this fraud I am now unable to pay back the loan.

      I am in now serious trouble, kindly help in this matter on high priority.

      Kindly investigate on high priority.

      Waiting for a favourable reply.

      Regards
      Debasish Patra
      +91 9845993102

      1. Fredrik Grönkvist at 5:38 pm

        Hello Deb,

        I’m not surprised to see that the scammer is a small trader. When these things happen, this kind of company is almost always involved.

        Suing the company in China will cost you much more than $7,000 – and even if you win the lawsuit, this company most likely have no assets for you to collect. However, you can report the company to company fraud websites. It won’t get you your money back, but it can prevent others from being scammed.

      2. Belting at 11:41 am

        Hello Deb,
        We want to warn you:
        DO NOT BUY FROM BEIJING TRX RUBBER PRODUCTS CO.,LTD
        and SHANGHAI NANGEST MACHINERY CO.,LTD

        Our story
        We are company which has 25 years of experience with conveyor belts and cooperate with suppliers from the whole world.
        Last year we wanted to start collaboration with two Chinese company. In April we bought one belt from company BEIJING TRX RUBBER PRODUCTS CO.,LTD (C-1216&1217, Wanda Plaza, Shijingshan District, Beijing 100040, China, phone +86 10 88689766/88696185, fax +86 10 88696185). We of course had to paid in advance because it is main condition, which is required by every Chinese company. We were assured that we will received belt according to our needs and confirmed data sheet. Unfortunately after delivery it’s turn out that we received quite other belt type, which is twice time cheaper than we paid. We want to receive belt with special construction and received normal, 2-py belt. Of course we placed complaint for that item but without any result. It is impossible to retrieve our money back. The company is silent.
        In January 2014 we established cooperation with Chinese company SHANGHAI NANGEST MACHINERY CO.,LTD (NO.55, LANE 288, SOUTH HUTING ROAD, JIUTING TOWN, SONGJIANG DISTRICT, SHANGHAI201615, CHINA, phone 021-67632607, fax 021 58308594). When we finalised first belt’s purchase from this company, we were content, therefore in May we placed new purchase order for 2 rolls each 100 m length. Unfortunately this time we received defective goods. These belts don’t fulfil their function. From that reason we received many complains from our customers. After that we were obligated to replacement wrong belts by new good quality one. We sent information about that problem to our Chinese supplier. There was indicated exact what is the products defect. The weft and warp of used fabric are very skew to themselves. They aren’t perpendicular and that cause wrong belt’s work and it couldn’t be regulated in any way.
        Company SHANGHAI NANGEST MACHINERY CO.,LTD first tried to delay settlement of complaints and then completely desisted correspondence. Now we have problem how to retake our money for belts, which are a trash in our opinion because they are completely made in wrong way. These belts are made of one thick, multilayer fabric impregnated by PVC.
        Belts produced by company SHANGHAI NANGEST MACHINERY CO.,LTD absolutely aren’t suitable for any application.

        1. Fredrik Grönkvist at 6:53 pm

          Hello,

          Firstly, do you have any sales agreement that clearly specifies all technical specifications, including materials and components? Secondly, did you not send a quality inspector before the shipment? This, combined with a pre-screening process of the supplier, is critical when buying anything from China. Without this, situations like the one you described are almost certain to happen.

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