L/C Fraud Case: How Chinese Exporter Scam Under L/C Terms

L/C (Letter of Credit) is considered to be the best payment terms during international business, especially for large orders. However, there are still some professional scammers using L/C to rip off the clients worldwide. They either used forged, altered documents or invalid, revocable L/C to cheat the client. Recently we witnessed two L/C fraud cases from China, one client lost nearly 600000 USD (ordered copper wire but received sand) and the other 70000 USD (ordered chemicals but received stones) respectively.

In order to warn more reliable businessmen worldwide, STIN verification team summarized the features of China L/C fraud case for your reference.

Features of Chinese L/C business fraud:
1.Fully registered NEW trade company and exporter but disguised as real manufacturers online;

2.Insist on using their own Shipping Agent

3.Only accept irrevocable 100% LC at sight terms

4.Only deal with large orders and focus on some hot-selling raw materials, say, chemicals, ingots, used cooking oil, rare earth etc.

5.Offer well-known third-party certifications, say, SGS test report

6.Offer high quality samples for FREE sometimes to gain trust from the clients

7.Use very low prices to attract the clients worldwide. (Far below the market price)

8.Scammers are normally from North China at present.
According to the case-reports from our clients, Shijiazhuang, Zhengzhou, Qingdao, Dalian, Tianjin etc is notorious for such business scams in China.

How Chinese Scammers Cheat You Under L/C Terms?

The scam chain seems to be very complete now, from marketing to sourcing, from shipping to documentation, from certification to consulting etc are all well planned. According to our investigation and verification result in China, the professional scammer normally takes following steps to rip you off:

First: Company Registration and Market Survey
Scammers will register a real small trade company in China, but faraway from their hometown. Say, if they are from Hebei, they may register a company in Shandong or even in Hong Kong. Or they will use an offshore trade company to work with you and they are NOT registered in China at all. The professional business fraudsters will do a small market survey on all the hot-selling items on the globe and then they will construct a professional website for some certain products or even for all the hot-selling items. One of the scammers was seen to construct a website with more than 100 hot-selling items online. Please note that they will create a ‘fake’ address online in English even if their company is registered officially. Also please note that the professional scammers will use ‘fake’identity card or 'steal’a real identity card to register any company.

Second: Promotion and Internet Marketing
After the first step, the professional business fraudsters will use internet to promote their items, they will pay for some SEO marketing professionals in China, so their information can be easily reached by some real buyers. They even paid for some Gold members with some famous B2B platforms, where more reliable businessmen would be cheated.

To attract the clients, they also use Free high quality samples and third-party certification, say, SGS test report etc. This is one of the main reasons that the victim get trapped.

Third: Pricing and Trade Terms
Most of the buyers were trapped by their extremely low prices. As for the trade terms, they will insist on irrevocable 100% LC at sight terms, which seems to be normal to all the big client.

Fourth: Shipping and Domestic Logistics
The scammer will 'buy'documents from the shipper or their shipping agents and they will insist on using their own shipping agent in China. Some scammers conspire (plot together) with the shipping agent (truck drivers), they can change the goods inside the container on the way to the yard with a fake seal number (or they even dismantle the container door without breaking the seal number.). This is another key reason that the client get scammed.

Fifth: Receiving Money and Disappear
The professional scammer will write off (annul) all their registered company licenses and documents as soon as they receive the money from the client, then disappear. It is hard even for local police to trace them as they used all ‘fake’ names and identity cards in China.

Sixth: Replicate their Business Fraud elsewhere
If they are NOT put in the prison, they will replicate the experience and scam another victim elsewhere.

What are the countermeasures against these Professional Business Fraudsters? 

All the business fraud can be avoided if you take following advice in China:

First: Use third-party professional Factory Auditing or Company Investigation service to fully check them out first before placing any large orders.

Second: Insist on using your own Shipping Agent to arrange all the delivery and logistics.

Third: Use a third-party Pre-shipment Quality Control Inspection service to check the quality level at their factory before loading.

Fourth: Use a third-party Loading Process Supervision Service to supervise the loading process in China.

Fifth: Work with a local buying office to control the business risk, offer legal consulting, supervise the whole business process and follow up the after-sale services etc when necessary.

There might be lot of other forms of L/C fraud in other countries, any comment is welcome.

STIN Verification Service Team is committed to reducing the business risks, fighting against business fraud and saving you more time, cost and energy etc in China. STIN main services are: Chinese Company Verification and Investigation, Factory Auditing, Professional Sourcing, Quality Control, Purchasing Agent Service etc. STIN service team is also offering a ONE-STOP procurement solution service for their clients worldwide in China: www.chinabizservices.com
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