Sunday, 26 May 2013

New fraud cases and their countermeasures in China

Recently we've come across some different fraud cases from typical scams in China and I'd like to share some of them with Alibaba members here, hoping you'll learn a lesson from these cases in the future transactions:

Case One:
Product related: Chemicals (GPPS and HIPS)
Chinese Supplier: Wuhan Hangyu Co., Ltd (a so-called Gold and trust pass member on Alibaba)
Case Details:
A South African buyer placed an order for GPPS and HIPS with Wuhan Hangyu in Nov, 2012, the client also booked a STIN Company Verification service in China and confirmed that the supplier was a fully registered exporter before payment.The supplier also showed a SGS QC report regarding the target product in China and the SGS report was authentic as well. In March,2013,the client received the container and found out the product received as NOT the one they ordered at all, they look similar but not the same one in their SGS report. Then they came to a trade dispute and the client lost more than 35000 USD for this trial order. The supplier now disappeared in China and local police station is still tracing them.

As far as we know there are many business fraud in the field like Chemicals, Used Cooking Oil, and Mineral (none-ferrous metals) business etc. For those products, the order is normally big and the professional scammer can simply register a very small company in China, then vanish after they obtain the deposit or full cost from the clients worldwide. Lot of cases found that some professional scammers will use Offshore Trade companies as a tool to scam businessmen worldwide. They did have a company and they did send you the goods, but the problem is that they will send you a bag of copper scraps when you're buying Gold from them.

1.A Factory Inspection service or Auditing service from a third-party business service company like STIN is very important in China before placing any large orders.
2.A formal Purchase Contract in Chinese and an On-site Quality Control Inspection service is also very important for such cases in China.
3.If the client booked a 'Loading Process Supervision Service'from local experts in China, then such losses could be avoided as well.

Case Two:
Product related: HDMI cables
Chinese supplier: Changzhou Best International Co., Ltd (a so-called Gold and trust pass member at Alibaba )
Case Details:
A UK buyer had a deep communication on all the trade terms and conditions with this supplier in China (the direct contact is: David Lee ), later they reached an agreement on everything and got ready to make a deal, and the buyer –Mr. A ( True names are not allowed to display without permission ) remitted more than 2000 USD to Changzhou Best International Co.,Ltd in Oct, 2006, as a deposit or down payment to get the production started in China. Mr. A is very serious with his business and he employed a local inspector from STIN to offer a Basic Verification on this supplier in China before payment, and this supplier does exist in China (confirmed with local officials), the key problem is their credit was too bad ! Later the supplier could not meet Mr.A's buying demand and they didn't ship him anything. They promised to refund by T/T for several times when Mr. A claimed his payment back. They either ignored calls and messages or took it as nothing. So far they have neither shipped any goods to the buyer nor refunded. They badly ruined their image in overseas market !

1.Employing a local Chinese to report their bad credit to local government authorities in China directly and get them punished or fined. Bringing an accusation against them if your order is large enough, please note that you may have to collect enough evidence, say a formal sales or purchase contract, verification report, payment receipt etc.
2.A legitimate company could also be a cheater in international trades, you'd better pay them in full only after a Pre-shipment QC Inspection in China.

Case Three:
Product related: auto parts
Chinese supplier: Zhuji Hongxing Co.,Ltd (a Trustpass member from another famous platform in China, but I note their website has been closed recently. )

Case Details:
A USA buyer----Mr.B got their information online and contacted their CEO called Tony Lin by emails. They had several pleasant communications and Tony claimed that he was the real manufacturer in China and he seemed to be a professional in this field. Mr. B bought several samples from Tony without any due diligence work in China in April, 2007. The samples were quite good. Good quality, reasonable prices , fast delivery and good communications surprised Mr.B a lot and he fully trusted Tony then, in May, 2007, Mr. B requested an OEM service from Tony's factory and placed a large order, they reached an agreement regarding every trade terms and conditions and both parties seemed satisfied with it. Mr. B paid Tony 120000 USD within 10 days by T/T after they reached an agreement as a deposit to get the production started in China. The rest balance is nearly 200000 USD and would be paid after the production. One month later, Mr.B simply wanted to learn the production information and employed a local business service company to pay a visitation/inspection to Tony's factory in China. Tony explained that he was abroad and inconvenient to meet his rep then for the first time, only a week later all his contact ways have been shut down (telephone, website and mobile phones etc), Tony disappeared in the air. Finally the local auditor went to their factory without notice (according to their address online, offered by the client ), to our great surprise, their company did not exist at all, nobody in the offices except an old man reading newspaper there. Their address is true but it's for another company in China! That's to say, the scammer is cheating the clients by using other companies' information! So Mr.B lost more than 120000 USD. ( I guess the scammer Tony just bought the auto parts from other factories in China and tried to gain the trust from foreign buyers for the first time.)

1. Samples could be good but it does not mean their massive production would be the same in China. Signing a formal contract with any of your suppliers for sake of better protect of your interests, esp when your order is large enough.
2.Fulfilling a Basic Company Verification on your supplier to make sure he is not a scammer and qualified enough to be your business partner in China.
3.Fulfilling a detailed auditing service if you'd like to place large orders and a during-production QC inspection and a pre-shipment QC inspection is very important for such cases. A local expert can help you a lot in such cases.

Case Four:
Product related: human hair products (wigs)
Chinese supplier: China better hair co., ltd (This is a SilverKey member from another well known platform----Tradekey )

Case Details:
A Portugal buyer----Mr.C got their information online and contacted Mr.Guo----the foreign trade manager from Better Hair in May, 2007. One month later Mr. C placed a trial order with them in China, amounting over 5000 USD. What Mr. C required is 100% human hair products and Mr. Guo is also selling authentic human hair wigs as well as synthetic hairs. Mr. C met lot of trouble in his market as he received lot of complaints from his customers in Portugal, claiming their product is not 100 % human hair and mixed with animal hairs and synthetic hairs etc. Mr. C suffered great loss owing to the quality issue.

1.The best way to avoid such cases is to book a Pre-shipment QC Inspection from a local expert team like STIN before delivery in China, esp when your order is large enough.
2.Don't forget to sign a formal contract with any of your suppliers, apparently this supplier is a trade company in China but they claimed to be a real manufacturer in this field. Why not audit them before payment? It would be much easier to control the quality if you deal with a factory directly. 

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