Basic ways to find out Chinese business fraud before payment

China is not only the largest exporter but also the largest importer for lot of general commodities on the globe, suggesting that 99.99 % of the Chinese businessmen are quite honest and reliable enough. However, scammers do exist everywhere on the globe, as a professional auditor and sourcing expert in China, I'd like to share some basic skills on how to find out the Chinese business fraud before payment:

1. Homepage/Website/Full contact ways

Scammer and cheater usually rent an internet domain from an American or Chinese host for one year. After one year, the homepage does not exist any longer - as well as the company. No email-address, no phone-/fax-number works any more. The contact person (usually it is only one or two !) disappears completely and can not be reached by any means any more.

The homepage in each case is from the same‘mold’or‘standard’- it means a  ready-made/pre-manufactured one. Layout, design, functioning etc. of the site are almost the same in all cases - only the name of the company, phone number, email address, name of contact person are different.

90% of these scammers do not use a fixed office phone number, they just listed out a mobile phone number online. They used‘fake ID card’to buy a SIM card and get a mobile phone number, which could be disappeared at any time in China.

It is always mentioned on these sites only one single contact person, only one email-address, only one number which is phone and fax at the same time. There is no real, serious company presentation - only generalities which in all cases coincide to 90%.

There is nothing telling about the company history, company values, employee/staff, and management etc. They may know little English, or just use machine to translate or employ a young girl to work for them.

There is nowhere on the site mentioned any official registration number, tax number etc. as well as the contact data of the official governmental authorities where it can be proved that this company really exists and has all necessary legal licences. There are nowhere mentioned the bank coordinates, so that the company can be proved about its credit and reputation.

100% of the scammers use‘fake'or‘none-exist'addresses in China, they just created an address online and it cannot be reached at all. With a simple ‘on-site inspection’you can find out the truth, especially when the order is large enough.

2.Too low prices
Check the market price in China first before you IMPORT !
China is well-known for the ‘cheap or low’ prices for most of the items on the globe. However, please bear in mind that China is also the largest consumer for lot of luxury and high quality products. Almost every factory has different quality level products, catering for the importers from Europe, US, Middle-East and Africa, if you pay more, the quality will be good, and vise versa.

The scammers normally trap the importers with extremely low prices, far beyond the market prices. You have to check out market price and their export qualifications first before further discussion if you are offered a very low price.

3.Payment terms and bank account 
Scammer and cheater always ask for pre-payment, usually 30%TT in advance. It seems to be normal in the international business as they need cost to prepare the raw materials, however, the importer should have their registered information or export qualifications first before payment, especially when the order is very large.

LC 100% at sight is also not 100% safe now. Some professional scammers will use ‘fake documents’ to get the money, please read here to know more about such cases. They do not issue a PB of 2% - because they do not have the money and they are not credit worthy. Of course, the best solution is that you can use little money to employ local verification or auditing service to solve these troubles in China.

Another important thing is the bank account. We have witnessed several cases that some professional scammers use ‘UK, Dubai or HK offshore company’ to receive the money in China. For example, they can register an offshore company in Hongkong or UK or Middle East, the company name is exactly the same with a big company name or well-known company name here in China. Then the client is required to pay to their offshore trade company account (which does not exist in Mainland China), they will disappear after they get enough money and repeat the scam story again and again. In this case, company bank account verification is also very important now, espcially for large orders.

4.Licences and export qualifications
In China, every factory or exporter must have their own Business License, from their official Business License, you can find out their authorized business scopes in China, you can also find out whether they are a real factory or not in China. In this case, a basic verification service is very important before payment if you know nothing about Chinese.

Scammer and cheater are not able to present a business licence - not a company licence, not an export licence, not a production licence, even if they state, that they are direct producers/manufacturers. Some used a ‘fake’ license to trap you. If they present one, it is only in Chinese and no European buyer will understand what kind of licences it is and what it is written in this licence.

Except for the business license, some other certificates or licenses are very important as well in doing international business in China, say, Export License, Export Quota (for some special items), CE, SGS, UL, Halal, ISO certificate etc. Do not forget to check out their export qualifications and bank credit before payment! A formal purchase contract, on-site factory auditing or inspection service, pre-shipment QC inspection and loading process supervision service etc play a very important role in doing safe and smooth business in China !

Source: STIN Verification Team and Dr. Harald Dasinger, a sourcing expert from Germany

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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