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
or visit us online: http://youtu.be/IaoSngoycIo

STIN (CHINA) BUSINESS SERVICE CO., LIMITED

China's weak foreign trade growth suggests more policy easing

BEIJING - China's foreign trade increased 3.4 percent year on year in 2014 denominated in US dollars, significantly lower than the 7.6 percent rise in 2013 and the 7.5 percent target, indicating more room for monetary easing.

Denominated in US dollars, exports rose 6.1 percent in 2014, while imports increased 0.4 percent, Zheng Yuesheng, spokesman for the General Administration of Customs (GAC) announced on Tuesday.

Denominated in Chinese yuan, exports increased 4.9 percent to 14.3 trillion yuan, while imports fell 0.6 percent to 12.04 trillion yuan. The foreign trade surplus widened to 2.35 trillion yuan in 2014, an increase of 45.9 percent.

The leading export index slid for the third month to 40.1 in December 2014, the lowest since December 2013, and a pessimistic prospect for exports in 2015.

Zheng Yuesheng attributed the weak foreign trade growth in 2014 to a slow global recovery, less competitive Chinese made products, less foreign direct investment (FDI) in the manufacturing sector and falling commodity prices.

The average price of China's iron ore imports dropped 23.4 percent in 2014, while crude oil and soy bean import slid 6.1 percent and 6.8 percent,respectively, Zheng said.

"With domestic demand still depressed, policy easing is still needed," said Bob Liu, an analyst at the China International Capital Corp (CICC), adding that the government may set a lower export growth target for 2015.

Liu Ligang, chief Greater China economist at ANZ Banking Group agreed. that weak domestic demand and investment led to weak growth.

Trade with the European Union, China's biggest trade partner, edged up 8.9 percent to 3.78 trillion yuan, while trade with the United States, the second-biggest partner, rose 5.4 percent to 3.41 trillion yuan. Trade with third-largest partner ASEAN, rose 7.1 percent to 2.95 trillion yuan.

Trade with Japan contracted 1 percent 1.92 trillion yuan.
For 2015, economists believe that the foreign trade growth will continue the downward trend.

Bob Liu predicted that both export and import growth will fall in January, but export growth should still be much stronger than imports. The trade surplus is expected to remain high in January, before experiencing a seasonal decline in February and March.

His point was echoed by a research note from Merrill Lynch, forecasting that the elevated trade surplus could be sustained for several months on falling crude oil prices, while export growth could soften on a strong RMB.

Related:

Subdued price levels point to more policy easing

China's consumer inflation remained weak in December while price declines at the factory gate level continued to deepen, suggesting weakness in the world's second-largest economy but will create space for policy makers to take easing measures.

Growth in the consumer price index (CPI), the main gauge of inflation, rebounded to 1.5 percent in December from November's 1.4 percent, its slowest increase since November 2009, the National Bureau of Statistics (NBS) said Friday.

On a monthly basis, December's CPI edged up 0.3 percent against the previous month, reversing the downward trend experienced since September.

This small pick-up in December's consumer inflation was mostly driven by food prices, said Chang Jian, Barclays chief China economist.

Food prices, which account for about one-third of the CPI calculation's weighting, rose 2.9 percent from a year ago in December, compared to 2.3 percent the previous month.

Growth in non-food prices, however, fell to a 56-month low of 0.8 percent, led by falling transportation and housing costs, Chang said.

China's consumer prices grew 2 percent in 2014 from one year earlier, well below the government's 3.5 percent target set for the year. It was also below the 2.6 percent growth registered in 2013.

Producer price index (PPI) slumped 3.3 percent in December from one year earlier, the sharpest fall in more than two years, and the decline deepened from November's 2.7 percent fall.

Tumbling oil and other commodity prices have extended the run of producer-price declines to a record 34 months.

PPI fell 1.9 percent year on year in 2014.
The easing inflationary pressure will give the central bank more room to initiate measures to support growth.

In November, the central bank cut benchmark interest rates for the first time since the summer of 2012. Analysts are divided over whether more rate cuts would follow in the coming months as the 2014's growth figures are likely to register its slowest pace in more than a decade.

Chang forecast two additional cuts in benchmark interest rates, by 25 basis points each time, in the first half of this year, as well as three cuts in the reserve requirement ratio (RRR), by 50 basis points each time, throughout the year.

Liu Liu, analyst of China International Capital Corp., expects the central bank to cut interest rates once and lower RRR four times this year likely in the first half.

However, Liu Ligang,chief Greater China economist at ANZ Banking Group., said the central bank appeared to be reluctant to cut RRR to counter falling prices and economic slowdown.

The Chinese government should use both structural reform measures and monetary policy tools to head off the risk of deflation, especially when domestic demand remains weak and commodity and energy prices continue to fall, Liu Ligang wrote in a report to clients.

Final figures for last year's gross domestic product (GDP) are slated for released on Jan 20.

Resources: China Daily

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How to Recover and Collect Debt in China

Definitely, it is much better to prevent bad debt in advance instead of collecting international receivables later in a foreign country. You should try your best to investigate the credit status of your trade partners before you sign contracts, deliver goods or make remittance. For some transactions with considerable amount, you had better retain a local business service company to thoroughly check the background, check the quality, arrange shipment, supervise the loading process and even offer afte-sales services etc.

In case unfortunately you suffer bad debt in China, do not hesitate and naively hope the debtor will pay kindly and voluntarily, which will waste you valuable time to effectively collect the debt. Actually, as far as the international debt collection is concerned, the longer the account receivable lasts, the more difficult to successfully collect it. According to the statistics, the success rate of collecting internationally debt which has been overdue for 1 year is no more than 60%; and less than 40% for the debt overdue for 2 years. In addition, the longer the debt last, the debtor will be more reluctant to pay. Possibly it is instinct of human beings. So if you are confronted with bad debt, you should take actions as soon as possible.

Obviously, it is a tough job to collect debt in a foreign country. You need to retain or hire professionals to help you. Please note that in China debt collection agencies are prohibited. You have to retain a local qualified lawyer to help you. In China, most lawyers provide legal services on a basis of flat fee. Usually Chinese lawyers charge a fixed fee in accordance with the regulation issued by judicial and price authorities. Some lawyers who handle international cases charge client for their services on a hourly rate. For comparatively big cases, some Chinese lawyers could handle cases on a contingency fee basis. In China, the contingency feeon a basis of flat fee. Usually Chinese lawyers charge a fixed fee in accordance with the regulation issued by judicial and price authorities. Some lawyers who handle international cases charge client for their services on a hourly rate. For comparatively big cases, some Chinese lawyers could handle cases on a contingency fee basis. In China, the contingency fee (commission) rate should not exceed 30%. 

So taking any legal action will cost you lot of time and money, some clients would like to try Official Assistance first with a Case-Report service from local experts, this service costs you only several hundred USD sometimes.

Compared with other countries, the lawyer fee in China is not cheap. Additionally, the court fee is much higher than that of western countries; the court charge a certain percent of the disputed value. So the creditor should consider the potential lawyer fee and court fee before initiating international commercial litigation. For some small cases, you could entrust a local lawyer to negotiate with the debtor; sometime compromise is necessary, particularly you yourself has faults in the dispute. The foreign creditor could also consider other alternative ways. Say, if the case fact is clear and definite, and the evidence is adequate, you could publicize the case on Internet. Hopefully, the debtor will "voluntarily" pay you taking into account their business reputation. Sure, you should be careful with this measure. Otherwise, you could be liable for slander.

If the debtor committed business scam, you could report the case to Chinese local police and ask them to commence criminal investigation procedure. If the debtor concern their possible criminal liabilities, hopefully, they would "voluntarily" pay you; and the police will wrap up the case as a commercial dispute. If the debtor refuse to pay, they are still obigated to return the goods they cheated and compensate your losses even if they are sentenced to prison.

Should you decide to take legal actions, you need first check whether there is arbitration clauses in the contracts. If there exists an effective arbitration clause, you have to submit the case to the agreed arbitration tribunal; if not, you can file lawsuit against the debtor. The writer strongly recommends you should initiate litigation in China. If you file lawsuit in your own country, even if you get a win judgement, you have to apply to a competent Chinese court for recognition and enforcement, which is inevitably complex and time-consuming. In China, a case will be heard the most by two instances; and the judgement delivered by the appeal court will take effect immediately. If the debtor refuse to perform the effective judgement, you could apply to the trial court (first instance) for enforcement. Generally speaking, an international commercial case could last 1-2 years.

If the case is big enough, the victim should come to China and report the case to local police station and officials in person. Normally they should book a professional Biz Guide service before their departure to China if they'd like to save more time and cost.

Author: Mr. Shen, a professional lawyer from Shanghai

How to prevent bad debt and business scams in China?

The most primary element in preventing bad debts (business scams) is to well know your business partners. You can think about as many questions as you can before you make any decision.
How about their credit reputation?
How about their financial situation?
Do they pay on time? Are they able to pay on time?
Do they have a good bank credit?
Do they continually have real product disputes?
Is there any allegation of their committed fraud available?
Are they untrustworthy traders who carry out some legitimate transactions and then routinely fail to pay until they are sued in courts? Or like some debtors who try to utilize suppliers' goods in order to fund their own business, and only when such suppliers file lawsuits will they then settle a claim and only for a less amount?

Considering the risks to spend considerable money and time to recover international debt in future, you should try your best to check the background of your business partners in advance:
Information on initial company registration.
Form of legal entity's incorporation.
All changes  filed / made in AIC (Administration of Industry & Commerce, company registry in China).
Last registered changes in AIC.
Pending changes that have been filed to AIC.
Legal address (de jure address).
Physical address (de facto address).
Contact phone numbers of the office.
Premises occupied by the company, premises occupied by the branches and warehouses.
*Existing bank accounts, bank details, bank balance as of the day of inquiry (if possible).
Tax bureau to which the company files financial and tax reports.
Previous and pending tax inspections by tax authorities.
Licenses for specific types of activity that has been obtained by the company.
Information on current CEO.
Key persons from management side.
Number of employees.
Charter capital.
Property owned by the company.
Information on every participant/shareholder.
*Main financial results of business according to officially filed balance sheet for the last accounting period.
*Full term-sheet for the last accounting period.
 Main contractors (contracting parties) of the company.
 Business image in this field of business.
 List of court cases both pending and judged.

Obviously  it is far from an easy job for foreigners to check the credit status of Chinese companies, particularly for some transactions with considerable amount, you had better retain a professional auditor to thoroughly investigate.  Actually if your order is small, you can simply ask for a Company Basic Verification and if your order is very big, a Factory Inspection and Auditing Service is very necessary in China. STIN services (www.chinabizservices.com) are recommened as they have worked for more than 2000 clients from over 80 countries and areas on the globe so far.

The Top Copper Ingot Brand and Manufacturer in China

China is one of the largest copper and other non-ferrous metals manufacturer and exporter on the globe. Here are some famous copper mines in China: Dexing (江西德兴), Tongling (安徽铜陵), Daye (湖北大冶), Dahongshan (云南大红山), Zhongtiaoshan (山西中条山), Dongchuan (云南东川易门) etc. Following non-ferrous metal suppliers, esp for copper ingot, have been sourced but not inspected by STIN verification team in China, here is the list for your reference:
1.Jiangxi Copper Group Corporation 
  Product: copper ingot, gold and silver ingot, alloys
  Tel: 0701-3777070

2.Zijin Mining Group Co., Ltd
  Product: gold ingot, copper and silver ingot, zinc ingot, alloys
  Tel: 0597-3833105   

3.Yunnan Copper Group Corporation 
  Product: copper ingot, gold and silver ingot, zinc ingot, alloys
  Tel: 0871- 63175096
 
4.Tongling Nonferrous Metals Group Corporation 
  Product: copper ingot, gold and silver ingot, alloys
  Tel: 0562-5860016  5860000 

5.Hunan Shuikoushan Non-ferrous Group Co., Ltd
  Product: lead ingot, zinc ingot, copper ingot and silver ingot, alloys
  Tel: 0734-7582281

6.Jinchuan Group Co., Ltd
  Product: copper ingot and silver ingot, alloys
  Tel: 0935 - 8811528  

7.Yunan Metallurgical Group
  Product: tin ingot, lead ingot, zinc ingot, copper ingot, alloys
  Tel: 0871-8891800 

8.Jinzhou Copper Industry Co., Ltd
  Product: Copper ingot
  Tel:0750-8663288  

Important Notes: These copper ingot suppliers are well-known for domestic market in China and most of them have NO direct Export License, foreign clients have to work with a qualified export or import agent like STIN (www.chinabizservices.com) in China if they'd like smooth business for such items.  Copyright: STIN SOURCING SERVICE TEAM