Recently updated on April 15th, 2021 at 03:00 am
Min Chow(Partner at Huan Yu Law Firm, China): Recently, the cases relating to foreign buyers’ suffering from property loss due to internet defraud in China rise sharply. So please pay attention to the fund safety when doing business with Chinese suppliers. (View more tips about Import from China — How to Deal with Production Problems in China) Please find details below.
Case Brief：
1. The foreign buyer and the Chinese supplier have business negotiation and communication via emails [presuming the correct email box used by foreign buyer is “BE” (buyer email), and the correct email box used by Chinese supplier is “SE”(supplier email) ] and have reached common understanding on the specification, quantity and price of goods via emails.
2. One day during the negotiation, the foreign buyer received an email sent via another email box (hereafter is referred to as “FSE” (fake supplier email)) which is extremely similar with the SE email box. Moreover, the email content sent via FSE fully matched the email content sent via SE before, so the foreign buyer misunderstood that FSE is also an email box of the Chinese supplier; or even the foreign buyer did not know the emails he received from then on were sent via FSE.
3. FSE continuously sent emails to the BE email box of the Chinese supplier for the purpose of business negotiation. When the time of payment came, FSE told the foreign buyer to process payment to the bank account of a Chinese natural person with the excuse of changing the bank account by the Chinese supplier. Later, the foreign buyer processed payment to the bank account of a Chinese natural person as designated by FSE.
4. After paying, the foreign buyer found that the Chinese supplier did not deliver good, so he called the Chinese buyer for the reasons. But the Chinese supplier denied that he had sent any email to the foreign buyer concerning changing the beneficiary bank account, denied any relationship with FSE email box and denied he had received any payment from the foreign buyer. The Chinese supplier said that maybe their SE email box had been attacked by internet hacker.
5.Later the foreign buyer reported the case to Public Security or filed litigation against the Chinese supplier for claiming back the fund.
Legal Tips for Foreign Buyer：
1．Recently, cases as described above rise sharply. Therefore, foreign buyers shall not believe any emails concerning change of the Chinese supplier’s beneficiary bank account easily. It is advised to contact the Chinese supplier via phone call before and after transferring fund.
2．The bank account name of the Chinese supplies normally should be the registered company name of the supplier or the name of the Chinese supplier’s affiliated offshore company. So usually the account name shall be the name of a company. Generally, any instruction given by the Chinese supplier requesting the foreign buyer to transfer the fund to the bank account of a Chinese natural person is the behavior violating the Chinese tax law, so the foreign buyer may refuse to do that.
3．It is advised to get the bank account information of the Chinese supplier involved in the sales contract or purchase order between the parties. The supplier’s bank account information cannot be changed without the mutual written agreement of the two parties.
4．Once the foreign buyer finds that the fund has been remitted to a wrong bank account, it is advised to contact the supplier or the lawyer immediately and ask them to apply with relevant local Public Security for freezing the wrong bank account. If the foreign buyer fails to get back the fund by this way, he/she may file litigation against the Chinese supplier later. In this lawsuit, the Chinese supplier is responsible to prove that it has no relationship with the FSE email box and provide evidence that it suffered from hacker attack before, otherwise, the foreign buyer may require the Chinese supplier to pay compensation with the reasons that FSE email box shall be deemed to be owned by the Chinese supplier for FSE knows all transaction details between parties.
Horst G Ludwig(General Manager at SIMUCOL): E mail business? Some must be truly native and childish to do so and others may ask what happened to Chinese honesty and loosing face.
But if you mix small size transactions with business the topic is wrong from the beginning. True business is done on bank-to-bank, LC and performance bond bases in which goods are paid against bill of lading and many other security certificates.
Now, the other view is as follows. If the Chinese public and professional world knowing about hackers and scammers they have to protect the business and not expecting that foreigners have to know about it. If not they loose client forever.
True is that it is almost a nightmare communicating with Chinese firms because they just don’t! And if they do they have a non qualified young lady not knowing even the basic of foreign cultures and does speak or write very bad English, German, French or Spanish as the principal trade languages.
Donald Hsu(Professor, Consultant and CEO, Greater New York City Area): Horst and all:
I like your tag line, Sharing is gaining more with less risk. Colombiais a nice country. As a German, you apparently love it.
As for doing import/export with Chinese buyers or suppliers, the normal procedures: L/C, credit checking, payment terms, bill of lading, and 10 other items need to be set up, before you ship the product, if you are selling. Then good luck on getting payment. If the payment does not arrive in your bank, then you will have a hard-time suing your buyer in China court. 99% of the time, you lose!
If you are a buyer, then the above example showed the point. You paid the money but got nothing or the wrong product.
My NY firm XYZ did business with China 12 years ago, my firm insisted on the payment by wire transfer first. We got the money, then we shipped. It was all good.
After a few small deals, we got a big one heating oil, $6 million shipment every three months. We got L/C and 10 steps, all good. But XYZ could not secure the payment, so the deal was canceled. XYZ wasted 1 year of negotiation, phone calls, personal visits, etc.
The other US firm did the deal, lost $6 million. The buyer in China, is now in Canada. He is one of the most wanted criminals, by the China government.
Horst G Ludwig(General Manager at SIMUCOL): Thanks for sharing this experience with us. Lots and many problems may happen if some tries alternate ways and often we are pushed to try alternate ways to get a business done. Especially in the field of agents, brokers and traders are “accidents” the big percentage and not “principal to principal”. Do you agree with this?
Anyway my best wishes to you and all these type of experiences does wizen us up and we automatically start looking at security and safety first.
Yes, a German economist in Colombiaand loving it. Any assistance you may require you’re welcome to drop me a line. The free trade agreements between Colombiaand the world increased domestic investments by 81% in only 2 months (not petrol or mining related) and its a good place to do business with or within. The devils ride indicated at the northern hemisphere of the globe wont have a destructive impact on countries such as Colombia, Peru or Chile and the pacific agreement with South Korea and China will prosper by humble means while the other markets shifting every day more and more debt around.
Sophie Xiao(Independent Sourcing Agent, China): Please do not use “Chinese Suppliers” and express it in this way. The reputation of most of the companies and individuals in China, who are doing serious business everyday either offline or online, has been ruined. Please name the company and individual if they are scammers, so that we all can have scam alert. Some Chinese companies and sellers were cheated by their foreign buyers, lost their goods without receiving any payment, and the companies I ever worked for received full containers of wrong goods from their European supplier. These types of scammers and business cases can be found and happen in every country. Please do not use “Chinese suppliers” to refer some one in specific cases.
Raveendran M V(General Manager at Kunshan Jasmine Intl Trading Co Ltd): Respected members: This is not an issue to blame countries or regions. In the International business, some people are loosing their hard earned money due to such fraud cases, whether it is a buyer or seller.
Let me explain one ongoing problem. A friend of mine from India ordered for 400 T chemicals to a trading company based in Tianjin. They had communicated well, exchanged emails, contracts etc and they were in constant touch. The payment terms were 20% advance by T/T balance by L/C at sight. They had agreed for SGS inspection and promised to send the products within 15 days after getting the advance money. The money was transferred to the party and they were getting confirmation that the materials are being prepared. After 10 days after transferring the money, all the telephones are switched off and none is reachable now. The party is running here and there to get the money back, so far they did not get any hope. The amount transferred was USD 64800.
i request whether anybody could suggest a way to help my friend to get his money back.
James Dodson(China Sourcing Expert): Chinese business practices are rife with fraud. Cheating is normal practice. It’s best to visit the supplier in person. Even if they are a real supplier, Chinese suppliers generally have a “big capability gap.” They will say anything and do anything to get your order. Factory audits quickly determine that these suppliers do not have the equipment and people to make your products. I know that most of you are either a small importer that does not have the resources to go to China or are time constrained with your order. Here is the next best thing you can do. If you can read Chinese.
1. Identify the city where the factory is located. For example, I want to buy cooking utensils in Yongkang, ZhejiangChina. 中国，浙江，永康。
1. Ask the company for a business license. I will make a section about how to read a chinese business license in the future. but too busy now. and will translate everything in a future post.
1. locate the cities website for Administration of Trade & Commerce. For Yongkang it will be something like this – 永康工商管理。 工商 = gong / shang = industry and commerce. So yongkang’s is http://www.ykaic.gov.cn/Member/ (So it looks like it’s a bit difficult to find on this website or may not be up to date. Possibly inJinhua,Zhejiangbecuase Yongkang is a pretty small area. Jinhua, is the county seat and Yongkang is section of Jinhua.
1. Here you can enter the business license for the company and see if it exists or not.
1. Then you can go to the Zhe jiang government website. http://gsj.zj.gov.cn/zjaic/# here you can check the companies business license. You may need to create an account to get the business license registration information.
1. What you want to look for –
A. is the address the same on license as listed in registration
B. is the legally responsible person the same as license.
C. is company name the same as in licenses
D. tax id and all the license numbers match up.
1. If this is too difficult you can pay a Chinese attorney to go the government office and get these documents. This will cost about 100USD. it’s really worth it.
These are basic background check steps that should betaken when dealing with Chinese suppliers. I hope they help you.
Also, make all your contracts in Chinese. And the bank account for receiving payment should be listed in contract. Should be same name as on business license. If use a trade company you need a 3rd party agreement for acceptance of payment. Trade company signs and states that they process transaction on behalf of XYZ company.
Do not pay to a personal account ever.
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