I have received more and more emails from importers who got scammed by a Chinese supplier. And it seems like I am not the only one to notice this trend.
A good article on the China Law Blog (China Scam Alert: The Different Company Bank Account. Again.) describes a typical case:
Chinese Company secures orders from foreign company. In the past, these orders were almost exclusively secured over the internet, but we have recently been hearing of many cases where the Chinese company actually goes to a trade fair (and not just in China) to secure its orders. Foreign Company starts feeling good about Chinese Company. The person who allegedly works for Chinese Company (I say allegedly because it is quite possible, nay, even probable, that the person at the trade fair who claims to be with Chinese Company actually has no connection with Chinese Company) speaks good English and is a quite reasonable person. The person who works for Chinese Company offers reasonable (but not amazing) prices and, most importantly, he or she (unlike most of their competitors) is willing to ship the product with only a minimal (typically 20% to 30%) down payment.
So foreign Company really likes Chinese Company, which has been responsive as all get out. Foreign Company then places a large order (to secure the greatest discount) with Chinese Company and then sends the money as instructed.
This is where the problem begins. The person who Foreign Company believes to work for Chinese Company instructs foreign company to send the funds to a bank account (oftentimes one outside China) that belongs either to an individual or to some company other than Chinese Company. The person who claims to work for Chinese Company usually says that Foreign Company must send the money to that other company for “tax reasons” or because that other company owns Chinese Company.
Foreign Company sends the money to Chinese Company and never receives a thing. It then wants to sue Chinese Company but it has a really tough case. It has a tough case because Chinese Company will claim that it never communicated with Foreign Company and it certainly never contracted with Foreign Company either. Foreign Company has a great lawsuit against the actual scammer, but by this point the actual scammer is, of course, nowhere to be found.
So, how to avoid scams?
- Make sure they are not “two guys in an office”. If you can’t visit them, pay for a factory audit or for a background check.
- Avoid suppliers that don’t use a company email address. Some legitimate suppliers use @yahoo.com.cn or @163.cn addresses, but generally it is not a good sign.
- Call the number you see on their website and ask to talk to your contact (bad sign if you try 3 times and they never understand your English).
- Google [the company's name + scam]. If you find several complaints from other buyers, be careful.
- Pay the first order by letter of credit, if possible.
- Only wire money to a company account, and to the account of the supplier.
- Issue a purchase order, and get it chopped by the supplier.
Oh, and please note that being a “gold supplier” on Alibaba does not mean anything. Some companies have been gold suppliers for years and still scam importers.