To: Managers and financial staff of companies doing business in
China or with Chinese counterparts
Fraud is not new to China, but over the past year we have
been approached by several companies who were each defrauded in a
similar way, via seemingly legitimate payment instructions that
later proved to have been arranged by email hackers. Hereby an
introduction to this fraud, and steps that managers can take to
avoid becoming the next victim!
In a typical case, a European company receives an email from the
regular contact of its supplier, asking for payment of an invoice
to an alternative bank account. The wording gives nothing away, nor
does the timing of the request. Quite often, payment is made
accordingly. Sooner or later however, the supplier asks for payment
again. After further investigation it becomes clear what has
happened: someone has hacked into the email of the supplier, has
reviewed previous emails for both message and tone, and has then
sent the payment instructions. Payment is made to a Chinese bank
account under a false name and the money is transferred out
immediately, usually to a bank account outside China (the
Philippines being a popular choice): out of the reach of
We propose some simple steps to avoid becoming a victim of this
kind of fraud:
Include the supplier's bank account numbers in the contract
or commercia invoice;
Establish strict internal procedures for making all payments
(incl. the four-eye principle);
Be extra careful when asked to remit funds to a bank account
that is not pre-approved (e.g. in a contract);
If there is any doubt, reconfirm with the supplier by
Establish internal liabilities for staff that do not follow the
rules (e.g. persons that make payments beyond their authorization
level should be penalized).
Companies that are defrauded have two options: go to the police,
or pursue the supplier. The Chinese police can be a powerful ally,
but fraudsters often know how to cover their tracks. In other cases
the supplier can be pressured to take some of the blame, but it
will help if good contracts and clear internal procedures are in
place to establish the supplier's fault.
A final word of caution: we have described what presently seems
like the most popular way to defraud international companies that
are doing business in China; however it is not the only situation
to be cautious about. Other typical circumstances to avoid
A foreign company unexpectedly receives a big order from a
Chinese customer, but is asked to travel to China to clinch the
deal. Once in China, the foreign manager is tricked or blackmailed
into paying various expenses or even huge sums of money, followed
by the deal falling through in the end.
A foreign company is approached by a Chinese domain name
registration agent, with the warning that another party is trying
to register the foreign company's domain names. The foreign
company gets frightened and agrees to register all these domain
names first, even if it doesn't really need them.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This article discusses current fraud tactics within the mortgage industry and practices to minimise an exposure to fraud.
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