Lehman, Lee & Xu Uncovers Complex China Scam!
Foreign Businesses beware!
Beijing, 22nd December 2016, an email is received in the offices of Lehman, Lee & Xu from a European company. The email said something along the lines of:
My company is a victim of fraud. We were tricked into sending a notary fee for the execution of a contract. The name of the Chinese company is [xxx]. From our perspective the contract looked very attractive and was worth around a million Euros. After much negotiation, the Chinese company eventually agreed to all of our terms.
They said that it was traditional to have a signing ceremony for such big contracts to show that the parties take their partners seriously. I travelled to China and covered all of the travel and hotel costs for the trip. Eventually, I met the person I had been negotiating with and the CEO of the company at my hotel in the lobby. We signed the contract and then I was informed that a notary fee of [RMBxxxxx] was required to have the contract legalised. I arranged for the money to be sent to a Hong Kong bank account.
Shortly after returning from China, I was offered some business by this company. I prepared contracts and sent them to China. I also paid for an additional notary fee of [RMBxxxxx].
I had to hire new staff to fulfil the contract that I had accepted. During an interview, I mentioned the name of the Chinese company to the interviewee. Surprisingly, they had heard about the Chinese company and they mentioned that said company was in fact contacting other people in Europe with the same offer as they had made me and that they were also asking for notary fees from those companies.
Now, we would never dream of posting an actual client email online. So, the above is a heavily edited version of events. However, what we can learn from this story is a number of things, such as:
- The classic scams always find new forms. The above is a variation of the Spanish Prisoner Scam.
- If you are dealing with a company in China, be wary of making payments to them in Hong Kong.
- Due diligence is a must in business transactions.
- You do not have to make payments to someone who is offering you business. They very fact that they are offering you business means that they will need to pay you something sooner or later. If they ask for money to cover their expenses, offer to give them a discount of the same amount on their next transaction.
- If you are meeting a Chinese company, you could meet them in their office. That way, you can be sure that they are not an imaginary company, but a real one.
- If you are a foreign company dealing with China, you do not absolutely have to do things the Chinese way. It could in fact disadvantage you.
- Finally, if you do not know what you are doing, seek legal advice. It could save you money in the long run.
This is not the first time we have seen this type of situation and we are sure that it will not be our last.
An interesting thing that many do not know about China is that crimes such as fraud have certain financial thresholds. In this particular situation, we are likely looking at the crime of contract fraud. Contract fraud has a minimum threshold of RMB20,000, meaning situations involving lesser sums are not crimes.
If you are unsure of how to conduct business in China, contact Lehman, Lee & Xu, your China lawyers.