The China Bank Switch Scam: It Gets Hotter When China’s Economy Cools

Our China lawyers have received at least five emails this past month from companies that have fallen victim to the China bank switch scam, in amounts ranging from USD$12,000 to $383,000. We are getting these at such a pace of late that I have formulated the following automatic response:

Your chances of getting back all of your money are very low.

The China bank switch scam and what to do if it happens to you.

If you were to retain us, we would do the following:

1. Work with your insurance broker and your insurance company to see if it will cover you for this loss. This is pretty much your only real chance of recovering all that you have lost.

2. Try to get some monetary contribution from your Chinese supplier by pointing out to it that it was their computer system that the scammer hacked and therefore it should pay at least some of your loss. This works maybe half the time in getting maybe half of the money back, usually over time. Much will depend on your existing relationship with your Chinese supplier and on what it perceives its future relationship with you will be.

3. Try to determine if there is any chance in recovering anything from the perpetrator. This virtually never leads to any recovery.

As we have frequently written on here, this bank switch scam is the most common, most pernicious and most difficult to detect China scam of which I am aware, and it just unrelentingly keeps happening.

This scam usually involves your regular Chinese supplier asking you to make your next payment to a new bank account, though it sometimes can involve your very first payment to a new Chinese supplier. Then even after you make the payment, your China supplier insists that you still owe it the full amount (oftentimes with added fees) because it never received your payment. When you explain to your China supplier that you in fact did pay it, your supplier points out that the bank account to which you sent the funds is not theirs and that you still owe the money.

What happened? Your Chinese supplier got hacked, either by someone outside or within the company and you indeed have yet to pay it.

Here is the latest one, with all identifiers changed so as to disguise identity:

Dear Harrismoure,

My name is ____________, I am the president of __________, a manufacturing company in Spain.

We had a supplier in china that is selling ________ to us (for over 5 years) and we got a recent request from our supplier asking us to do the deposit on a different account in China and we did for over 230,000 USD.

Then we found out that our supplier did not have the money. Now we do not know who has our money.

I saw your article in Forbes about this and I would like to know whether you can help us.

I wish that I had some new method of preventing this scam (just as I wish that everyone who does business internationally would read this post so that this scam never happens again). But I must resort to saying what we have been saying all along.

This is a scam that can happen to YOU. We have seen many smart, worldly, sophisticated companies of all sizes get caught up in this scam.

What then should you be doing to prevent it from happening to you? Do the following (h/t to Renaud Anjoran for these):

1. Get to know your suppliers who speak English (if you don’t speak Chinese) and get your supplier’s landline phone numbers as that cannot be hacked. Call if you have any concerns.

2. Get your supplier’s bank account information in advance and ask them to refer to “bank account information document” on their invoices, rather than listing out full bank details every time.

3. Ask your suppliers to fax you their invoice and make sure the sending fax number belongs to your supplier’s company.

4. Do a first small wire to confirm the account.

5. Have a special procedure for confirming the company name. Note also “that paying a Chinese company in mainland China is safer for you” than paying them overseas in Hong Kong, Taiwan or elsewhere.

6. Have a special procedure for confirming bank account changes. “Follow the same procedure as point 5, but also call several people in the company. They will understand your attitude if you tell them you are worried about the “different bank account scam” — they are also a victim when it happens to their customers.

And please just be careful out there.

The post The China Bank Switch Scam: It Gets Hotter When China’s Economy Cools appeared first on China Law Blog.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.