The China Bank Switch Scam 3.0

The China bank switch scam has been a constant for about a decade. This scam involves criminals breaking into email accounts and changing bank-account information to capture payments intended for Chinese suppliers. The criminals are sometimes from outside the Chinese company (oftentimes outside China as well), from inside the Chinese company (like an employee) or the company itself (that is faking it to get paid double).

In just the last six months we have seen a massive uptick in these scams and I attribute that mostly to the coronavirus. The coronavirus has tanked China’s economy. See China’s Damaged Economy Under the Coronavirus. Really Damaged. And China’s small manufacturers have been among the hardest hit. See China’s small business sentiment sinks to all-time low as outbreak knocks China’s economy. Your factory may be your scammer. On top of this, there are a heckuva lot of people in China who are right now cooped up in their apartments because they cannot get to their jobs or because they have lost their jobs. With little to do and no income coming in, some of these people may be the scammers.

Not only is the coronavirus leading to an increase in scamming, it is also being used to justify the bank change. We have seen emails saying the bank change was necessary because their usual bank is closed due to the coronavirus and we have also seen emails from China factories saying that they are low on funds due to the coronavirus and then requesting an additional advance payment so they will have sufficient funds to make the product ordered. All of the scam emails our lawyers have seen recently have called for the funds to be sent to banks (usually Bank of China) in Hong Kong.

You need to be on guard and that involves your doing the following:

1. Get to know someone in particular at your supplier and get that person’s phone number and call that person if you have any concerns. Alternatively, call the landline number at your factory.
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. Check your bank account every day, maybe even twice a day. If you catch a wire early enough you can sometimes stop it.
4. Do a first small wire to confirm the account.
5. If possible, pay your Chinese suppliers to their bank accounts in mainland China as that is generally safer than paying them overseas, be it Hong Kong, Taiwan or anywhere else. This is true not just for scam prevention reasons.
6. Have a special procedure set up with your suppliers for confirming bank account changes .
7. Have an internal procedure for confirming all payments over a certain amount.
8. Get an insurance policy that covers computer hacking or fraud and make sure it covers this sort of scam. Our lawyers have actually had good luck convincing insurance companies that they need to pay off on such policies.

What can you do if you have already been victimized? Our internet fraud litigation team does the following when retained by a company victimized by this fraud:

1. We determine whether there are any insurance claims to be made. This is usually the best chance of recovering all that has been lost, but do not expect your insurance company to pay without a fight. We help by explaining to the insurance company how these scams happen and why our client is entitled to coverage under their policy and we get the Chinese supplier to help in this as well.

2. We try to get some monetary contribution from our client’s Chinese supplier by letting it know that it was (or might have been) their computer system the scammer hacked and therefore it should pay at least some of our client’s loss. Much depends on our client’s relationship with its Chinese supplier and on what the Chinese supplier perceives its future relationship with our client will be.

3. We work with our client to minimize problems with its Chinese supplier and if that relationship needs to be severed, we counsel them on how to do so without creating all sorts of new problems. See Why Changing China Suppliers Can Be So Risky. Oftentimes our client will learn about the scam when their Chinese supplier contacts them threatening to sic Sinosure on them to collect the million dollars they paid to the scammer and not to them.

4. We seek to determine if there is any chance to recover anything from the perpetrator. This is an expensive and time-consuming process and there must be a lot of money involved for it to make much sense. Nonetheless, we find that our at least having run this option to ground helps immensely in dealing with both the Chinese supplier and with our client’s insurance company, neither of whom want to pay anything unless and until they are convinced that our client has done everything it could do to try to recover from the crooks themselves.

And once again, be careful out there.

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.