China Trade Commission Alerts Entreprenuers To Scams With International Fraud Black Lists

So you have arrived in the new land of golden opportunity with all your M&A, JV, IPO, turn-around, or start-up western experience and with a determination to profit.  You’ve registered your company, obtained all of your licenses and permits, opened your Hong Kong Corporation and bank accounts, and you are ready to rock and roll in what undoubtedly has become the most viable and lucrative consumer, real estate and equity market in the world. But while you plan to profit from China, there are many here who plan to profit from you in many a foul and dubious fashion. We call them the Beijing Bandits, the many sophisticated scammers and con artists who will prey upon you and your ignorance until your bank account is empty.  The fraudsters have dozens of schemes to lure you into their web and most appear to be very credible with all the right documents and…”Guanxi” that magical ingredient required to do business in China. Surprisingly, the predators to fear most are not only nor always Chinese.

The real pros are Americans and European veteran shysters who will find many clever ways to win your trust and confidence before telling you, that only they can “protect” you from the Chinese wolves of the business community. But they themselves are the proverbial wolves in sheep’s clothing and many are actual fugitives from their homelands who have found safe haven, and plentiful new victims in a land that may appear daunting and scary to newcomers who speak a different and confusing language.

One such veteran scammer is wanted back in America with three outstanding arrest warrants and a 16 year history of swindling the elderly and migrant Chinese in the U.S. After spending some time in prison he came to China and married a Chinese national which automatically protects him from extradition back home where prosecution awaits. Now he swindles from the safety of China selling phony language school franchises for 1,500,000 rmb to buyers back in America, here in China, and even South America. As the carnage of victims accumulate and he gets exposed on the Internet, he will merely relocate to yet another execute suite and start up a new fraudulent scam as he has for the last five years. His name is Sam and he is typical of the foreign sleaze that thrives in China. Before the language school franchise fraud, Sam was peddling “guaranteed loans” that never materialized, and he would regularly brag at the Goose & Duck bar how he “raked in $5 million from the marks last year”.  Not a bad payday for a guy that just barely made it through high school back in Palos Verdes.  He is one of thousands of scammers identified on the China Trade Commission's Internatinal Black Lists found at http://www.chinatradecommission.org/blacklist.html

Yet other fraudsters (especially local Chinese) will insist that they can introduce you to the “right people” to make your China  path to success quick and sweet.  They will offer to arrange “private & confidential” meetings with their “influential government contacts” in coffee shops and pricey  resorts, golf country clubs, or even casinos in Macau – but not before asking you for some up-front money they call a “goodwill fee”. These fees typically range from $50k to $100K and hundreds of gullible foreigners shell out the money every day, only to meet an actor playing the role of someone important who makes agreements and grand promises, only to fade away into oblivion within a month or two.

So how do you protect yourself in this new frontier?  With new scams popping up every month and almost no local investigations and enforcement, it’s not easy. But we can offer a few tips to make your journey through the China business maze considerably safer – but never foolproof…

1.   Before choosing your business associates and JV partners here in China conduct your own professional due diligence and never rely on documents provided from them since most will be forgeries. Third party documentation is a must. If you don’t know how to obtain thorough due diligence on a company or individual use a company like Investor Services International (isi[at]post.com) to do it for you.  It may cost you $5,000 to $25,000 to have a professional and discreet due diligence investigation done for you, but their report could literally save you millions later and give you the peace of mind to sleep at night. 

1.   You can also visit such web sites as  RipOffReport.com, or Scam.com for reports from past victims. Always check the names on business cards and passports for an exact match, and don’t focus on company names since they are disposable. One scammer (like Sam) could easily use five or six front companies every year to hide behind.

 2.  If you have any banker friends, ask them to check their international black lists on your behalf. If you don’t have such contacts, the China Trade Commission will make the inquiry for you for a $3,000 fee.  You can reach them at 86-010-8255-1482 or visit their web site at www.ChinaTradeCommission.org

 3.  You can also join a local Chamber of Commerce in the city you plan to set up shop (i.e. Beijing, Shanghai, Hong Kong, etc.) and tune in to what the veterans have to say and think about you prospective plans. Once you have become an accepted and trusted member, most will watch your back for you, but only to the modest extent of doling out advice and warning you about known bad apples.

 4.  Do not ever use just one translator in business dealings as translators are notorious for cutting their own deals and selling contacts and information behind your back, as this author found out in a costly fashion last year.  Circumvention is a quick way to fortune in China and finding a trustworthy and bonded translator is a priority. If you cannot find a good translator on your own, ask the China Trade Commission or your Consulate to provide you some referrals that they use.

 5.  Don’t place your trust in people only because they have a friend or two in government. In China even upscale shopping malls like Modern Plaza or Shuang An  are owned by the government which also employs 15% of the population.  Corruption is rampant and government “friends” are always looking to pick the lowest hanging fruit and then usually disappear.

 6.  Never work off of verbal agreements. Get everything in writing and insist people put their thumbprints next to their signatures as some people here in China are brazen enough to deny they actually signed a contract with you, even when the document is witnessed and notarized.

Don’t rely on the Chinese legal system to enforce your rights or contracts. Like Mexico, the legal system here, including verdicts are frequently influenced by something other than the facts and evidence. If you are a foreign plaintiff making claims against a Chinese company or national, you would have more success getting a date with Angelina Jolie.

Now that we’ve told you what not to do, the one thing you really should do, is work only with professionals who  have been referred by trusted friends who have at least a one or two year working relationship with those in question. If someone did exactly as they promised, for example, helping you get your Z visa, keep their contact and seek their advice from to time and grow your circle of trusted contacts slowly and prudently. Rush into any deal, and chances are you will become the low hanging fruit of choice.  Here are some common red flags to watch out for that usually identify a scam is awaiting you:  http://www.globaltrade.net/international-trade-import-exports/f/business/pdf/China/Business-Environment-Business-Practices-Recognizing-A-Chinese-Scam.html

None of us are immune from fraudsters, and most all of us who have been in China a few years have all been a victim to some degree. Expect to be targeted, and be keenly aware of everyone’s motives, credentials, and verifiable references and you might actually remain intact. Let your guard down just once and you’ll surely make someone like Sam smile ear to ear! As The China Trade Commission's Execeutive Director Anthony S. DeMarco often says "Be sure NOT sorry!"

Nathan Whitby is a former criminal inspector with Scotland Yard who now does consulting work with the CTC in China.  He is one of 5 due diligence specialists working with the CTC to protect entrepreneurs & investors from fraud and other white collar exploitation.