Add electronic fraud to the list of business fears

By Bill Bregar
Senior Staff Reporter

Published: April 14, 2014 12:39 pm ET
Updated: April 14, 2014 12:44 pm ET

Image By: Rich Williams

The owners of Wrap-Tite Inc. are soft-spoken professionals, but you could feel the humiliation and anger in the voices of Sunny Daga and Suresh Bafna as they recounted how the company lost $500,000 in an email scam. I interviewed them for a Plastics News story that ran in the March 24 issue.

Anybody who has been victimized by a scam knows the feeling. (You feel like crap. I should know because I gave out a checking account number to a telephone caller who insisted my Newsweek subscription was expiring. I still feel like a dope when I think about it. And that was less than $100.)

“This is a half a million dollars. And you feel violated,” Daga said.

Even so, Daga and Bafna were optimistic they can get their money back. Forget about it, said Dan Harris, a Seattle lawyer who runs the China Law Blog. When he heard about the Wrap-Tite case, Harris knew right away it was the old “bank account switch scam.”

His firm sees the scheme at least once a week. And it’s really hard — next to impossible — to catch the scammer and get your money back.

Harris has frequently written about the email scam in recent years.

“If you think you are immune to this scam, you are just flat wrong. This scam is hitting serious, savvy, large internationally experienced companies and it is doing so because it is just so hard to stop,” he wrote in a blog post March 10.

This is email fraud. Not the headline-grabbing intellectual property theft. Not as sexy as Chip Starnes getting held hostage in his own China factory, or brothers James and John Fiocchi getting smuggled out of their plant in the trunk of a car. But here’s what is the same: If something goes wrong in China, don’t count on the authorities to help you. Not the police. Not the courts. Not the banks.

You’re on your own.

“I really hate this scam because I have seen far too many smart companies fall for it and I view it as maybe the most difficult to detect,” he said.

At first, it often was Chinese companies themselves trying to scam a double payment, or a rogue employee running the cheat, maybe after he or she quits.

Then last year, the scam got more sophisticated, as criminal experts started to hack computers and send out the fake invoices. Harris said they could be from China, or someplace else like Nigeria or Russia.

“The computer networks of many Chinese companies are not secure,” Harris wrote in his blog. “The networks are subject to abuse by employees of the Chinese companies and by outsiders. This means you can never trust an email communication from a Chinese company. Email is inherently insecure in China and you never know with whom you are really dealing when engaging in electronic communication with Chinese companies.”

Wrap-Tite is getting its cast film line delivered, after sending another $400,000 (machine maker Xinle Huabao Plastic Machinery Co. Ltd. cut $100,000 off the price). But the executives of Wrap-Tite learned an expensive lesson. They don’t want it to happen to anybody else.

Harris said a defrauded company may be able to get its insurance supplier to cover the loss, because of the contribution of human error. He has these tips to guard against e-fraud happening to you:

• Make sure you know the company. Visit and make sure you are actually dealing with the company you visited.

• Do not purchase goods from a Chinese company without a written contract that is formally stamped with the company’s seal. Make sure the seal, also known as a “chop,” is real and not faked (easier said than done).

• Beware of changes in the payment bank. “Chinese companies tend to be very loyal to their banks and so you should view with extreme suspicion any request to make a change.” Even if you get a request in writing on a revised purchase order stamped with the company seal, “it’s important to contact someone you know in the company with supervisory authority to ensure that the request is valid.” Ignore email requests to make a change, but instead forward the request to the trusted contact at the Chinese company for an explanation.

• Monitor both the name of the payee and the location of the bank. “Where the payee is even slightly incorrect, do not pay.” Be especially wary of requests to send money to banks outside of China.

On his China blog, Harris links to seven basic tips to prevent the bank account scam, published by QualityInspection.org:

• Get to know several English speakers for each supplier. Get their company landline phones. That way you can make a few phone calls if something fishy comes up.

• Ask each supplier for its bank account information in advance. Then, on invoices, instruct them to mention “See bank account information document,” rather than include the full banking details.

• Ask suppliers to fax every invoice to you, and check that the sending fax number belongs to the supplier’s company.

• Do a first small wire to pay for samples.

• Have a special procedure for confirming the company name.

• Have a special procedure for confirming bank account changes, which are very suspicious. Follow the same procedure as point five, but also call several trusted people in the company.

• Pay by letter of credit.

So it’s clear that redundant communication — written, by phone, by fax — is very important. Business is based on trust, and if you can’t get — even after following these tips — it’s best to walk away.

Bregar is a Plastics News senior reporter.


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Add electronic fraud to the list of business fears

By Bill Bregar
Senior Staff Reporter

Published: April 14, 2014 12:39 pm ET
Updated: April 14, 2014 12:44 pm ET

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