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Anatomy of a China scam. Part II. Conclusion and advice

by Dan Harris in 'China Law Blog'

Earlier this week, we ran part I of this two part series. Part I consisted of Jennie Shi, Felix Zhang, Wendy Zheng and Robert Walsh, all of Samsara Biopharma Consulting, writing of an incident they investigated in which their client had been scammed by an alleged chemical seller based in China. The client had purchased a high end chemical and had ended up with an unidentified white powder. Samsara sought to help this company recover for its not insubstantial loss. Part I detailed the investigation of the companies that perpetrated the scam. This Part II talks of the efforts to secure compensation and it also sets out how this scam could have been avoided and how you can best act to avoid being scammed.

The Insurance Claim

Just as we were preparing documents to file according to police instructions, the inks company decided to have us hold off while it files a claim for “theft in transport” with a Chinese insurer (a very major and well-known one) that insured the shipment.

We advised that additional delay might cool the PSB’s (police) ardor to pursue the case, and also that the insurance company would itself in due course arrive at the same conclusion that our outfit and the PSB had formed: that this was a commercial fraud, plain and simple, and not in any provable way theft in transport.

Nevertheless, the inks company went ahead and filed the claim.  Nearly 6 months went by, and the Chinese insurer delivered its expected verdict right before the Spring Festival holidays, declining to settle the claim.

How it All Ended Up

In the end, the inks company decided to let the matter drop, based on decreased interest in a now cold case from Hebei’s PSB, and the attendant lack of prospects for recovery.  The inks company has made clear it will never again order anything from China, let alone Hebei, regardless of the quality of bona fides established.

To quote Mark Twain:  “The cat, having sat upon a hot stove lid, will not sit upon a hot stove lid again. But he won’t sit upon a cold stove lid, either.”

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Recommendations on this specific case:

Americans might have different ideas in terms of culture discrepancy, but all the Chinese who hear this story think Company #1 and Company #2 are scammer companies and they don’t think these two companies will issue refunds without the involvement of police or court. Based on this, should you ever find yourself in a similar sitaution, we suggest the following:

  • Prepare full and convincing evidence as quickly as possible. For a criminal case, the police need serious and formal evidence to freeze the scammer’s bank account. Any discrepancy in provided evidence may delay police action and may decrease the chances of getting your money back. The same holds true should you decide to pursue a court remedy.
  • Don’t disclose to the scammers your intent to report the case to Chinese police. If the scammer becomes aware of the involvement of Chinese police, they will transfer the money to a secret bank account and you will likely not recover anything even if the scammer is successfully caught.
  • Send a “foreign face” to the appropriate police division and report your case personally. If possible, someone fairly high up in your company should go meet with the police with business cards in hand. The police officers told us this speeds up the process.
  • Consider alerting the trade section of the Chinese Embassy in Washington, DC, the American Chamber of Commerce in Beijing and the Chinese Commodities Inspection Bureau of your situation and request that they contact the appropriate Chinese police departments. This may speed up the process.
  • Do not allow yourself to be scammed a second time. Scammers often promise to give you a full refund but claim that to do so, you first need to pay the insurance, testing fee, freight, tax etc. Or the scammer promises to send you the right material if you pay the price difference between what they first provided you and what you actually wanted. Do not give the scammer more money, no matter what they say.

Suggestions for future trade with China

We consulted with several people who have decades of foreign trade business experience and they suggested the following when trading with foreign companies (not just Chinese companies):

  • Be very careful when establishing business relationships with a new company. Do as much due diligence as you can. For example, ask for the company’s license and ID card and the passport of the company’s registered legal representative. Send people you trust to do a site investigation of the manufacturing site.  Do a site inspection on goods before payment. If ordered material needs  legal testing/statutory survey, ask for the scanned report before the shipment.
  • Use formal and strict contract terms to protect your interest. A formal contract should be signed and stamped by all parties and include, but not be limited to, the following items:
    • Product name
    • Product specifications
    • Price
    • Packaging
    • Quantity
    • Payment
    • Delivery terms
    • Quality standards with specified testing methods ( ISO 591-1 or similar)
    • Testing terms (before shipment or on receiving)
    • Arbitration organization or court if any dispute occurs
    • Choice of law
    • Penalty on quality discrepancy
    • Penalty on quantity discrepancy (more or less clause)
  • Letters of credit (L/C) can be difficult when dealing with China. The L/C in this case did not include any terms that would have helped the inks company. It did not provide for any quality control testing before delivery.  Be wary of using any template provided by your supplier.
  • Consider a small trial order to reduce your risk. The problem with this though is that some scammers will provide you with a good trial and then scam you when you order the full amount.

Preventive measures cost much less than corrective measures.


Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes ChinaLawBlog.com as a source of China legal and business information.

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