Trade fraud due to businesses increasing their digital trade through the internet is emerging negatively global markets. Most trade scams are caused by document forgery, e-mail hacking, extortion of money and other goods, illegal immigration, payment fraud, bad shipping, and overseas investment. According to the trade fraud case analysis conducted by KOTRA’s (Korea Trade-Investment Promotion Agency) foreign trade offices for one year from August 2017, the total number of trade fraud cases counted for 137.
African, Southeast Asia, and Oceania countries had the highest numbers of trade fraud cases. A total of 36 trade scams have accrued in Africa, accounting for about one-third of the total. Southeast Asia Oceanic countries counted 30 cases, with the second-largest number of trade scams. In North America and Japan, the number of fraud cases was lower than the volume of trade.
Countries, where trade fraud occurs most frequently, were Nigeria, Sudan, China, and the Philippines. In Nigeria and Sudan, trade scams were found to be rampant, with extorting money and other goods by impersonating government agencies or asking for invitations the most documents and extorting transportation fees.
Here is a small selection of the trade scams included in the KOTRA reports by country.
Poland-theft of global company names
In July 2018, South Korean company N attempted to make a deal by receiving an offer at a low price from Honeywell, Poland, which they received through the Internet. Because Honeywell is a multinational company, N did not hesitate. However. However, when N received an invoice from Honeywell, they became suspicious of the authenticity of the transaction.
The phone number was inconsistent with the country number, no fax number, and the company's stamp used in the invoice was crude. N asked for confirmation of the company through the KOTRA Warsaw office, and after checking the customs, the company was found to be a trading fraud company that stole the name of the global company and used forged documents. Fortunately, Company N did not lose any money from this scam.
The Philippines- case of extortion freight charges with a forged deposit
In December 2017, Korean company A, which handles steel-frame warehouses, received an order from buyer B of the Philippines. The buyer asked company A to pay shipping fees and arrange fast transportation services quickly because the number of goods was urgently and required to add the shipping charges to the purchase amount later. In the process, the Korean company, which confirmed the total deposit certificate of US$108,000, deposited the shipping fee of US$2,669 without hesitation, but A has since lost contact with the buyer and lost the deposit.
Ethiopia-extortion of goods through forgery of official documents
In December 2017, Company A in Korea received an offer from Ethiopian Buyer B to supply 22 ambulances and 8 fire trucks for the procurement of the Ethiopian government. A few days later, Company B remitted the balance excluding the down payment to T / T (Telegraphic Transfer). A copy of the foreign currency remittance certificate and a copy of the Ethiopian government's intention to purchase public procurement were also sent to Company A. Meanwhile, Company A urged Company B to transfer the balance when the amount specified on the remittance was not received and delayed. However, communication with Company B was lost. In addition, despite the fact that A did not deliver the shipping documents such as BL (Bill of Lading) to B, it was found that B had already received the shipment. Company A incurred US$ 370,000 in damages.
Hong Kong- deposit required to other bank accounts
Company J in Korea received an email from an overseas client B, requesting a deposit using a new temporary Hong Kong Bank account due to some problems with their existing account. Company J remitted the US $ 60,000 to the new account at B's request. The representative of J felt suspicious after the remittances and J contacted B, but they couldn't be reached. It was just an e-mail hacking scam. Currently, Company J has filed a civil suit against the Hong Kong Police Cyber Crime Unit to freeze the account and return the amount. Under the Hong Kong legal system, a civil suit is necessary to return the amount. The damage to Company J is US$ 60,000.
India- email hacking and document Forge
In August 2018, Company H in Korea was under contract through an agent A of India and agreed to receive US$83,000 from its Indian client, as part of the payment. Company H received an e-mail from agent A requesting that the payment from Company H should be transferred to the new Mexican bank account because A’s original account was not available for the time being due to an audit. In response, H remitted money to the newly changed Mexican bank account. However, the email was sent by a hacker who impersonated agent A, and all the documents attached to the email were found to be forged. The damage to Company H is US$83,000.
Xi'an, China - extorting expenses for notarization of contract documents
In August 2018, Company M in Korea signed an export contract with Company C in Xi'an China. At the time of the signing, C requested US$2,000 to fill out the notary certificate. In response, and after company M remit for $2,000 to for the notary, Company C disappeared. Company M lost US$2,000.
Shanghai, China-gift extortion, such as high-end cigarettes
In December 2017, during an exhibition, Chinese Company C requested Korean company A to do something consultant business after getting the Korean business card. Companies A and C signed a memorandum of understanding(MoU), and after that, Company C asked A to send a formal contract as soon as they return to Korea. And Company C lead A to a nearby gift store that sold high-end cigarettes. In response, Korean company A bought 2,000 Yuan (US$285) worth of expensive goods to gave them as gifts the Chinese company. The Korean company A contacted them after returning to Korea, but the Chinese company had disappeared.
South Sudan-extortion of fees impersonating a government agency
In April 2018, Korean exporter A received an e-mail from the South Sudanese Finance Ministry asking for necessary documents and the related deposit to be paid, as the company was selected as the delivery contractor through a bid for a private contract for its products. Company A in Korea became suspicious and, requested confirmation of this offer with the KOTRA trade office in South Sudan. When the Trade officer checked the South Sudan Treasury, this bidding situation was unknown and the Sudan Treasury Department would never email directly to the company. Similar frauds have occurred frequently, and the Treasury agent said it is investigating.
Nigeria- request an invitation letter
In November 2017, Korean Company M received an e-mail request for purchasing wet wipes from Nigerian Company K. Company M exchanged product quotes with Company K several times, and Company K planned to place orders for products on the quotations. Company M presented a proforma invoice, but Company K requested a letter of invitation first to visit the factory before making the remittance. After some investigation, it turned out that a Company K; it was found to be a company that habitually requested invitation letters for the purpose of illegal stay.
Bangladesh-invitation letter for illicit entry through the exhibition
In April 2018, Bangladeshi Company B asked for a letter of invitation from a Korean company, pretending to be dealing with Company H in Korea. In addition, they applied for a booth participation exhibition in Korea and actually paid an advance payment for the booth and submitted it as proof for their visa application. The Korean Embassy in Bangladesh notified the Trade office in Bangladesh that Company B requests for visas were issued by Company B, and the Trade office began to identify companies. The Trade Center tried to contact Company B several times for information and meetings about the immigration process, but Company B delayed the submission of paperwork and eventually canceled the exhibition and disappeared.
South Africa- avoid large payments after building trust with a small amount of money
In December 2017, X, as an agent for a company in Korea, had been trading steadily with a Durban-based buyer N. The buyer faithfully settled small transactions in the early stages of the transaction and accumulated credit, but as the transaction volume grew to over US$100,000 level, the buyer took the goods first and avoided paying. The Korean company suffered heavy losses due to the continued avoidance of payments by the buyer. The damage is US$100,000.
Venezuela- avoidance of payment by existing traders
In April 2018, Company K in Korea shipped US$150,000 worth of toys and miscellaneous goods to Company C in Venezuela. The two sides had also completed two transactions in 2017, so Company K shipped the goods first to them and then asked for payment later, but the buyer delayed the payments by citing various reasons and demanded that B/L should be sent first. When the container arrived at the Venezuelan port, the buyer took the products in consultation with the Customs Authorities without shipping documents such as the B/L. Company K did not hear anything from the buyer since then, and as a result, contacted the KOTRA Caracas Trade office, Company C claimed that the Korean company has breached the contract first. Company K is proceeding with legal proceedings with a local law firm.
Malaysia-paid, but disappeared without shipping
In December 2017, Korean Company H (importer) ordered Crypse Palm Oil from Malaysia Company L (exporter) and paid in advance 30% (US$ 5,700) of the total cost of the transaction. However, Company L disappeared without shipping the promised goods. As a result of confirming the facts, Company H identified it as a fraud. The trade official reported the company to MATRADE in Malaysia, and MATRADE decided to blacklist the company. The damage was US$ 5,700.
China- ships rotten tomatoes
In June 2018, A company in Korea decided to import tomatoes from Company B in Hebei Province in China and signed a contract to receive goods from Farm C in Xinjiang. However, the container that they paid for was full of spoiled tomatoes. Company A immediately requested a refund from Company B, but could not contact the company. Company A asked for help with KOTRA's Beijing Trade Office, and the trade office finally retrieved the payment after continuously trying to contact Company B on behalf of Company A.
Bangkok, Thailand - avoiding shipment and unilateral termination of contracts
In July 2018, Company D in Korea signed an import contract with Thai Company H for a type of nut that usually grows in tropical regions. Company H asked for US$84,000 in advance, and Company D remitted the amount. However, Company H did not ship the promised goods and rather demanded a deposit for the intermediate payment of US$216,000 that was not in the contract. When Company D did not pay the intermediate payment, Company H sent an official letter unilaterally ending the contract. The damage was US$84,000.
UK - to fabricate shipping information
In November 2017, Korean Company A decided to purchase initial supplies from Company B in the UK and remitted US$6,600 for the goods to Company B's bank account. Company B informed Company A that they had shipped the items, along with a homepage and tracking code that could confirm the delivery location. Company A was also informed from Company B that more items were shipped than originally ordered. Company A filed a claim for the additional delivery but determined that it would exhaust all additional funds for purchases so Company A only remitted 50% of the amount to the same account. Shortly thereafter, Company A was informed that there was a delay in Customs Clearance in Malaysia during delivery, and Company A had to deposit the remaining 50% of the balance to resolve the issue. As a result, Company B's delivery company was not registered in the UK Registry and so no information was confirmed on the representative website except for the e-mail address. The total damage was US$ 13,600.
Turkey-request suspension of sales after unauthorized registration of the trademark
In 2018, a Korean manufacturer of lighting products, Company A, entered the Turkish market by signing a distribution contract with local Company T in 2010. After five-years of dealing, the two companies broke off their distribution contract in 2015, and Company A signed a new distribution contract with Turkish Company to sell the goods. The former distributor, Company T discovered this circumstance and asked for the suspension of its sales.
US-Intentionally defaulted and not paid
In 2017, the US-based grocery Company G received more than KW 500 million(US$431,000) from Korean Company P, and deliberately defaulted the corporation by not paying it off. After that, Company G established another Company M in the name of his child and repeated the bankruptcy process. The damage was about US$ 500,000.
Myanmar-disappeared after extorting money that aims to establish incorporation.
In June 2017, Korean Company A was interested in Myanmar's agricultural sector and planned to invest in corn cultivation. In early 2017, Company A was introduced to local residents in Myanmar from a Korean resident who was there to grow corn and contacted them. Korean Company A confirmed that when investing in agriculture-related industries in Myanmar, the government policy is that it can only be invested under the names of local people, and that tax exemption is possible. After that, Company A visited Myanmar to check local corn farms after being in contact with local people. In order to set up a corporation under the name of a local person, Company A made a remittance of the first KW 7 billion won (6 million dollars) for the investment. However, Company A was not able tomake contact with the Myanmarese after the remittance. So, Company A visited Myanmar and tried to contact them, but they had already gone into hiding.
Thailand - forgery of documents
In May 2018, Company G, which is located in South Gyeongsang Province in Korea was contacted by Company K, a local subsidiary of Thailand, and an acquaintance in Korea to take part in the Thai solar project, which is equivalent to four solar PV projects of 90 MW per unit. Thailand Company K advised Korean Company G to sign the contract with unusual conditions. Company K asked for the project size to be US$1.1 million per MW, which is worth about KW100 billion. Company K suggested these unacceptable conditions to Company G for the purpose of setting up a Bank Guarantee worth about KW 33 billion, or 30 percent of the total construction cost. Company K presented the Power Purchasing Authority (PPA) signed a document with Thailand Electric as evidence, but it's difficult to confirm the official number that was erased, as it was written in Thai. Korean Company G asked the Bangkok Trade Center to confirm its authenticity. According to confirmation from the trade office, Company K is a registered company in Thailand, but the power purchase contract offered by Company K was a forged contract. It turned out to be a forgery a document that was not Company K's but was written four years ago by another company.
In conclusion, the way to reduce damage caused by fraud scams is to prevent it in advance. After the problems have already arisen, it is much more difficult to resolve especially payment refunds. It is essential to check basic corporate information such as creditworthiness of the company or past transactions before making a deal. Critics also point out that friendly terms or urgent transactions should also be questioned.