Commerce Department Provides Tools for Vetting Chinese Business Transactions

We continue to see a prevalence of China business scams and encourage you to alert clients to be wary and thorough in their due diligence, particularly when receiving unsolicited, large purchase orders through the internet.  Are you aware that in addition to the standard ICP, CS China offers other background check services to help clients verify the China partner’s legitimacy?

Here are some tools to help your clients steer clear of China business scams:

1. Advisory on Suspicious Chinese Business Practices and suggestions for self initiated due diligence.

Download PDF

2. Summary of CS China due diligence services.

Due Diligence Services Available through the US Commercial Service

* contact your local US Export Assistance Center to order

International Company Profile: A comprehensive report on a company, its verifiable registration and structure, as well as known shareholders and banking relationships. Click here for more information.

Spot Check: Verify if a company is legally registered. Learn about its known shareholders and a basic overview of its business activities and location.

Quick Check: Tell us what you want to know about a certain company. We’ll interview them by phone and provide you with responses to your questions, information gleaned from an internet search in Chinese and comments on our findings. This service is especially useful when trying to ascertain quickly whether a company may be operating a scam.

Download PDF with sample reports.

3. Sample text for clients on avoiding China business scams.

Sample text for TS use when client is approached by Chinese entity with purchase order

AVOID CHINA BUSINESS SCAMS

In speaking with US- and China-based colleagues, there seems to be a recent increase in the number of unsolicited buyer requests from China.  Are unsolicited inquiries from China common for your company?  Do you normally have export markets for your products?

In many cases, local companies choose to ignore unsolicited inquiries. Common scams right now follow this pattern:

  • The Chinese company contacted you, unsolicited, via the web
  • The Chinese company has “Import – Export” in their name
  • They want to purchase an unusually large volume of goods
  • They cannot communicate the purpose or the end use of the product
  • They insist that your senior executive travel to China to sign the contract
  • They request money prior to signing the contract to pay for a reception or as part of contract administrative fees
  • They have been in business for less than one year and/ or have very young management
  • They can provide no verifiable references

Does your scenario match the above? Most importantly, you should not expect to outlay any cash or payment in advance of reaching an agreement with a Chinese entity.  Requests for sharing notarization fees or other contract administration costs, gifts, hosting of banquets are some of the ways in which fees are solicited.

Regarding self-initiated due diligence, companies are advised to ask for trade references, including the names and contact information of American companies with which the Chinese business has successfully partnered in the past. The U.S. company is strongly urged to follow up on those references. If the Chinese entity has never successfully partnered with an American company, it is obviously more risky. If the Chinese company cannot provide trade references, then it also involves more risk.

Additionally, ask for a copy of the Chinese company’s current and valid business license (issuing authority: Administration of Industry and Commerce). This is a public document that is available for inspection at the local government authority. The Chinese entity must have a copy on file at their offices, and it should be straightforward for them to share a copy in very little turnaround time. The Chinese company should provide this in Chinese and English. If the Chinese entity is hesitant to provide its business license, then it is suspicious. The following information should be confirmed: 1) all information on the business license matches the information that the Chinese company has provided up to that point; 2) the scope of  business permitted by the business license matches the type of business in which the Chinese firm is trying to engage; 3) the American company should ensure they have been in contact with the legal representative of the Chinese company that is listed on the business license; and 4) confirm that the physical location from the Chinese entity’s communications/proposed contract matches the location indicated on the business license.

If the firm is not providing information requested, nor acknowledging your questions you should seriously consider discontinuing communication.

If your company believes you have credible export opportunities in China and elsewhere, you can order due diligence reports on prospective buyers and distributors through the Commercial Service. Details on these services in China can be found at this link.

Please let me know if I can answer any further questions.  The Commercial Service looks forward to supporting your export efforts.

Kellie Holloway Jarman  |  Program Manager  |  China Business Information Center

Trade Information Center  |  US Commercial Service | US Department of Commerce

t. 503-326-3002 | c. 202-361-2182kellie.holloway@trade.gov  |  www.export.gov/china

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