International trade is full of opportunities which by its nature also attracts fraudsters and scammers who prey on inexperienced importers and exporters. Scammers are out there in various forms, from fake suppliers to fraudulent buyers, leaving businesses with financial losses and logistical nightmares. Here’s what to watch out for and how to protect your import export business from these scams.
Common Scams
1. Fake Suppliers and Non-Existent Products
Scammers will take the time to create professional-looking websites or use existing online marketplaces such as Alibaba to pose as legitimate manufacturers or suppliers. It’s absolutely necessary to vet business partners to avoid scams even on Alibaba.
They offer great deals on products, prices way lower than the market rate but once the buyer pays, the scammer either disappears or ships substandard or counterfeit products. This results in you losing your money and your business being forced to take a loss.
Avoid dealing sellers that have no trading history especially if they have unusually low prices. Read reviews and where possible, deal with only reputable companies. If you’re going to use an online market place like Alibaba or Ali Express, where you have to pay upfront, research what buyer protections there are.
Section 75 of The Consumer Credit Act
Avoid making payments in cash or by Western Union but instead use a credit card or PayPal.
PayPal offers its own “Buyer Protection” which ensures that you get what you’ve bought. If something goes wrong with your transactions, PayPal Buyer Protection will cover you. Get a full refund if an eligible order isn’t significantly as described, or doesn’t arrive at your doorstep.
In the UK under what is known as “Section 75” of The Consumer Credit Act, certain credit card purchases can be legally protected which means your credit card provider could be jointly responsible with the retailer or supplier if something goes wrong and have to refund you if you do not receive the goods you ordered. Other countries likely have something similar in place, I’m sure.
Pay attention to these warning signs and red flags and avoid dealing with unverified businesses.
How to Protect Yourself:
- Check the supplier’s background by verifying their business registration and read reviews or complaints.
- Request for samples before buying in bulk to check the quality of products.
- Use secure payment methods like credit cards (not debit cards) and PayPal, or Letters of Credit or escrow services.
2. Fraudulent Buyers and Unusual Payment Requests
Fake buyers contact legitimate exporters and place large orders, often with urgent turnaround time. It is absolutely crucial not to get so excited and forget to check for any suspicious activities with the transaction or the buyer but to keep a cool head and safeguard your bank account details to avoid scams.
Recently there was a case in London where a dairy business was scammed out of £300,000 by a fraudulent buyer. The dairy only discovered the person’s identity was fake after a total of 950 cheeses or 22 tons of clothbound Cheddar were delivered.
I’m not aware of the details of the scam for the unfortunate London dairy but scammers can present fake bank transfer confirmations or use stolen credit cards. In some cases, they overpay and ask for refund for the excess, which later turns out to be from a stolen account.
Always be on the lookout and make sure you are covering your risk and stay vigilant. Check that documents you receive are not fake documents (e.g. a fake proof of payment advice slip), cross check and verify them with the necessary parties such as your bank before parting with any goods.
How to Safeguard Yourself:
- Verify the identity and creditworthiness of new buyers before shipping products.
- Don’t ship products before confirmed payment, especially for new customers.
- Watch out for buyers who overpay and later ask for refund.
3. Advance Fee Frauds
This scam involves fraudsters asking for upfront payments saying its a processing fee, government tax or customs clearance fee and this transaction fee must be completed before they can push the order through and send the goods on to their freight forwarder. Once the fee is paid, the scammer disappears, leaving the victim with nothing.
How to Protect Yourself:
- Be suspicious of any request for advance payment before seeing a contractual agreement or verifiable proof of service.
- Research the company or agency asking for the fee.
- Avoid sharing sensitive information
- If in doubt, seek advice from a trade lawyer or trade organizations before paying any fees.
4. Online Scams
Cybercriminals send very well written fake emails impersonating legitimate businesses, asking for sensitive financial or business information. These emails look professional and may contain links that direct victims to fraudulent websites to steal login credentials or payment details.
How to Protect Yourself Online:
- Always verify the sender’s email address and be cautious of unexpected payment or bank detail requests.
- Do not click on links from emails that you are not expecting until you have verified the sender.
- Look for signs of phishing, such as grammatical errors and urgent requests for confidential information.
- DO NOT CALL the phone number given in the email but looking the legitimate businesses phone number from their website and call that number to verify emails or documents.
- Check links before clicking. You can usually see the address of a link by rolling over the link (bottom left corner of your screen). If the address is not a verified link to a legitimate business entity, never click it.
- Implement cybersecurity measures like two-factor authentication and employee training on phishing scams.
4. Misleading Shipping and Customs Fraud
Scammers posing as freight forwarders or shipping companies demand high fees upfront, promising to handle logistics at competitive rates.
The importance of customs clearance cannot be overstated, as it helps avoid scams and ensures compliance with regulations. In some cases, fraudsters tamper with container seals, replacing valuable goods with low-value items or even empty containers.
How to Protect Yourself:
- Research freight forwarding companies well, read reviews, verify references references.
- Ensure shipping contracts clearly outline responsibilities (Incoterms 2020), delivery terms and insurance coverage.
- Track shipments closely and inspect containers upon arrival.
5. Customs Fraud and Evasion
Customs fraud and evasion are serious offenses that can have severe consequences for individuals and businesses involved in international trade. Customs fraud is when individuals or businesses intentionally misrepresent or try to conceal information to avoid paying customs duties, taxes, or other fees related to importing or exporting goods.
Customs evasion, on the other hand, involves the deliberate avoidance of customs regulations and procedures to gain an unfair advantage.
Customs fraud and evasion can take many forms, including:
- Undervaluing or overvaluing goods to avoid paying customs duties
- Misclassifying goods to avoid paying customs duties or to take advantage of lower duty rates
- Failing to declare goods or providing false information about goods being imported or exported
- Using fake or altered documents to support customs declarations
- Bribing customs officers to facilitate the clearance of goods
Customs authorities take customs fraud and evasion very seriously and have implemented various measures to detect and prevent these offenses. These measures include:
- Conducting regular audits and inspections of customs declarations and supporting documents
- Using advanced technology, such as risk management and now AI systems, to identify high-risk shipments and detect anomalies
- Working with other law enforcement agencies to share intelligence and best practices
- Imposing penalties and fines on individuals and businesses found guilty of customs fraud or evasion
Businesses involved in international trade must ensure that they comply with all customs regulations and procedures to avoid falling victim to customs fraud and evasion. This includes:
- Ensuring that all your customs declarations are accurate and complete
- Providing proper documentation to support customs declarations
- Paying all customs duties, taxes, and fees associated with importing or exporting goods
- Cooperating with customs authorities during audits and inspections
Consequences of Import-Export Scams
Import scams can have severe consequences for businesses and individuals involved in international trade. These consequences can be financial, legal, and reputational and can be very difficult as well as stressful to recover from.
1. Financial Consequences
The financial consequences of these scams can be devastating. Businesses may lose money due to:
- Non-payment for goods (think London dairy business)
- Payment for goods that are not delivered
- Payment for goods that are defective or of poor quality
- Loss of goods or cargo due to theft or misdirection
- Additional (legal) costs associated with resolving disputes or recovering losses
Individuals may also lose money due to:
- Investment in fraudulent schemes or businesses
- Payment for goods that are not delivered
- Payment for goods that are defective or of poor quality
2. Legal Consequences
The legal consequences of these scams can be more severe than just financial consequences. Businesses and individuals may face:
- Civil lawsuits for breach of contract or negligence
- Criminal charges for fraud, theft, or other offenses
- Fines and penalties imposed by customs authorities or other regulatory bodies
- Damage to reputation and loss of business opportunities
How to Protect Your Business in International Trade
1. Verify Your Trading Partners
Before doing any business with a new suppliers, companies, buyers or freight forwarders, conduct thorough background check. It’s really important to check international suppliers to avoid scams.
Read reviews, check their business registration (In the UK this is done at Companies House) and request references from previous clients. Use trade directories and chambers of commerce to validate their existence.
2. Use Secure Payment Methods
Where possible, use the payment methods that we’ve mentioned previously that offer protection, like credit cards, PayPal, for larger transactions use Letters of Credit or escrow services. Avoid direct bank transfers or Western Union payments for first-time transactions as they offer no recourse if a scam occurs.
3. Insist on Written Agreements
A written contract is a “must” in international trade. The contract should outline key terms, payment schedules, delivery timelines, quality standards and dispute resolution mechanisms. Make sure contracts comply with international trade laws and regulations.
4. Be Cautious with Unsolicited Offers
If an offer seems too good to be true, it absolutely is. Random requests where it seems you can make a high profit usually lead to fraudulent activities. Scammers target import export businesses with unsolicited emails or phone calls, offering great deals on goods or services.
Research their claims thoroughly before doing any financial transaction. Such offers usually lead to common scams.
5. Check Freight and Shipping Companies
Make sure the logistics providers you work with have a good track record in the industry. The supply chain plays a crucial role in preventing scams and ensuring the security of logistics operations. Verify their credentials, check they adhere to necessary quality standards, confirm their business address and check customer reviews.
If possible, visit their office or request references from previous customers. This includes not just manufacturers and suppliers but freight forwarders and customs clearance agents. If they use third-parties as part of their business, ask who they use and check the reputation of these companies.
6. Stay Updated on Scam Trends
To avoid falling victim to common scams, you must stay updated on scam trends and best practices for secure international trade transactions. This includes:
- Research the seller and their reputation
- Verify the product and cross check shipping details with the shipping line
- Being VERY cautious of unsolicited offers or emails
- Use secure payment methods, such as credit cards or PayPal and Letters of Credit
- Keep records of all transactions and communications
- Report any suspicious activity to customs authorities or other regulatory bodies
Businesses as well as individuals involved in international trade must also be aware of unusual payment requests, such as requests for upfront payment or payment via wire transfer or prepaid debit cards. Be cautious of unusually low prices offering you a chance to make a high profit or payment terms that seem too good to be true.
By staying informed and taking necessary precautions, businesses and individuals can minimise the risk of falling victim to common scams and ensure a secure and successful international trade transaction.
Conclusion
Scams can lead to financial loss, reputation damage and operational disruptions. But by being aware, doing your due diligence and following best practices you can protect your business from fraud. If you suspect a scam, report it to trade organizations or authorities straight away. Take action now and avoid costly mistakes later so your business can grow safely and successfully in the global market.
The ABTS® International Trade Mastery Programme
Being aware of commons scams is just one part of importing and exporting. Before you dive in and find suppliers and setup your new import export business, it’s very important to understand how to navigate the world of international trade.
The ABTS® International Trade Mastery Programme teaches you the practical knowledge you need to import export from the ground up, how to move your goods from A to B in a simple, clear and easy to understand way.
You’ll learn how to maximise your profits while reducing your risk.
To lean more, check out the ABTS® International Trade Mastery Programme.