Business Scams, Weighing the Risks of Foreign Projects

Business Law

Before committing to a new and exciting prospect, do your homework. A regional business should always consider the viability of doing business in another country. International business transactions add a level of complexity and require proper due diligence. Recently a client with a successful interior design firm, was approached by an overseas company about a potential project. Here’s how the arrangement was presented:

  • A Chinese construction entity purports to contact several interior designers to work on a mid-size project. The project is large enough but not too large, and the remuneration is good, but not too good to be true.
  • In this case, the client was contacted and advised that it was chosen for the project.
  • The client receives a contract for review. Given the language barriers, the contract is not terribly well drafted, but it is not entirely terrible either.
  • The key term and concept is that the prospective service provider must travel to China to meet with the construction company’s representatives in person, prior to any money changing hands or any contracts being signed.
  • The Chinese entity refuses to send a representative to Canada because they are too busy with their ongoing projects.
  • The Chinese entity refuses to pay a retainer, although assures the client that all travel funds will be reimbursed. This is also an express term of the contract, which perhaps lends credibility to the claim.

Apparently, victims who actually take the gamble and pay their own way to China are met at the airport and taken to various meetings, including site visits, with numerous individuals. The intent here is to overcome any internal alarms and assuage concerns over a few days. It is after these meetings and usually before the contracts are signed that they suggest the purchase of a gift. Given the realities of doing business internationally, the gifts and their purported recipients will vary. There are reports of victims being asked to buy upwards of 50 cartons of high-end cigarettes in order to secure favor. Such gifts, which could range between $5,000 and $50,000 are never reimbursed.

Three major red flags:

  1. Unsolicited correspondence from a Chinese international entity to provide the subject services.
  2. The client was apparently good enough to warrant the international outreach, but not good enough to warrant an advance of $5,000 to fly them to China for a $700,000 fee contract.
  3. While the Chinese firm reached out to the client, it was the client that would have been out of pocket to make the deal proceed, which is really just the second flag again but is worth repeating since that is a hallmark of quite a few scams.

In this case, the scam is less obvious since the Chinese entity presumably received no direct financial gain from the initial payment of airfare. However, the idea here is that once the Canadian firm has travelled overseas, met what appear to be sincere individuals, and have visited the ‘site’, they are more inclined to pay a little extra to secure the contract. If a business has invested three days overseas and a few thousand dollars in airfare and accommodation, why not pay $10,000 now to secure a contract worth nearly three quarters of a million dollars?

The scam seems to target professional service providers such as interior design, architectural work, or any other construction related field of service. As China continues to expand, enterprising fraudsters will continue to exploit the growth. If the transaction is good enough to warrant flying to China on your own bill, then it is good enough to warrant review by legal counsel.

New businesses can be particularly vulnerable when dealing with this sort of scam.  Company’s eager to secure international clients are sometimes willing to take a risk and invest money to develop new clientele.  We highly encourage you to consult a lawyer to be sure you are not putting your company at risk for fraud.  If you have any questions about this, or anything relating to your company, please contact us.

Paul Kennedy Associate Lawyer
Corporate/Business Law
Lindsay Kenney LLP – Langley Law Office