Global Business Scams Are on the Rise

The World Wide Web gives fraudulent businesses worldwide reach.

By Peter Goldstein, Senior Economics Editor, The Kiplinger Letter

March 12, 2002

Globalization means more foreign business opportunities for U.S. companies, but that includes more opportunities to get ripped off as well as new ways to make money. The number of investigation requests to the Commercial Crime Services unit of the International Chamber of Commerce (ICC) doubled last year to 8639, and cross-border financial and trading scams will continue to multiply.

With global business becoming commonplace, it's increasingly likely that a legitimate business or bank might have dealings with firms on another continent. The problem is, globalization also makes it more difficult to know with whom you're doing business. Savvy firms find that it pays to check up on foreign business partners and financiers before signing on the dotted line, especially if a company is new to the international arena.

The Paris-based ICC is one good place to turn for help. It has a broad international network of contacts who can authenticate bills of lading, check on counterparties' credentials or simply verify the existence of foreign companies. The ICC's commercial crime unit investigates financial, shipping, piracy and counterfeiting complaints for member businesses.

Private security groups can also help confirm the legitimacy of a potential counterparty. Although private organizations may be more expensive than ICC or similar industry-sponsored groups, their services can be more specialized. For example, Kroll Inc. of New York, better known for its corporate security services, has a unit called Kroll Lindquist Avey with expertise in forensic accounting that helps it get to the bottom of possible scams. Kroll Lindquist Avey was recently called into an investigation requiring global tracing of hidden assets and misappropriated funds when the finance ministry of a Caribbean nation had to unravel the failure of three major banking groups. The country was able to track down and file charges against some of the perpetrators.

The Internet has led to a blossoming of unsavory commercial activity, enabling criminals to find victims and make seemingly credible business proposals on a global scale. "It's so very easy to set up a good-looking Web site. The customer feels as if they are dealing with a professional, even if it's a sham," says Pottengal Mukundan, director of the ICC's commercial crime unit. People searching the Web for trade or finance leads should be wary of official-looking insignias or links to legitimate banks or multinationals from bogus Web sites. All a scammer needs to give his site the illusion of authenticity is a quick drop-and-drag of a real firm's logo. One lesson: Though the Internet may be a good first stop in digging up international business, it shouldn't be the only stop.

The range of possible scams defies the imaginations of most executives. In one example, swindlers invented a fictitious country, the Republic of Port Maria, and posted a Web site offering offshore banking services in the nonexistent country. All the perpetrators had to do to set up the fraud was pay $8.95 a month for Web space from an Internet service provider, but the ICC was able to get the Web host to shut the site down. The lesson here? Get a good atlas and check it carefully before moving cash to a little-known offshore haven.

Another dodge shows that banks themselves are vulnerable. Solo Industries, a company in the United Arab Emirates (UAE), managed to get a couple of dozen lenders to cough up a total of $400 million in trade finance for 900 fictitious transactions. The banks were fooled repeatedly by documents signed by both the alleged buyers and the alleged sellers, who were working together to rip off the banks. The ICC and several national law enforcement agencies broke up the game, and criminal proceedings are under way in the UAE, the United Kingdom, Switzerland and India. Meanwhile, the UAE has adopted strict guidelines for trade finance deals.

Shipping and trading commodities, particularly those with volatile prices, such as sugar and rice, is an area rife with opportunities for scams. For example, a sugar buyer might be caught at the wrong end of the market after a big price swing and be desperate to land a cargo at a price that allows a profit. The buyer is vulnerable to someone seeming to offer a cargo at just the right price. The letter of credit is opened, the money is paid, but the scam artist disappears and the cargo never materializes.

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