International Payment Fraud Detection
How To Prevent & Detect It .Payment fraud prevention isn’t simply useful to boost profits.
International Trade Fraud 101
How to Recognize and Avoid the Most Common Scams
One of the great things about our connected, global world is the ability to effectively engage in international trade. Large corporations can ship and sell goods around the world as easily as a small reseller can buy a product overseas and sell to a national audience on Amazon. However, whether you own a large, small, or solo-run operation, you are not immune to the pitfalls of international trade frauds.
Horror stories abound! Buyers send hefty payments for goods only to learn that without sending even more money or buying unwanted products, the goods won’t be shipped. Some buyers get thrilled to discover great wholesale prices on big name brands, only to find themselves embroiled in counterfeit schemes or no-delivery scams.
There is no shortage of ways to find yourself and your company as the target of international fraud, which is why we are going to show you:
The psychology behind fraud
The most common types of international fraud
How to avoid international fraud
Sheephead men walking into wolf’s mouth.
Sheephead men walking into wolf’s mouth.
The Psychology of Fraud and What Makes Victims Susceptible
You’re a smart person. You would never fall for one of those schemes where you send money overseas and then never receive your products, right? You would never have your identity stolen or find yourself caught in a web of someone else’s deceit, would you? We would all love to think that is the case but being a victim of fraud can happen to anyone – no matter how smart they are.
Being a smart and educated person does not exclude you from being fooled because cons rely on triggering you on a level that surpasses logic and reasoning. Some of these triggers include:
Playing on emotions
Creating an obligation
Influencing with “glowing” testimonials and endorsements
Triggering the fear of missing out (FOMO)
Maria Konnikova, a psychologist and author, sums it up best when she reminds us in her writings that conning is one of the oldest professions in the world; one that relies on our “tendency to overestimate our intelligence and judgement,” when faced with a smooth talker who is only interested in our bank accounts.
There are about 300 known variations of frauds and some of them are so sophisticated that even law enforcement officers also fall victim to them! While most frauds are aimed at swindling individuals, the most lethal scams are the B2B frauds.
Common Types of International Trade Fraud
The most common types of international trade fraud are:
No-Delivery Scam
Supplier absconds with money and buyers either receive nothing or receive empty boxes which triggers automated shipping documents and “proof” that the seller completed the transaction, but the seller gets the money and the buyer gets nothing but grief. The complication here is that payment and shipping documents can be very legitimate and international trade relies on them. Scammers posing as suppliers in no-deliver scams insist on payment by T/T or wire transfer or Western Union. When working with new suppliers, never make payment via T/T and Western Union must never be used for business transactions.
Escrow Fraud
Escrow is great! It’s the introduction of a third party that holds the funds of the buyer until the seller delivers the goods. Escrow is a wonderful way to protect both parties – the seller and the buyer. As with all international payment methods, however, con artists have found a way to cheat honest businesses out of their money by using escrow.
Escrow fraud happens when the con artist sets up a new and exciting online escrow service with low fees and attractive incentives. Buyers and sellers sign up, buyers send the money to the site and the escrow site suddenly closes down and the money disappears.
When paying a company via escrow, first ensure that the escrow company is a legitimate one.
Counterfeiting
You need to be very careful not to get caught up in counterfeiting scams. Turning a blind eye to counterfeit goods cheats everyone from the brand to your customers – and if caught buying from counterfeit suppliers, you may face legal consequences.
Money Laundering
Criminal activity that deals in large amounts of cash (drug dealing, smuggling, etc.) needs legitimate ways for the money to enter the legal financial system. The typical way to make dirty money clean is to run it through a front, or an actual business that also deals with large amounts of cash. However, did you know that thanks to the online community, money laundering has gone digital?
Cryptocurrencies and peer-to-peer services that promise direct payments between parties without the involvement of banks or oversight of governments are hot spots for online money laundering. Again, some of these sites and currencies are absolutely legitimate, but it always pays to stop and ask yourself why the seller is asking for payment in Bitcoin when all you want is 100 cotton T-shirts to resell. If the seller will only accept one method of payment – a method you don’t know, understand, or that bypasses government regulations, refuse to make payment.
Hacking
Some victims of computer or account hacking have no choice in the matter, as computers can be breached when the user is operating online. However, some cons involve getting the victim to open a file that allows the fraudster access to sensitive information. This scam is similar to phishing, in that scammers “clone” legitimate documents the victim is used to receiving.
How many of us would not hesitate to open a file marked “Inventory log for order 3X245” or “Order Confirmation” when it appears the document is from a company with which you regularly place orders? Subtle clues, such as slightly off email address (nicebusiness@usualcompany.com can easily be changed to nicebusiness@usualkompany.com), or the nagging thought that you didn’t place a recent order, can give this game away.
Phishing
The scammer sends an email requesting your banking details. These can be very convincing if the con artist is imitating a company you deal with often – or a company that typically pays you with a direct deposit. When asked to divulge banking information, or even PayPal or other payment method account numbers, always call the company and ask them directly if the request is valid.
Avoiding International Trade Fraud
Knowledge is power. When you connect with a prospective seller or buyer online, do your due diligence. Look up details of the company from neutral third-party sites like the Better Business Bureau. Ask for references. Call them and book an introductory interview. Have a list of questions ready such as: how long have you been in business? What made you seek international trading partners? What methods of payment/shipping do you use? Why do you want to buy our product? Who is your target market? Trust your gut. If something seems off or seems too good to be true, your intuition is probably right.
Here are some ways to ensure your international deals go as smoothly as possible:
Check Out the Contact Information:
An established buyer or seller should have a phone number and be willing to agree to a Skype or video interview. If the only way to make contact is an email address, beware. It’s also helpful to see a physical address (not a PO box), but some companies that provide services and not products, such as consultants, may be working from home and not be willing to provide an address. Also, see how quickly the company responds to your queries. If you are waiting days for a response, that could be a red flag.
Rely on International Banks or Escrow:
Payment methods that bypass banks can be risky. Those methods are better served for friends and family transferring money to each other. Although the fees are higher and the paperwork more intensive, relying on an international bank to issue a letter of credit or using a reliable escrow service is a much safer alternative for the buyer and the seller.
Avoid Shipping Fraud:
No buyer wants to pay for goods that don’t arrive, or are of a lesser quality than expected. To avoid shipping fraud, use international payment methods like documents against acceptance (D/A) or a well-known and secure escrow service which allow the buyer to inspect the goods before releasing payment.
Free Offers and Opportunities That Sound Too Good to be True:
The sayings are true: “There is no free lunch” and “If it sounds too good to be true, it probably is.” Offers of massive returns or impressive profit margins for products, or free products or services with “no strings attached” are likely attempts to gain your business. Hardworking sellers that take pride in their products do not give them away for free.
Where You Buy or Sell Matters:
We all wish it wasn’t so, but some regions have high levels of fraudulent activity. Although honest merchants exist around the world, sadly, parts of Europe, Africa and Central America have reputations for unscrupulous dealings online. When engaging trading partners from such regions, take extra precautions.
Maintain a Paper Trail:
Sellers and buyers should have a clear paper trail that stipulates the product, shipping method, payment method, the date the product expects to ship, and special clauses such as pre-inspections or custom and tariff information. Also, retain your correspondence such as mail documents, emails, receipts, and third-party interactions (escrow services, PayPal, etc.) in case you need to claim non-payment or non-shipment of goods.
What to do if Things Go Wrong
No matter how careful you are, you can still be the victim of international trade fraud. Once you find yourself in this situation, time is of the essence – take action immediately.
The first step is to contact the buyer or seller. Sometimes the problem is simply a misunderstanding, a mixed-up order, or something beyond the trading partner’s control. If you are dealing with a reputable seller or buyer, they will be more than willing to talk with you to resolve the situation.
Mediation is the next step if the buyer or seller is refusing contact. Some escrow services and international payment sites offer mediation, but you can also hire independent mediators or contact the International Trade Council.
Defrauded buyers that have paid for their goods with a credit card or through their regional bank can request a payment hold or chargeback. Again, timing is critical here, and the hold/chargeback is at the discretion of the financial institution and their policies.
As a final step, if contact, mediation, credit/cheque holds, or chargebacks have not been successful, you can contact the law enforcement or consumer affairs agency in the buyer or seller’s region and lodge a formal complaint.
Most online trading marketplaces take a very firm stance against international trade fraud. If victimized, also contact the marketplace administrators so they can take action to protect their trading community.
Oversight is Key
We all face risks when trading online, whether we are shipping small hand-made goods, bales of paper, or large-scale manufactured equipment. The best way for trading partners to protect their interests is to be vigilant about the possible frauds lurking online. As with anything in life, expect the best, but be prepared for companies, people, and business practices that do not hold the same ethical standards as you.
