International Fraud

International Fraud

Having completed an export order of passion fruit for a partner in the UAE, the owner of a business anxiously awaits payment that never comes.

The confused business owner shared with me that her contract with the customer did not specify any arbitration agency or court to handle disputes. She fears losing everything, or as the saying goes, “if it rains, it pours”.

Misfortune in dealing with international partners is a common occurrence for Vietnamese businesses. According to a survey by PwC published by the Vietnam Chamber of Commerce and Industry (VCCI) at a seminar last year, 52% of businesses said they had been victims of fraud and economic crimes.

The actual figure could be higher, considering the embarrassment and reluctance to admit being scammed.

However, the 52% figure for Vietnamese businesses is only slightly higher than the 46% for businesses in the Asia-Pacific region and 49% globally. Fraud and economic crime are quite common in international trade. As Vietnamese businesses integrate and do business with more partners, the “playing field” expands, different rules apply, and the risk of disputes and fraud becomes greater and more complex. The main reason is that businesses do not have the means to thoroughly check their partners, choose inappropriate payment methods, or even lack experience in dealing with calculated traps from partners in contracts.

Vietnam is a country with many top global export industries, but most Vietnamese businesses are small and medium-sized and lack experience in international trade disputes. Most businesses place too much trust in brokers while they are not responsible for the capacity of the trading parties. Contracts drafted by brokers are often very simple and lack many important terms. Businesses also skip partner verification, which is a mandatory requirement when dealing with new customers. Therefore, businesses cannot timely recognize risk signs.

When domestic businesses are scammed or face disputes, Vietnam’s diplomatic representative agencies and Vietnam Trade Offices abroad often participate in support. The biggest recent success was when dozens of cashew containers exported to Italy in early 2022 lost their documents and were not paid. Thanks to many efforts from the Embassy and Vietnam Trade Office in Italy, these containers have been released to return to Vietnam or sold to other customers.

But not every time there is such success. The authorities of other countries tend to view these as civil disputes, and if they are civil then they must be resolved at court or arbitration, depending on the agreement between the parties. The intervention of diplomatic agencies only means to urge local authorities to pay more attention, but it is not a legal measure.

Therefore, businesses still have to self-promote, be vigilant and learn how to face risks on the market themselves. The first solution is to understand customers well. To verify partner information, foreign businesses often buy information from business consulting companies or credit rating companies. These units have large databases about businesses that are regularly updated.

From another perspective, banks not only play a role in organizing payments but also function as advisors. Banks have an agency system that can advise sellers on whether a bank designated by the buyer is trustworthy. If the seller does not trust the buyer’s bank, they should negotiate, suggest switching to another bank, change the payment method, or request additional bank guarantees.

From my understanding, some businesses do not require buyers to make a deposit, even if it is a new customer, partly due to the need for customers and wanting to sell goods immediately. However, requiring a deposit is normal when dealing with partners, and sellers should not let buyers persuade them to skip this condition.

Export businesses also need to be wary of unusual signs such as buyers using free email addresses for transactions; making numerous demands; avoiding face-to-face meetings, direct contact…

In cases where they want to sell goods but are not yet confident about the buyer, businesses can suggest that the shipping company issue a bill of lading at the bank’s order. Thus, anyone who has a bill of lading in hand but does not have a bank order cannot receive the goods. In addition, they can choose to use risk prevention methods of banks, such as confirming L/C, guaranteeing payment, guaranteeing contract performance… This will incur an additional fee, but it reduces the possibility of future trouble.

In international trade, logistics businesses are not only parties that help import and export businesses carry out transportation procedures and receive goods from sellers and buyers but also act as a “safety valve”. Insurance and inspection are also businesses involved in the logistics service chain. Import and export businesses can prevent risks by buying cargo insurance, using third-party inspection services…

Consulting services, legal services or consulting companies, law firms should be considered as part of accompanying businesses throughout the entire business process, not just when disputes arise. They will help businesses learn about partners, review contracts to avoid unfavorable terms, and in case of disputes arising will support or represent businesses in handling.

I agree with the sharing of a long-time businessman in the field of import and export: Vietnamese businesses should not consider learning, improving professional knowledge or training professional human resources as costs but should call it an investment. This investment is much cheaper than the cost of remedying the consequences of risks from disputes and scams on the international market.

Trần Thanh Hải

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International Fraud

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