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SEVEN WAYS TO PROTECT YOUR ORGANIZATION AGAINST THE CHANGE OF BANK ACCOUNT SCAM


2 April 2020 | Risk, Fraud, Bank account scam | Written by Dr. Richard van Ostende | Reading time: 4 minutes


INTRODUCTION

The vast majority of companies located in China are legitimately established, doing business and seeking to develop their business operations in an honest way, compliant with domestic and international laws, regulations and ethical standards. Unfortunately, there are always a few that aren’t.

In this article the “change of bank account” scam is discussed and control measures that can be implemented by organizations to protect themselves against it.


THE SCAM

At the “change of bank account scam”, the purchasing company is asked to transfer payables to a different bank account other than the standard bank account of the selling company. The purchasing company does so and is later informed by the selling company that the payment has not been received. When the purchasing company explains that the payment has been made to another account based on a change request, the selling company indicates that the change request and the other bank account is not theirs, and as they have not received any payment, require the purchasing company to make the payment – sometimes including additional late fees.


Two main root causes for the ‘change of bank account” scam are:

  • A salesperson uses his personal email account instead of a corporate email account (which is quite common in China) to communicate with the customer and leaves the company. The salesperson however does not inform the customer and asks them to transfer the payment to another account.

  • The email system of the supplier is hacked, and the hacker sends out invoices to customers.


HOW TO PROTECT YOURSELF

There are a number of basic steps companies can implement to protect themselves against the “change of bank account scam”.

  1. Require each supplier to provide their bank account details in advance and ask the supplier to provide you with a scan of the business license and bank account certificate, both with an imprint of the company affixed to it. For the importance of verification of the business license [add link] or the importance of company seals [add link] see our previous posts. When a company is incorporated it will open a bank account, for which a bank account certificate is opened. Paying into this account ensures you are paying into the right bank account.

  2. Require the supplier to include the bank account in the purchase contract, and not only listed on the invoice or Purchase Order.

  3. Establish a procedure for changes. During the on-boarding process of your supplier make agreements how to handle changes in bank account details. Change requests should be made by a fixed contact person (who speaks English), with respective authority, via a confirmed means of communication, duly signed and sealed by the competent authority.

  4. Require your supplier to send you the invoices by fax. This way you can verify whether the fax number matches with the fax number of your supplier.

  5. Before you place an order, you would request samples to confirm whether the product meets all requirements. Instead of asking for free samples you can propose to pay for the samples and credit the paid fee from the upcoming larger order. After you have paid the fee for the samples contact the supplier to confirm whether he has received the money. This way you directly confirm the bank account, and in case you have been scammed by the “change of bank account” scam, only a small amount is lost.

  6. Especially suitable for larger orders, use a Letter of Credit (L/C) as payment mechanism.

  7. When you make a phone call to you supplier use the landline and preferably do not call via mobile phone or via Skype, as these can be hacked or mirrored. If you have any doubt on the validity of the invoice or change request received, call the supplier on their landline.


If you have a feeling something might be wrong, such as a slight deviation in beneficiary name, the way you have received the request, by whom you have received the request or if there is sudden urgency, do not doubt your doubts, but clarify the matter first.


The information in this article is intended for general information on the subject matter. The content of this article is not intended to replace professional advice on the subject matter in relation to your specific circumstances.


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Copyright © 2020 R.A. van Ostende. All rights reserved.