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Alert on recent fraud cases in international trade

The essence of fraud 

It has become a part of common practice in international transactions, when trading companies, due to their own negligence, become victims of fraud. The present scheme of deception is as follows: the buyer, having received a bill (invoice) for payment of the goods delivered by the seller and being sure of its (invoice) authenticity - conducts the appropriate payment as specified in the account details.

At the same time, there may be cases where the buyer sent SWIFT message as proof of payment to the seller. In turn, the seller, having received a confirmation of payment from the buyer, acts in accordance with the contract and releases the original documents proving ownership of the goods. 

Thus, the transaction took place, the bill is paid, the buyer confirmed payment in the SWIFT message, and original documents were "released" in favor of buyers. However, in the end, the money for the goods has not been transferred to the seller’s account. So what is the catch?

The answer is simple. Parties to the transaction have become victims of fraudsters, who illegally got the information about the transaction (by hacking mailboxes) and faked account. As a result, fraudsters got money, and parties to the transaction - losses and months and even years of criminal litigation and arbitration processes around the world. The reason for that - the lack of minimum precautions during the transaction, and the payment procedure, in particular. Meanwhile, by compliance with those precautions you would significantly reduce the chances of fraud.

Our recommendations 

Firstly, always check with the buyer, whether he had received the right banking requisites. Make sure where and to whom the buyer paid. If you are a buyer - verify the accuracy of the account details for payment of goods, accuracy of information about payee. Pay attention to the suspicions and inaccuracies in the invoice, contact with the bank and the beneficiary before you make payment, be vigilant and inform your counterparty about all your intentions and actions. 

Secondly, we recommend that sellers always "release" all original documents for the goods, especially bills of lading, only upon the actual receipt of money to your account. For this purpose, the contract must prescribe the appropriate provision, which can be formulated as follows: "The original documents, including bills of lading shall be dispatched by the Seller upon the actual receipt of full payment by the Buyer."

If you trade on a FOB basis, do not allow the vessel to leave the port of loading until payment is received.

Thus, guarantee of the buyer’s security – reassurance in correct payment details, as for the security of the seller - safeguarding of the title documents for goods until the actual cash is deposited. By following these precautions, both sides of the transaction – the buyer and the seller - will minimize the risks of fraud and ensure the safe performance of the transaction for the mutual benefit. 

Be careful, and remember: the devil is in the details!


Ivan Kasynyuk, Partner

Dmitry Koval, Junior Associate

AGA Partners Law Firm

12.02.15