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Fraud in international trade

Fraud is criminal behaviour in which one party uses deceit or other dishonest means to deprive another party of its money or property. International trade presents an environment where fraud may occur due to the geographical distance between sellers and foreign buyers and difficulties in assessing various risks. Fraud in international trade is usually in the form of non-payment for the goods or services delivered or non-delivery of goods or services for which payment has been made in advance. This is the reason to develop various methods of payment that prevent or minimise such risks. These methods are explained in our eLearning courses Payment Terms, Letter of Credit and Documentary Collection.

Due to the risk of fraud, sellers and foreign buyers must make the necessary checks, especially when negotiating with unknown foreign counterparties.

An important step in this process is checking the legal status of the company named in the communication between the parties. This can be done by obtaining the information from the company register in the country where the company is domiciled and analysing information about the company available online. It is possible, for example, that a non-existing company uses the name of a well-known and reputable company with the intention to defraud the other party. The other party should always contact the well-known company and check whether it really intends to make a deal.

It is also important to check online whether the persons named as representatives of a particular company and the persons engaged in its management are under investigation or have been sanctioned for criminal activity. Besides that, it is important to critically analyse each transaction to understand whether the party from another country is trying to use the transaction for the purpose of money laundering, tax evasion or financing terrorism. Every suspect detail found during such investigation should be carefully analysed.

An analysis of the party’s financial standing, made before concluding the agreement, cannot reveal that party’s fraudulent intentions, but it may indicate that the party does not have the capacity to perform the contract. It is therefore important to make such analysis by obtaining information about the financial standing of a foreign company. Such information can nowadays be obtained online from specialised providers.

Additionally, information about economic sanctions that are sometimes imposed against foreign countries, companies and individuals is available online. Being informed about sanctions is important because dealing with sanctioned entities is prohibited, and a party that violates such regulations can be criminally liable.

When all necessary checks and investigations have been made, it is important to analyse the methods of payment explained in our eLearning courses Payment Terms, Letter of Credit and Documentary Collection.

See our eLearning course Risks in International Trade

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