How to Avoid Getting Scammed When Buying Product Overseas (Including from Alibaba)

More than a decade ago I wrote an article entitled “I Hate Alibaba” (it’s no longer still on the Internet but I still have it on my computer), voicing my concerns with foreign companies thinking they were safe sourcing through Alibaba. My concern at that time stemmed from the many calls and emails my law firm’s international dispute resolution attorneys get regarding really bad or never delivered product people had sourced through Alibaba.

In that now deleted article, I wrote the following:

Just back from China (Hong Kong, actually), where I saw a television interview with Jack Ma of Alibaba. He never fails to impress the hell out of me and every time I see him my first thought is BUY.

But then I think about all the harm Alibaba has caused to so many Western SMEs and I change my mind about calling my broker/brother. Alibaba makes the naive think China sourcing is easy. I realize blaming Alibaba for the mistakes companies make in using its site is not fair to Alibaba, but at the same time, I do not see much use for the site beyond its serving as a really good directory of potential manufacturers of particular products.

Sourcing from China is not easy and my concern with Alibaba is how so many who use it think it is easy and then fail to take necessary precautions and then they call my law firm because they are out hundreds of thousands of dollars.

Seems it is even worse than I thought.

Now we learn from Time Magazine that not only the companies that list on Alibaba are fraudulent, but Alibaba itself engaged in fraud as well:

An internal investigation by independent board member Savio Kwan revealed that beginning in late 2009, Alibaba had noticed an increase in fraud claims against sellers designated as “gold suppliers,” which means they had been vetted by an independent party as legitimate merchants. The investigation revealed that about 100 Alibaba sales people, out of a staff of 5,000, were responsible for letting fraudulent entities evade regular verification measures and establish online storefronts.

The company said it uncovered fraudulent transactions by 1,219 of the “gold suppliers” registered in 2009 and 1,107 of those in 2010, accounting for about 1% of the total number of gold suppliers during those years. It further said that “the vast majority of these storefronts were set up to intentionally defraud global buyers” by advertising consumer electronics at cheap prices with low minimum-order requirements.

We get at least one call or email pretty much every week from someone scammed in buying product from China, but these scams always go into overdrive starting in September, and this year has been by far the most ever. This is no surprise as every sort of scam, China or otherwise, always increases as Christmas draws near and they go into hyperdrive when the world economy is hurting, as it is now.

This week I was enaged in back and forth emailing with four people who wrote about having lost money by buying from Alibaba and one who lost money by buying directly from a Chinese factory. All wrote us asking whether we can help and how much we would charge for doing so. Their losses ranged from $4,200 to 46,500.

Two of these people asked that I write something about how common these rip-offs are and because I hadn’t written such a post for quite some time, I told them that I would and this is that post.

I wrote all of them back with some version of the following template (modified for each of them) that I regularly use to respond to those who have been scammed with bad or no product from China and have lost less than six figures:

If I called every company that writes us after having been ripped off by a Chinese company, it would take up my entire day – not kidding, we sometimes get a dozen or more of these a day and this number is increasing.

We have seen this scenario literally thousands of times and here are the questions to which we need answers and the way these things usually go down:

Did you conduct any due diligence on your Chinese supplier before you paid them? If not, the first thing we would do if you retain us is to figure out whether it even exists or not. At least half the time these scams are perpetrated by individuals and these individuals might not even be in China; they might just be posing as a Chinese company. This is much less likely to be the case if you bought from Alibaba.

If you have a good contract (go here for what that means) with this supplier that makes clear that you ordered and paid for your product and that the Chinese company was required to ship you those products by a particular date, then you have a decent chance of getting recourse.

If you do not have a good contract (go here for what constitutes a bad contract), this Chinese factory will keep stalling you and then go silent and that is because it intentionally ripped you off (there is a 99.99% chance this is the case), it knows it ripped you off, and it does not care because under Chinese law (which is almost certainly the only law that matters here), it is virtually certain to get away with it.

If you think you have a good contract or something close to a good contract, we would be happy to represent you. In cases like these we charge a small upfront flat fee (based on the complexity of your situation), and for that fee we look at the contract and the other potentially relevant documents and we assess the quality of your case and your various options, along with the estimated costs of those options.

If you think you have a bad contract or no contract at all, we would still be happy to represent you, but all I can tell you is that you would probably be better off not spending the money and just trying on your own because either way your odds are just really, really low of ever getting anything back. BUT, be very careful because if you have not protected your brand names with trademarks in China (and I mean any brand names you have), you should be sure to register those brand names (and perhaps any logos also) as trademarks in China because if you don’t, this nefarious Chinese company will likely do that to extract revenge from you for bugging it and then your problems could well get even worse.

As for Alibaba, if you go back and read Alibaba’s terms and conditions you will understand how difficult and expensive pursuing Alibaba will be. To grossly summarize Alibaba’s terms and conditions, Alibaba is a massive company and it writes its terms and conditions to protect Alibaba, not you, and it has done a very good job at that. Alibaba has done such a good job with its terms and conditions that there is almost no way our law firm (or really, any respected law firm) can bring a law suit against Alibaba without charging you more than you have lost, and that would not make sense. I urge you to just keep “bugging” Alibaba yourself because that sometimes results in Alibaba tossing people a really small bone.

Even if your situation checks all of the “good boxes” above and none of the “bad” ones, I would like to talk with you first (for free) to try to drive home how our just trying to get you your money back will likely cost more than you are expecting to have to pay (these cases involve myriad cross border issues) and to give you a better idea of your chances of success. The last thing we want to do is take even a small amount of money from you to assess your chances of success if it is already clear that it doesn’t make sense for you to spend more than that in actually trying to recover your lost funds.

Please let me know how you wish to proceed. Either way, I wish you the best of luck.

99 times out of 100 I either never hear back or the person writes back and thanks me and says that they don’t wish to pursue it or they complain vociferously about how ridiculously easy it is to cheat people and get away with it and ask me to write about it.

The below email (received this week) is shockingly typical — and again, I have changed it to remove any identifiers.

This is Tanya. I am Bulgarian nationality and the owner of a trading company. I have been following you and read your articles, until CN has blocked LinkedIn and we can’t read anything outside China, where I am right now. I was wondering if this story would be of interest and you could publish it? I’d like the world to see the real face of China and their weaknesses.

Don’t get me wrong, I love China, been here for nine years, however never been cheated like this with papers in order, and all what the authorities do is pass the ball from one to another.

I was sourcing a supplier on Alibaba, where they have fake introductions and presentation of their office, factories etc.. Had the bad luck to find a middle company, they have shared with me fake documents, except their business license, that was the only document real. They have lied they have a factory in in Wuxi, however they have nothing. Because of the Covid Policy I didn’t go before paying the deposit to check them out. When I went, after they started with all sorts of excuses, then, I found out that they actually have two rooms, far from having professional factory, production team etc.

After I paid the deposit, the 30%, although we had a clear agreement on 30 days delivery terms, they started with excuses: “oh, something weird came up, we forgot to mention, there will be 45 days delivery. Oh OK, 30 days are fine, however you should buy extra 45 tons quantity”, this is the moment I realized they are not real, however a professional group of scammers. They told me that I shall have to go through legal process (which in China takes at least two years) if I wish to see my deposit back. Waiting two years would create a bigger impact on my company reputation.

What I want to emphasize 1) Alibaba is not doing their due diligence well, they accept all sorts of companies, even scammers 2) even the authorities and Chinese people know that there is no way of a 15% contract termination penalty, normally a fee 20-30K is paid to a private account, not to a company, they agree silently by passing the ball to someone else, perhaps to the Court where these scammers will have a dirty lawyer and make an agreement with the Judge too.

I am a bit to blame, as I was in a rush, however this awful COVID policy and the many untruthful stories they say.

I am looking for your suggestion, from a legal and human point of view.

Thank you in advance for taking time to read this.

After learning more about this person’s situation and the relatively low amount of money lost, I suggested she simply move on. I also just yesterday got a series of emails from a retired American police officer who had paid about $5,000 for products from China that were completely unusable when they arrived and he seemed not to believe that there was no way our law firm (or anyone else could help him). I sugggested he report the company to the Chinese police.

The bottom line is that it is a helluva lot easier and cheaper to avoid losing money (my law firm charges $1500 for what we call basic due diligence) than to recover money that has already been lost. Whether you use Alibaba or not, there are certain “rules” you should follow when sourcing products from China and those rules include (1) conducting due diligence on your potential supplier, (2) protecting your IP, and (3) having a good contract with your supplier. And yes, all of this applies no matter what the color star your supplier has on Alibaba. See China Product Outsourcing: The Legal Basics.

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