Today lets look at one of the most painful scams around when importing from China. It is not new, but it is happening more and more as internet security is getting easier to bypass. So lets see…
1. What it is?
2. Who does it affect?
3. The current solutions.
4. The future - What is the blockchain solution that can tackle and defeat the Bank Switch Scam?
The China Bank Switch Scam is the most prevalent, dangerous and hard to stop scam in international trade. When it happens (which sadly is too often) there is no good solution and definitely no happy ending. Before I go on, what is “The China Bank Switch Scam”?
1. The Scam
A Chinese suppliers system is hacked by criminals and invoices or emails have new bank account details inserted. They pass these to the unsuspecting client wherever they may be. It should be noted that sometimes this is an inside job by an employee but from reports that seems to be a minority of cases – in my view it is hard-impossible to nail statistics on it as virtually none of the cases are solved. However, it is far easier to catch an inside job.
So, what happens is that the innocent client simply pays the account they are requested to – the WRONG account. In a few days the supplier emails the client and asks when they can expect payment? Suddenly there is confusion and the conversation will be generally the following….
Client: ….but we paid you!
Supplier:…Eh sorry we did not receive anything, have you got a copy of the transfer.
Client: …sure (emails it).
Supplier: Ehhh this is not our bank account.
Client: Say what now my friend?
Supplier: Here is our bank account, we have no idea who owns the one you just used. We must have been hacked!!
Panic now sets in and probably paranoia too. Panic in that the money is potentially gone (it’s gone). Paranoia that maybe the supplier is pulling a fast one (they’re 99% not). Let’s spare a thought for the supplier here – they still have not got their money which in the case of a balance payment with goods on the high seas possibly branded specific to one client. This leaves them absolutely high and dry if the client cannot afford to take the hit of paying twice – very few buyers will have the appetite to pay twice.
2. Those Affected
Overall the top 2 are the big losers but there is a spin off including confidence in China as a secure place to do International business.
3. The Solutions
Until now there has been no solution only preventative measures that I myself have been vocal to promote. That said none have ever been 100% in their effectiveness to stop the China Bank Switch Scam. Indeed all the measures at the moment involve too much margin for human error and rely on consistency of process implementation. Added to all that the cross checks are getting more convoluted to try beat the scammers. Here is a shortlist of what has and is being done (as I say still not safe enough).
- Always call the suppliers office landline and confirm details (time consuming, difficult and has margin for error).
- Request Bank Details before orders are made OR request them separate to invoices.
- Use Fax (I hear you) OR do a small sample transfer first.
- Have extra layers of process agreed with suppliers from the outset on company bank details or company name. (margin for error on implementation.)
4. Blockchain Tech. to end The China Bank Switch Scam.
Firstly, what blockchain is and why is it so secure?
“A blockchain database consists of blocks and transactions. Blocks contain batches of transactions that are “hashed” and encoded. Each block contains the hash of the block before it, which links the two and forms the chain. This process validates each block, all the way back to the original, and is integral to the database’s security.
When a transaction takes place, its details are encrypted and a unique multiple-character transaction number is generated. Instead of other users in the blockchain being able to see the exact details of the transaction, this number is recorded in the ledger as a placeholder. All the users of the network will be able to see that the transaction has taken place but only the parties involved in the transaction can access and view its details.
All this makes any fraudulent activity easier to spot. An external hacker would have to gain access to every computer that holds a copy of the blockchain database, and at the same time, in order to tamper with it. “ (The Guardian Online)
International supply chain company Rubin Way are now shining a light in a very dark area. Rubin Way has taken it as their mission to eradicate fraud in procurement through blockchain technology. They are currently developing a Sourcing Application using blockchain which is capable of verifying suppliers and their correct bank details and adding them to the decentralized blockchain which cannot be hacked. This means stakeholders such as buyers or banks cannot make mistakes with transfers which will be triggered inside Rubin Way’s smart contract. That’s all very exciting news for supply chain and buyers and sellers dealing in China. So there looks to be a happy ending up the road after all. Check out Rubin Way.