• 2023.06.06
  • International Transaction

International Transactions and Fraud

International Fraud

In our practice as attorneys, we often receive consultations from clients who have been victims of fraud, and when we listen to clients who come to us for advice on a transaction, there are many cases in which we suspect that the transaction may be fraudulent. There have been several recent cases that we have consulted on that we have clearly determined to be fraudulent. The patterns of fraud in recent years (patterns of fraud in international transactions) can be broadly divided into two patterns, which we will describe below.

Since fraud usually contemplates the fraudulent acquisition of money from the other party, the party committing the fraud needs to get the other party to transfer money to his or her account. Naturally, even if the scammer says, “I am a very trustworthy person, so please transfer the money to my account,” no one will transfer the money. In our experience, most international scams are the opposite: the scammer says, “I want to pay you, will you accept the money?”

Of course, no one would accept money from a stranger, much less from a foreigner, because they are afraid of being asked to do so. However, it is not impossible to be involved in such a fraudulent transaction if the proposal is made in the form of “We would like to conduct a certain transaction, would you do business with us?” If you are offered very favorable terms by an apparent customer, it is important to assume that there is something wrong with you in order to avoid being the victim of a scam.

Patterns of International Fraud using Checks

The first pattern of fraud is when a customer receives a check with a face value of 100 million yen, for example, and is told, “20 million yen is your commission, please accept it. The remaining 80 million yen should be transferred to an overseas account. This is the pattern. The victim of the fraud receives a check for 100 million yen, takes the check to the bank for collection, and receives a payment of 100 million yen from the bank. However, the check is later dishonored due to insufficient funds, and the bank demands the victim to return the 100 million yen. At that point, the victim realizes that he or she has been defrauded, but it is extremely difficult to find the perpetrator because he or she has already lost contact with his or her overseas business partners and the overseas account is closed. The victim would like to say that he or she was also defrauded and that even if he or she returns 20 million yen to the bank, he or she cannot return the remaining 80 million yen. However, under the bank transaction agreement, the party who collected the money is obliged to repay the bank if the money is dishonored, so he will surely lose the case even if he has to sue. (Of course, if the check is obviously counterfeit, the bank may be at fault and make a different judgment, but since the check itself is usually not obviously counterfeit, but merely insufficient, such a defense is not available.)

Fraud to capture commissions and sample goods

The second pattern of fraud is when a foreign party approaches you with a transaction in the form of “I would like to purchase your products, and I will pay you up front.” Unlike the first pattern, the determination of whether a transaction is fraudulent or not is more difficult because there is of course a genuine transaction. Our firm is often asked for advice on whether it is acceptable to engage in such transactions, and there are several factors to consider in determining whether a transaction is fraudulent (and even if it is not, whether the transaction should be conducted).

Factors in Determining Fraud

First, if the terms and conditions of the transaction are extremely favorable to us, we consider it likely to be fraudulent. For example, if a foreign company, with which Japan is very unfamiliar, says, “We want to buy your product, so please send us the product immediately and we will pay you 300 million yen in advance. We would be extremely wary of such an offer. In international transactions, delivery of goods and payment of the price are usually performed at the same time in principle, so it is extremely unnatural that only the money is sent first (and from a party with whom you have never had a transaction before).

Second, whether the other party has an interest in the transaction is an important determining factor. For example, “I like your product that I found on the Internet, so please send me 300 million yen worth of the product immediately. We will pay you immediately (or the price will be paid in advance), and a simple contract may be sent to you. In this case, the contract may contain detailed provisions for payment, but little information about the specifications of the product, when it is to be delivered, and how much it is to be paid. When we look at the contract, we find that the other party has little interest in the details of the product and only details about the payment of the price. Since the other party’s purpose is to purchase the goods, we must consider that there is something wrong if there is no detailed discussion about the goods.
Third, the contract sent by the other party is extremely inaccurate. If the contract is written in English, but there are spelling and grammatical errors and inconsistencies in definitions everywhere, you must question whether the other party is a trustworthy company and whether it really intends to conduct business with the other party using such a contract. Of course, since the contract is written in English, it is not enough to be able to read a little English in order to judge its suitability; you need to be able to understand the contract completely and be able to judge how it differs from a normal contract and why the other party made such a mistake.

Pattern of demanding attorney’s fees and contract drafting fees

As mentioned above, there are several criteria to determine whether or not a transaction with a foreign company is fraudulent, but it is necessary to consider how the other party is trying to obtain money from the Japanese company. Some of the clients we consult with say, “Since the other party is willing to pay, isn’t it not a fraud?” “Since we are not paying for the transaction, it is not a problem for us to do the transaction?” We are often asked such questions. However, there is a certain pattern to the scams that have been seen recently. As described above, the scammers offer extremely favorable terms and conditions to the Japanese company to get the company to agree to them, and they will ask for money under various names, such as, “It will cost 10 million yen in legal fees to prepare the contract, so please transfer that money first.”, “The Japanese company would then be asked the Japanese company to pay a bribe of 5 million yen to a high-ranking government official to obtain a government permit for the transaction.”, “Please transfer 3 million yen to open a special account at a financial institution.” Even if the initial request is for a small amount of money, it is typical to be asked repeatedly to transfer a very large amount of money in the form of commissions.

Examples of Cyber Fraud

Recently, the number of cyber fraud cases has significantly increased, and major companies such as JAL have been reported to have been scammed. In cyber fraud, the fraudster gains unauthorized access to the computer of the company’s accountant and checks the daily e-mail correspondence, etc. After about a month of understanding the details of the transactions, the fraudster confirms the e-mails with the suppliers with a certain amount of payment, sends e-mails to the suppliers demanding payment on behalf of the accountant, and the counterparty transfers the money to the fraudster’s bank account. Since the bill comes in the name of the same person as before and the e-mail address is very similar to that of the previous accountant, the counterparty mistakenly believes that it is a genuine bill and transfers the money to the scammer’s account. If you are involved in a cybercrime, you should immediately report the matter to the police and check to see if it is possible to recover the money by, for example, seizing the transaction account at the bank. In addition, banks in the U.S. and other banks may be able to receive insurance payments under certain conditions in cases of cyber fraud.

Necessity of consulting a law firm

If you feel that something is not right when you start doing business with a foreign company, you should definitely consult with a lawyer who specializes in international transactions. Although there are many people who are somewhat confident in their English, it is difficult to understand the true meaning of a contract unless you are very familiar with it, because it is a kind of special English. Some people who are somewhat confident in their English focus only on the details of the contract, and often overlook the most important aspects of the contract. First of all, it is necessary to look at the contract from a broad perspective, such as what kind of transaction is being conducted and whether the basic framework of the transaction is properly defined.