Commercial Fraud is a Two Way Street – Middle East Companies Increasingly Fall Victim To Sophisticated U.S. Scams

online-fraud-scammer419By: Wassem M. Amin, Esq.

A recent disturbing trend that I have witnessed in my practice is the rising occurrences of fraud perpetuated upon Middle East businesses via sophisticated schemes in the United States.  Most, if not all, cases take place within the context of a sales agreement where a fictitious American supplier targets Middle Eastern import/export firm.  Sophisticated scams often involve official-looking documents, such as bills of lading, fake certificates of origins, and even letters of credit.  Most correspondence between the parties is done via email and the parties rarely meet in person.  In particularly sophisticated cases, the scam artist in the U.S. even invites a representative to meet at the American Company’s “headquarters,”–which turns out to be an office suite rented for the day.

After the purported agreement is reached, the purported supplier urges the Middle Eastern company to wire funds prior to shipment of the agreed-upon goods.  This is usually accompanied by fictitious emails from a fake freight or shipping agent to reassure the buyer of shipment.  Of course, once the buyer wires the money, they never hear from any of the parties again.  I have seen losses that range from a few thousand dollars to millions of dollars.

Middle Eastern companies are particularly susceptible to fraud by US scam artists due to several misconceived notions.  First and foremost, they believe that a US company cannot be fraudulent due to erroneous misconceptions about the U.S. laws and regulations.  Second, most commercial business transactions in the Middle East are very informal and do not involve extensive legal documentation.  They rarely ever involve legal counsel.  Therefore, most Middle Eastern buyers are unfamiliar with the requirements of any agreements and how to conduct due diligence to properly vet a potential supplier.

A Middle Eastern company can reduce the risk of such fraudulent transactions in several different ways.  First, it is always advisable to seek the professional counsel of an International Transactions Attorney or Business Consultant, particularly one who is familiar with the Middle East.  The expense incurred may protect against exponentially larger losses.  Second, international buyers should insist on using a Letter of Credit as the method of payment–especially if the parties do not have any prior transactional history.  A Letter of Credit will work as a safeguard to ensure that goods are shipped prior to the release of funds.  Third, international buyers should conduct their own extensive due diligence to ensure that the supplier or seller is a reputable company.  That may include steps such as retrieving the company’s corporate/business registration records, asking the company for prior buyers’ contact information as references, and search with local and national Better Business Bureaus to uncover customer complaints.

The extent of protective measures, of course, depends on the size and complexity of the transaction involved.  The bottom line is that once a buyer is defrauded, it is very difficult to recover the losses.  Consulting an international transactions attorney or consultant is an important investment for any party – whether a US supplier OR a international buyer.  As always, caveat emptor.

Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Wassem M. Amin is an Associate Attorney at Dhar Law LLP in Boston, MA.  Wassem has extensive experience in the Middle Eastern region, having worked as a consultant in the area for over 9 years.  Wassem currently focuses his practice on Corporate Law and International Business Transactions.  For more information, please visit the About Us page or http://www.dharlawllp.com. 
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