LESSONS LEARNED FROM CASHEW EXPORT SCAM

Lessons Learned From The Cashew Export Scam

By Huu Duc Nguyen

(https://www.tradeservicesupdate.com/editor?editor=editor_duc)

The news that Vietnamese cashew exporters were at risk of being scammed for nearly 100 containers of cashew nuts worth about 20 million USD after exporting to Italy in early March 2022, shocked domestic public so much that the Prime Minister sent a telegram requesting relevant ministries and sectors to take measures to assist these exporters to deal with the case.

The scam was very sophisticated: The scammers somehow swapped and appropriated the original documents with the intention of receiving the cashew nut containers without payment. It was thought that these exporters would lose all cashew nut containers, but thanks to the drastic actions of the domestic ministries and sectors, especially the timely support of the Vietnam Trade Office in Italy, they finally regained their ownership of all cashew nut containers. However, they must have spent a lot of extra costs including warehousing fees, attorney fees, deposit funds for the bank to issue letters of indemnity in favour of shipping companies, freight for shipping goods back to Vietnam.

As being consulted by the relevant banks and having the opportunity to monitor the progress of this scam, I would like to share information about the deal and draw some lessons for exporters to help prevent similar scams that may occur in the future.

CASE SUMMARY

Five Vietnamese exporters, through a brokerage company, signed cashew nut export contracts with five importers in Italy. Payment to be made by documents against payment (D/P).

After signing the contracts, the exporters shipped 76 containers of cashew nuts and presented corresponding sets of original documents through Vietnamese banks (remitting banks) for collection.

The remitting banks sent sets of original documents by courier to designated collecting banks in Italy. They however, received the same responses from these banks that they only received sets of photocopied or blank documents and that the drawees under the collection instructions were not their customers.

Common features of the transactions:

• All original bills of lading presented together with the collection documents were straight bills of lading (showing the names of importers as consignees).
• All importers were first time trading partners; exporters signed contracts through the brokerage company, not directly with the importers.
• The brokerage company asked the remitting banks to send multiple sets of documents for collection in one express envelope. When the remitting bank delivered the documents to the courier for sending to the collecting banks, the brokerage company repeatedly urged the remitting bank to provide the courier bill numbers for convenient tracking.

After receiving the responses from the collecting banks, the remitting banks suspected the possibility that the original documents were somehow swapped or appropriated by the scammers with the intention of receiving the goods without paying. They immediately contacted the courier companies and requested the withdrawal of the documents on the way, and at the same time notified the concerned exporters of the suspected scams and suggested them work with shipping lines not to deliver the cashew nut containers to the scammers and report the same to the Vietnam Cashew Association and government ministries and sectors, to have a plan to timely prevent the scammers from taking delivery of the goods.

Fortunately, as mentioned above, Vietnamese ministries and sectors quickly got involved, especially the Vietnam Trade Office in Italy actively worked with Ministry of Foreign Affairs, Ministry of Economic Development, financial police, local authorities, port management, shipping lines, banks, courts in Italy, supported the exporters to access lawyers for advice, conducted necessary legal procedures to prevent shipping lines from delivering goods to the scammers and helped return ownership of the cashew nut containers to the concerned exporters.

Eventually, the ownership of 76 cashew nut containers including 33 containers whose original documents were lost was returned to the exporters.

LESSONS LEARNED

Through this cashew nut scam, cashew nut exporters in particular and import and export businesses in general need to draw lessons to help prevent scams in their international business activities as well as draw lessons from dealing with situations when being scammed, minimizing losses.

Know your customer

Know your customer check is mandatory. It can help protect businesses not only from money laundering activities but also from fraud.

The biggest concern for exporters when they start business with new partners abroad is whether the new partners are existing and reliable in term of credit standing and whether they are capable to pay for the goods they import.

Normally, exporters will verify names and addresses and check reputation, financial standing of the business partners before they start transactions, especially transactions of great value.

The most common way for inquiry is to request the importer’s bank to furnish credit information of the importer. The exporter can also request his bank to provide such service.

In the related cashew nut deal, the Vietnamese exporters signed a cashew nut export contract of great value to be paid by means of D/P collection with new Italian partners through a broker. Because relying on the broker, the exporters failed to investigate credit information about the importers.

According to the trade counselor of Vietnam in Italy, who directly supported the exporters to recover 76 containers, most of the import partners are companies registered to do business in the local areas. They are very small companies of only 1 or 2 employees, even there is a company located in the middle of the field, closed down.

If the Vietnamese exporters had inquired credit information about these new partners, they would have not been scammed.

Negotiate payment terms and appropriate payment methods

For large value transactions and new partners, exporters need to negotiate with partners on payment conditions and appropriate payment methods to ensure that they receive payment when delivering goods. Accordingly, exporters, depending on the evaluation results, can request new importers to accept payment for goods by advance payment or by letter of credit (L/C) or a combination of both methods, for example, 30% of the contract value to be paid within 10 days from the date of signing the contract, the remaining 70% will be paid by L/C at sight.

The method of documentary collection is usually only used for small transactions with a value equivalent to from 5 to 20 thousand dollars and the import partner is usually a traditional customer, always paying in time.

The Vietnamese exporters signed cashew nut export contracts worth millions of US dollars with new partners and accepted payment by D/P.

With this method, even if there are no scams, exporters may still face risks if the importers for some reason do not receive documents to receive goods. If this happens, the exporters must find other importers to resell at a lower price or ship the goods back to Vietnam.

So far it has not been determined exactly how the scammers swapped the original documents, it is suspected that they could either collude with the courier staff to obtain sets of original documents. However, the documentary collection method has loopholes that scammers can take advantage of to swap original documents. The surprisingly simple trick is as follows: When signing an import contract to pay by documentary collection, the scammers will provide the name and address of the designated bank for collection but intentionally provide their PO Box instead of the collecting banks. They ask the bank to provide the courier bill number to easily track when the original documents are sent to their PO Box to perform the swap with sets of photocopied or blank documents.

A bank officer said that a scam to swap or appropriate the original documents has ever happened to his bank, so his bank always checks the address of the designated collecting bank on their website or in Bankers’ Almanac to avoid being scammed, even refusing to send documents to a PO Box address.

The lesson learned is that with transactions with a value of several tens of thousands of US dollars or more, especially with new partners, exporters should never accept payment terms by documentary collection. It depends on the credit information inquiry on importers that exporters may propose importers to accept payment by advance payment or by L/C or combination of both methods.

 Never accept straight bills of lading

A straight bill of lading is a bill of lading showing the name and address of the consignee in the consignee box. The consignee named in the straight bill of lading can present the bill of lading to the shipping line without endorsing, even under the laws of some countries he can receive the goods without having to present the bill of lading as long as he proves to the shipping line that he is the consignee stated in the bill of lading.

The Vietnamese cashew nut export exporters have fallen into the trap of scammers when accepting to provide straight bills of lading. If such bills of lading had been issued to the order of the collecting bank, the scammers could have not been able to take delivery of the goods even when they got the original bills of lading.

Lessons learned from the cashew nut scam is that exporters should never accept a request to present straight bills of lading unless the importers have paid for the goods in advance.

Act promptly, properly and in accordance with legal procedures

The scam related to the cashew nut containers exported to Italy was settled more successfully than expected. From the risk of losing all, the exporters regained control and ownership of all 76 containers, without losing any containers even though the scammers have swapped and appropriated 33 sets of original documents.

The above results were possible thanks to the banks and the exporters concerned and government ministries and sectors, especially the Vietnam Trade Office in Italy, for their quick response, timely, proper, and legal procedures.

In short, through the cashew nut scam, Vietnamese exporters can draw many valuable lessons from always inquiry of credit information of new importers, choosing appropriate method of payment to how to handle when detecting signs of scams.

Lessons learned – check list

• Know your customer

Verify names and addresses and check reputation, financial standing of the business partners before the transaction is initiated.

• Carefully negotiate payment terms and appropriate payment methods

For example, for high value transactions with new partners, never accept payment terms by documentary collection. Advance payment or L/C or combination of both methods may be more appropriate.

• Never accept straight bills of lading

Exporters should never accept a request to present straight bills of lading unless the importers have paid for the goods in advance.

• Act promptly, properly and in accordance with legal procedures

When there is a scam – or suspected scam, act promptly, properly and in accordance with legal procedures. Involve government ministries and sectors if at all possible.