Avoiding Vendor Fraud During COVID-19

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As COVID-19 continues to sweep the globe, companies are racing to provide personal protective equipment (PPE) to front-line defenders. The need for this equipment is great and manufacturers around the globe are switching gears to produce mass quantities of needed products. But there are also many firms created solely to defraud buyers of PPE. 

Over the last few weeks, more than 9,000 new companies have been created in China allegedly to provide PPE to the US and other affected areas. Many of these manufacturers and distributors are not legitimate.  

Our on-the-ground intelligence efforts have concluded that thousands of manufacturers are making counterfeits, selling used products as new, and defrauding buyers in countless ways. With nearly 30% of the world’s manufacturing taking place in China, here are a few tips to avoid costly mistakes.

Know the Players  

If a manufacturer or distributor in Asia been referred to you as a reliable source of a product or service, remain skeptical before committing funds. Many newly formed companies in Asia are illegitimate. The risks posed to buyers include counterfeiting, shoddy production, outright fraud and theft, among many others.  

The risk of losing valuable funds is great when you learn about a business from a friend of a friend, or because of something you see on the internet or in an email.  The risks are reduced when you are referred to a business from another organization that has a history and deep knowledge of the manufacturer or distributor. 

If you have any doubt about the legitimacy of the manufacturer or distributor, obtain corporate registration information from the home country of the manufacturer or distributor. That should provide you with the names of the owner(s), when the business was formed, and this should identify the name of the legal representative(s).  

Understand why the company is newly formed.  Determine the identities of the beneficial principals and assess whether the company has a history of providing the products and services they are now offering for sale. Be wary of doing with shell companies.  

Conduct Site Visits  

Prior to committing funds, perform a site visit to verify that the target has the capabilities to make or distribute what you seek to buy. Many Asian companies claiming to be manufacturers are actually shell companies with no operations.  Firms like KLINK can do these visits within days. 

Conclusion

Be cautious about expending scarce resources. Knowing the risks can help you avoid costly, and deadly, mistakes.  Many Asian companies claiming to be manufacturers are shell companies with no operations or are engaged in fraudulent activities.  This is a time where every dollar matters. Do your homework before committing funds.

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