A victim of fraud: how to avoid it?

• International Trade
• Legal Support of Foreign Economic Activity
• Legal services for IT companies

Fraud is one of the worst problems for any businessman, since the incurred net loss should be reimbursed, funds should be either invested in turnover or paid in favor of other counteragents within the chain of commercial scheme.

That is to say, in case of fraud, business not only loses profit (it sometimes happens in business), but also incurs 100% expense, the reimbursement whereof is often problematic (at least at first).
Interlegal 25-year consolidated experience in legal support for agricultural business, including 7 tips on how to avoid becoming a victim of fraud, is set below.

Tip #1. Check the counteragent beforehand

First and foremost, to avoid becoming a victim of fraud in business, you should verify thoroughly the counteragent. We may be sure that proper compliance fundamentally reduces the risks of the counteragent’s fraudulent actions, since an experienced lawyer will immediately pay attention to a whole range of issues: existence of a legal entity, office, powers of signatories and the right to sign necessary documents. Further verification of the counteragent should assess its reputation, company assets and actual possibility to fulfill obligations by the counteragent.

Tip #2. Check the correspondence address

Lately, in our practice, the counteragents, while reaching agreements, have more often received letters with offers from fraudulent email addresses that differ from the real ones by one fatal letter.
In practice, there are lots of such successful fraudulent transactions. The only method for defense is to verify email addresses for conformity to those prescribed by the contract or used for previous correspondence.

Tip #3. Fix the principal items in contract

Based on the previous advice, we recommend fixing email addresses, whose users are entitled to process information and to send invoices, in contract between the parties.
It is also logical to fix in the contract bank details whereto payment should be made.

Tip #4. Check physical availability of the goods before payment

One of the most frequent fraud schemes is the counteragent’s actual impossibility to fulfill its obligations. Therefore, nobody canceled standard and well-known survey of goods from the buyer.
Such item includes also the absolutely necessary verification of the fact that it is your product stored at the Seller’s warehouse. For instance, the Seller guarantees availability of five thousand tons of corn at its warehouse, but can we make sure that it did not provide the same guarantees to a dozen of other buyers?

Tip #5. Check the terminal

This advice follows directly from the previous one. The terminal is a crucial and integral part of the goods supply chain; however, if no one has any questions regarding the need in verifying either Buyer or Seller, then the need in verifying the terminal is quite odd. We can be sure that such need is not caused by legal snobbery, but by unfavorable cases in practice.
You should verify the register of goods deliver to the terminal, pay attention to its reputation and corporate structure, since the fraud frequently occurs where you would not expect it.

Tip #6. Pay high attention to information security

This advice can hardly be treated as legal one; however consequences can definitely affect the company’s entire activity. You should use perfect antivirus software, employ the experts in cyber-security and avoid leakage of crucial information outside your company.

Tip #7. Bear in mind NDA

A correct and professionally drafted Non-Disclosure Agreement concerning crucial information will defend you against most fraudulent schemes under a simple principle: fraudsters will be unable to find out your plans.

What should you do if the fraud has already occurred?

In such case, the most vital legal issue shall be delineation of civil liability for breach of contract and fraudulent actions in the framework of criminal proceedings.
Practice shows that, after the trouble had occurred, principal work may be conducted in two main areas:
1) to prove that party to the contract was unable to fulfill its obligations, while conclusion of the contract and all previous relations took place only for the purpose of obtaining and taking possession of anyone’s funds or property;
2) to prove that party to the contract did not intend to fulfill its obligations, while each action it had committed was a kind of cover for its actual goal.

Is it possible to return your assets?

It is a rhetorical question, while the answer thereto depends on situation and quality of professional work.
The only thing we can say is that such cases exist; they are real, completely positive and completely non-public. Remember: in such cases, the speed of a prompt response to fraud is very important. Good luck!

Taras Dragan

dragan@interlegal.com.ua