Investing Tips: Exploring International Investments Online

About online investment fraud and international trading scams and how to avoid them. Rules and guidelines on how to insure trust between overseas buyers and sellers.

Millions of dollars, everyday, ride upon the success or failure of an agreement. Large industrial and corporate investments and purchases rely on banking endorsements such as Letters Of Credit to commit funds before they are spent, but such financial instruments are not cost effective in a smaller deal, which is the caliber of many online investment offers. Also, an LC assumes that the seller can afford to tie up his product until a buyer on the other side of the planet can accept delivery, so what do we do?

We have an importer that has a local market he has been dealing with for years and an exporter that has $35000 of high demand units that he has to move. On the surface this sounds like a no brainer but, the importer does not know if the units are real and the exporter does not know the importer's creditworthiness nor can seller justify to his Finance VP floating his units to sea for a month before they find out if the buyer is for real.

I recently concluded an overseas sales agreement to the point where my buyer accepted our price and terms, which explicitly called for the importer to pay upfront and take possession of our products in the United States. At that point it was our importer's move; we had even sent him some free samples that cost us almost as much in shipping as product. His response was to inform us that his country had a Bureau of Standards that required a registration fee of our product. By now I knew what I was dealing with, but played along for one more round of em's, explaining that my original sales pro-forma clearly specified buyer taking his goods on an American dock and that there was no stretching of any imagination that could construe that any overseas institution had any business with us at all, but to look for the local buyer, who is bringing the products into the country, for any product registration or taxes, etc. My would-be importer then profusely apologized about the oversight of forgetting to mention their Bureau of Standards upfront and assured me that this was routine and necessary practice. I did not know whether to be disappointed or angry with someone who hoped me stupid enough to pay taxes to a foreign country on something I sold in the US. I terminated negotiations at this point with the experience inspiring this article.

What was just described here is a classic variation of what has become an international trade scam of epidemic proportions. As of 1996 this scam was producing $5 Billion in profits to the third world nation it usually originates from, being that country's third to fifth largest industry, I have heard. It is called the Advance Fee Fraud or the 419 Fraud, from the fact that it violates criminal code 419 of that country's laws.

The Scam operates as follows: the target receives an unsolicited fax, email, or letter often concerning Nigeria or another African nation containing either a money laundering or other illegal proposal OR you may receive a Legal and Legitimate business proposal by normal means. Common variations on the Scam include "over-invoiced" or "double invoiced" oil or other supply and service contracts where your Bad Guys want to get the overage out of Nigeria; crude oil and other commodity deals; a "bequest" left you in a will; "money cleaning" where your Bad Guy has a lot of currency that needs to be "chemically cleaned" before it can be used and he needs the cost of the chemicals; "spoof banks" where there is supposedly money in your name already on deposit; "paying" for a purchase with a check larger than the amount required and asking for change to be advanced; fake lottery 419; and ordering items and commodities off "trading" sites on the web and then cheating the seller. The variations of Advance Fee Fraud (419) are very creative and virtually endless.

At some point, the victim is asked to pay up front an Advance Fee of some sort, be it an "Advance Fee", "Transfer Tax", "Performance Bond", or to extend credit, grant COD privileges, send back "change" on an overage cashier's check or money order, whatever. If the victim pays the Fee, there are often many "Complications" which require still more advance payments until the victim either quits, runs out of money, or both. If the victim extends credit on a given transaction etc. he may also pay such fees ("nerfund" etc.), and also stiffed for the Goods or Service with NO Effective Recourse. The Nigerian Scam is, according to published reports, the Third to Fifth largest industry in Nigeria. It is the 419 Coalition view that, in effect, the elites from which successive Governments of Nigeria have been drawn ARE the Scammers - therefore, victims have little recourse in this matter. Monies stolen by 419 operations are almost Never Recovered from Nigeria.


Courtesy of The 419 Coalition

1.NEVER pay anything up front for ANY reason.

2. NEVER extend credit for ANY reason.

3. NEVER do ANYTHING until their check clears.

4. NEVER expect ANY help from the Nigerian Government.

5. NEVER rely on YOUR Government to bail you out. *1

Enough about playing hardball. There are plenty of mistakes you can make when both buyer and seller have the best of intentions. Let's return to our importer that has a local market he has been dealing with for years and an exporter that has $35000 of high demand units that he has to move. There are two ways, short of expensive banking instrumentation such as LC's, that first met buyer and seller can both feel safe and conduct their entire transaction in a reasonable amount of time.

First, buyer deposits purchase price in an escrow account with an appropriate institution that both he and seller trust, seller ships and then collects his money.

Second, buyer flies to seller, inspects and approves units, pays seller and takes possession of units.

The entire matter is the simple fact of ensuring that when one pays, one gets. After subsequent transactions occur, trust accumulates and perhaps credit is warranted. Now, what happens to you, as a buyer investing in units that you now own, and the delivery is hurricane blown onto some rocks and your units destroyed. I am sure that you had the foresight to have negotiated with seller to deliver them to you insured against damage. Two other ways of protecting yourself against that type of loss, which was not intentional but a natural disaster, are to either insure your goods yourself, or take possession of your shipment from a local port to you. If an international investment involves real estate, the basic rules are the same.

Learn what you are investing in

Approve it

Buy it

This has always been the case in international trade for thousands of years, the difference that we in the 21st century deal with is instantaneous, relatively free electronic mail that exposes the legitimate investor to petty criminals and well meaning novices. If you know what you are doing, you are safe from the former and a worthy teacher to the latter.


*1 from "Nigeria - The 419 Coalition Website"

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