Imports - Exports related issues

Dealing with fake companies abroad

Small exporters - importers, especially in SME sector, get in to trouble with fake companies abroad when they undertake transactions without making proper due diligence on the counter parties. This results in financial loss to the client as well as to the country.  Though this is not unique to India, bankers have a moral responsibility to educate the customers to take precautions while dealing with unknown clients, mostly sourced through internet.

Exports:

The fraudster buyer abroad demands goods first before sending the payment, which does not come either fully or part.   They neither send advance remittance or open Letter of Credit.  May be in some cases, clients in both the countries like to avoid bank charges.

To mitigate this, exporters are to be advised to get the credit opinion and due diligence report from reputed service providers like Dun and Bradstreet.   Even Export Credit Guarantee Corporation (ECGC) in India is doing such help by keeping a database.   Such service providers give the payment history also along with the report.

Imports:

In the case of imports, such cases are far and few.   However many fly-by-night operators abroad, some of them are hand-in-gloves with the importers in India, indulge in un-ethical activities, thus siphoning precious foreign exchange from the country.

In such cases also, bankers should insist on due diligence report before undertaking transactions, so that they will not be abetting such wrongdoers.  This will eliminate transactions with shell companies.

Care:

While the incidence of loss may befall on the customers in most of the cases, ultimately any hit on the balance sheet of customers will indirectly reflect on the balance sheet of the banks, if not immediately.   Hence it is prudent for bankers to insist the customers on proper risk management while dealing with unknown clients as well as new clients in other centres.