Richie M. Hecker, Managing Director, TS Health Supplies Division, Traction & Scale LLC02.10.21
So you’re looking for something cross border or perhaps something that landed in your neighborhood but came from a far-away land. A few months ago, you may be questioning whether you bought a real Louis Vuitton purse or Rolex watch. Now you may be questioning whether you really did buy 1,000,000 n95 masks.
Simple question, complicated answer. Spanning both import/export and spot buying of goods, this article will cover the major types of fraud we found from importing and distributing PPE and how to spot and avoid them. We’ve used most of these methods to verify supply and to provide trust to our clients so I speak from experience of being pitched about 100 fraudulent deals over the last 100 days.
1. Counterfeit Goods
You need to be careful who you buy from. We found a number of folks selling counterfeit goods that look like real n95 masks, but were knockoffs. The most common marker of knockoffs are large lots of goods. There are very few cup style n95 masks available in large lots of one million or more pieces. If you are being offered a large lot, there is a high chance it is fake. There are two methods with which to verify large lots. The first is to ask for the bill of lading (basically a stamped receipt from the factory) from the seller prior to sending money and confirm with the factory they sold the lot of goods to the seller. The second is to have a third-party inspection agency, such as SGS, review the goods and ensure they are real. SGS in China costs about $288; in the U.S., it costs about $2,000. Hence, for a large order, it should be affordable.
2. Fake Distributors
This is one of the original PPE scams. Many people claimed to be friends with the owner of a factory and they had access to special supply. (Dasheng was the factory most often mentioned.) As such, hundreds of people were arrested for doing this; they were either lying and had no masks, or were selling counterfeits. Interestingly, many of the counterfeits were being sold for more than the factory direct goods. To spot this, have the seller provide a contact from the factory who can verify they are a distributor, and independently reach out to the factory (CCing the seller) to confirm. We have done this to build trust with new government clients.
3. Counterfeit Packaging
This is a clever one. Perhaps you saw the “War Dogs” movie and got the idea to change the packaging. David McSwane authored a story of someone who took non-medical KN95s, repackaged them as medical KN95s, and sold them to hospital distributors. This one is hard to spot if an item is in a sealed package. The key to spotting this one is tied, once again, to the bill of lading and confirming with the factory what they sold to the owner of the goods. Oftentimes with KN95s, the medical and non-medical masks look the same, and may even perform the same on lab tests. The main difference is medical providers need to go through an additional process with the Chinese government to gain a factory medical license. If you have heard of the FDA EUA list, these are essentially all of the medical licensed KN95 factories in China that are on this list.
4. Unauthorized Outsourcing
Some manufacturers were overwhelmed with orders and outsourced to other factories to produce their goods. It is something that happens all the time, but with medical products, it is the factories themselves that get certified. As such, outsourcing any project requires verification the subcontractor has the proper certifications. A direct importer can spot this by confirming in advance the pickup address for goods, then verifying that address with the certifications and having the freight forwarder only pickup goods from that address. There is no perfect way to prevent this one. A strong clause in the contract about requiring approval for outsourcing is a good idea as a failsafe.
5. Fake Certifications
The simple version of this scam is to take real certifications and change the factory name to that of an unlicensed factory. We’ve found that several times. The way to verify this is to take the documents and call the certifications bodies to confirm the factory matches the documents—you want to look for the name of the factory, model information, and physical addresses.
6. Fake Proof-of-Life Videos
There are a few versions of this scam. The first was also featured in the aforementioned “War Dogs” movie. The scammer shows you a small amount of real goods but the rest are different. The more advanced version is the scammer is showing you counterfeit goods or a fake location that is not actually the factory. We caught one of these; almost gave me a heart-attack. The way to handle this is to always send an inspector either a) to the factory or b) on pickup before payment (sometimes both). Remember, a proof-of-life video only shows someone has a camera phone and at least a few items, nothing more.
7. Fake Authorization Letters
We’ve seen several versions of these. Both fake buyer letters where someone ripped off real government letter head and fake supplier letters claiming factory authorization. Someone may claim to be a government contractor and sends you a letter from an actual government buyer. In this case, simply call the person and verify it. Letters usually have phone numbers or emails on them—don’t be shy.
8. Fake Escrows
If you’ve been pitched a large 3M mask transaction, you’ve been asked for a complicated series of procedures including bank letters, proof of funds letters, and escrows. I know government buyers who were asked to go through this process. Simply said, 3M does not endorse this process and told us they most likely represent a fraudulent transaction. There’s a few different versions of this scam, one of which includes giving money to a seller escrow agent (who steals the money), while others ask you to fill out KYC forms (for identity theft later).
Conclusion
All in all, buying PPE is a harrowing experience. We went through over 600 products and suppliers to find verified factories and developed a complex quality control process and team to avoid the fraud we uncovered and revealed in this article. Ultimately, you can typically avoid fraud with five easy steps.
Good luck and godspeed on your delivery.
Simple question, complicated answer. Spanning both import/export and spot buying of goods, this article will cover the major types of fraud we found from importing and distributing PPE and how to spot and avoid them. We’ve used most of these methods to verify supply and to provide trust to our clients so I speak from experience of being pitched about 100 fraudulent deals over the last 100 days.
1. Counterfeit Goods
You need to be careful who you buy from. We found a number of folks selling counterfeit goods that look like real n95 masks, but were knockoffs. The most common marker of knockoffs are large lots of goods. There are very few cup style n95 masks available in large lots of one million or more pieces. If you are being offered a large lot, there is a high chance it is fake. There are two methods with which to verify large lots. The first is to ask for the bill of lading (basically a stamped receipt from the factory) from the seller prior to sending money and confirm with the factory they sold the lot of goods to the seller. The second is to have a third-party inspection agency, such as SGS, review the goods and ensure they are real. SGS in China costs about $288; in the U.S., it costs about $2,000. Hence, for a large order, it should be affordable.
2. Fake Distributors
This is one of the original PPE scams. Many people claimed to be friends with the owner of a factory and they had access to special supply. (Dasheng was the factory most often mentioned.) As such, hundreds of people were arrested for doing this; they were either lying and had no masks, or were selling counterfeits. Interestingly, many of the counterfeits were being sold for more than the factory direct goods. To spot this, have the seller provide a contact from the factory who can verify they are a distributor, and independently reach out to the factory (CCing the seller) to confirm. We have done this to build trust with new government clients.
3. Counterfeit Packaging
This is a clever one. Perhaps you saw the “War Dogs” movie and got the idea to change the packaging. David McSwane authored a story of someone who took non-medical KN95s, repackaged them as medical KN95s, and sold them to hospital distributors. This one is hard to spot if an item is in a sealed package. The key to spotting this one is tied, once again, to the bill of lading and confirming with the factory what they sold to the owner of the goods. Oftentimes with KN95s, the medical and non-medical masks look the same, and may even perform the same on lab tests. The main difference is medical providers need to go through an additional process with the Chinese government to gain a factory medical license. If you have heard of the FDA EUA list, these are essentially all of the medical licensed KN95 factories in China that are on this list.
4. Unauthorized Outsourcing
Some manufacturers were overwhelmed with orders and outsourced to other factories to produce their goods. It is something that happens all the time, but with medical products, it is the factories themselves that get certified. As such, outsourcing any project requires verification the subcontractor has the proper certifications. A direct importer can spot this by confirming in advance the pickup address for goods, then verifying that address with the certifications and having the freight forwarder only pickup goods from that address. There is no perfect way to prevent this one. A strong clause in the contract about requiring approval for outsourcing is a good idea as a failsafe.
5. Fake Certifications
The simple version of this scam is to take real certifications and change the factory name to that of an unlicensed factory. We’ve found that several times. The way to verify this is to take the documents and call the certifications bodies to confirm the factory matches the documents—you want to look for the name of the factory, model information, and physical addresses.
6. Fake Proof-of-Life Videos
There are a few versions of this scam. The first was also featured in the aforementioned “War Dogs” movie. The scammer shows you a small amount of real goods but the rest are different. The more advanced version is the scammer is showing you counterfeit goods or a fake location that is not actually the factory. We caught one of these; almost gave me a heart-attack. The way to handle this is to always send an inspector either a) to the factory or b) on pickup before payment (sometimes both). Remember, a proof-of-life video only shows someone has a camera phone and at least a few items, nothing more.
7. Fake Authorization Letters
We’ve seen several versions of these. Both fake buyer letters where someone ripped off real government letter head and fake supplier letters claiming factory authorization. Someone may claim to be a government contractor and sends you a letter from an actual government buyer. In this case, simply call the person and verify it. Letters usually have phone numbers or emails on them—don’t be shy.
8. Fake Escrows
If you’ve been pitched a large 3M mask transaction, you’ve been asked for a complicated series of procedures including bank letters, proof of funds letters, and escrows. I know government buyers who were asked to go through this process. Simply said, 3M does not endorse this process and told us they most likely represent a fraudulent transaction. There’s a few different versions of this scam, one of which includes giving money to a seller escrow agent (who steals the money), while others ask you to fill out KYC forms (for identity theft later).
Conclusion
All in all, buying PPE is a harrowing experience. We went through over 600 products and suppliers to find verified factories and developed a complex quality control process and team to avoid the fraud we uncovered and revealed in this article. Ultimately, you can typically avoid fraud with five easy steps.
- Buy direct from factories or from distributors confirmed by the factory.
- Confirm the factory certifications themselves are real.
- Confirm addresses and entities match (e.g., pickup location, bank, and certifications).
- Send an inspector to inspect finished goods before payment.
- Ask for references of people who already received products.
Good luck and godspeed on your delivery.
