Business Loan Scams

Overview

Business loan scam typically involves a fake financial institution (often purporting to be a licensed money lender in Hong Kong) offering to lend money to businesses. This type of fraud typically includes a "non-recourse loan", "non-Recourse cash loan program" or some sort of unsecuritised loan designed to make it very appealing for businesses to seek out their services. 

If any of the scenarios described below sound familiar, it is very likely that you have been a victim of fraud and should take immediate action to avoid incurring additional losses. You can read our Guide on Cyber Fraud and Recovery in Hong Kong, which we hope will allow you to take the necessary steps before it is too late.

A bit of History

Money lenders in Hong Kong provide lending services and operate outside the traditional banking system. The Hong Kong Government created a licensing scheme for money lenders in the 1980s as a mean to eradicate loan sharks that were plaguing the city then. Money lenders are regulated by the Money Lenders Ordinance (Cap 163) which controls how  money lending transactions are performed and prohibits money lenders from charging excessive interest rates. The Police is responsible for enforcing the Money Lenders Ordinance.

The Current Problem

The Hong Kong Companies Registry maintains a registry which records all the licensed money lenders in Hong Kong. However, there is no record of what is the official website of each and every licensed money lenders. This creates an opportunity for tech savvy fraudsters to create an elaborate website and take over the online presence of an existing money lender and defraud the unsuspecting victims.

Initial Contact

This type of scam tends to be more passive in nature; usually the victims are the one reaching out to the fraudsters directly because they found the search engine optimized website when they were looking for a source of financing for their company.

Online Forum

We have seen fraudsters lurking in startups, and business ventures related forums and making recommendations to victims looking for ways of financing their projects.

Direct Email

In some instances, we have heard them reaching out to business owners directly. It is not clear whether the information was mined on public databases or the fraudsters found it through other means.

The Scam Tends to Be Grounded in Reality

Fraudsters have evolved and have become quite savvy. Their scams are extremely elaborate; often masquerading as a legitimate enterprise and in certain cases, they are almost indistinguishable from real companies that they are masquerading as.

The victims have, almost invariably, done some form of basic due diligence and the fraudsters have anticipated the steps taken by the victims. The fraudsters have become increasingly better at grounding themselves in reality; they use existing public information available on the web about an existing company, which blurs the line between reality and fiction for the victims. The fraudsters are able to evade basic forms of due diligence and defraud their victims with impunity.

Fake Financial Institutions or Money Lender

It is very common for fraudsters to create elaborate but fake website purporting to be the official website of an existing legitimate financial institution or being a local branch of the legitimate business. In some instances, we have seen fraudsters putting more consistent and elaborate branding than the real company that it was pretending to be. In one particular instance, the fake website ranked first on Google, whereas the legitimate company was very difficult to find.

Fake Employees

This type of scam usually involves communications with some fake employees, usually customer service employees, pretending to be working for the fake money lender. They communicate through a chat application hosted on their website, by email, or via instant messaging applications. They are the person that the victim would liaise with when trying to obtain a loan.

Fake Law Firms

It is common for fraudsters to pretend that an existing Hong Kong law firm has been instructed to advise in the transactions. They will often go as far as copying the email signature of a real firm and create a fake website for an existing law firm that the fraudsters control. It is important here to always confirm all the information related to the law firm on the website of The Law Society of Hong Kong.

Fake Loan Agreement

Finally, it usually involves a somewhat complicated loan agreement which, on paper, involves three parties: the victim, a real money lender (to give the agreement an air of authenticity), and the company or individual whose bank accounts is being used to do money laundering. These loan agreements are usually detailed enough to dupe regular people. 

It may contain the identification details of other victims as a mean of giving the agreement an air of authenticity.

Method

The center piece of the scam is the fake loan agreement. It always stipulates that the loan recipient must pay part of the bank processing fees of the lender before receiving the loan. These fees need to be paid to the 3rd party who is often described as a guarantor in the loan agreement (in fact it is the company used for doing money laundering). Once the victim pays the so-called banking fee, one of two things normally happen: either the fraudsters just disappear (without obviously transferring anything to the victim) or the fraudsters invent a new reason for requesting money from the victim. In case of the latter, the cycle repeats until the victim discovers that it has been a victim of fraud.

Important Tips

Keep a Record of Everything

Anything connected to the scam, keep a record of it. The police often relies on the chat records, telephone number, the screenshots of the website, and documents sent during the course of the scam to build their case against the fraudsters.

Report to the Police only the Relevant Parts

Very often, we see police reports that have been filed by clients that are incomplete; they focus on all the wrong things that not particularly relevant to your case. We have prepared a guide on how to file an online report with the Hong Kong Police.

Time is of the Essence

If anything in this article sounds familiar to you, it is important not to waste time and make sure that the scam is reported immediately to the relevant authority.

Additional Questions

If you have additional questions which are not addressed here or wish to schedule an appointment to discuss your case, please contact us by telephone on +852 2176 4777 or by email at [email protected].

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