Major purchases from foreign suppliers: a cautionary tale

customs/compliance

Jan 31, 2018

By Carl Boivin

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Major purchases from foreign suppliers: a cautionary tale

Over the course of my career as a customs specialist, I have heard many stories of international transactions gone wrong. These cases typically involve well-intentioned people who simply lack the knowledge required to avoid crucial mistakes in the complicated importation process. This is the story of a young entrepreneur who made a major purchase through a foreign-hosted website – the plight that befell him will surely shock you and show you the risks of carrying out an international transaction without sufficient information and preparation.

There may be a will, but is there always a way?

A young entrepreneur filled with drive and ambition had just opened a small electronics maintenance business. To face the growing demand, he decided to import some parts that were difficult to find in Canada from another country. Browsing the internet, he found the site of an Asian supplier. Thrilled by his find, he immediately bought a few thousand dollars’ worth of parts. During the purchasing process, the supplier company asked him whether he wanted them to provide air transportation for his parts for an additional cost. Not well-versed in the regulations that direct international trade, the entrepreneur accepted the supplier’s offer.

Like many other newcomers to the world of customs transactions, our young entrepreneur had no idea that he would require a customs broker’s services when the time would come to clear the goods in Canada. Acting on a friend’s advice, he did eventually decide to contact a customs broker for help. The broker immediately asked to see the commercial invoice the Asian supplier had provided to calculate the customs duties and taxes.

Having analyzed the invoice, the broker noted that it was extremely simplistic, not at all representative of a regular commercial invoice. Still, he clarified the amount of duties and taxes the young entrepreneur would have to pay, right before questioning him on the expected time frame to receive the parts. The customs broker immediately pointed out that the specified deadlines were completely unreasonable for a shipment by plane, prompting the entrepreneur to respond that as far as he knew, the shipment was being held at the border in a Middle-Eastern country and he would have to pay several thousand dollars to get the customs to release it. Frowning, the customs broker explained that the shipment should not even have been held at that country’s border to begin with – it should be cleared only once, upon arrival in Canada. The broker asked the entrepreneur for the name of the shipping company, searched the web, and realized that the company had no postal address.

On advice from the customs broker, the young entrepreneur called back the shipping company and demanded an explanation. He asked to see the bill of lading and a customs declaration from the country where his shipment was supposedly being held. The declaration he received was written in a foreign language. Against the customs broker’s advice to stop paying the suspicious shipping company, the young man decided to pay the fees they were asking for.

A few days later, the entrepreneur received another message from the carrier company, claiming that he would have to pay again, as his shipment was now stuck at the US border. Completely discouraged, he called back his customs broker to explain the situation. Explaining that this situation was impossible, the broker asked to see the bill of lading, a document used to track the shipment. Upon reviewing the bill, the broker confirmed to the entrepreneur that it was a fraudulent document that did not have the required amount of numbers on it and was therefore not compliant with customs regulations. The broker then let the entrepreneur know that this bill would be unusable for customs clearance in Canada, as it was missing crucial information such as the storage site in Canada. Once again, he suggested to the entrepreneur not to pay another dime to the phony carrier.

Driven to despair, the young man called back the carrier company, only to be greeted with the news that, on top of everything he had already paid, he would have to pay several hundred more dollars of Canadian customs duties and taxes, even though the broker had already told him that his shipment was free of customs duties and that he would only have to pay the GST on his shipment’s value. For the third time, the broker advised the entrepreneur to demand proof from the carrier company instead of paying them. However, feeling backed into a corner and desperate to receive his parts no matter the cost, the young man once again paid the fees the carrier was demanding of him. To this day, he hasn’t received his shipment.

How can you protect yourself from online fraud?

This unfortunate entrepreneur could certainly have been more careful in his search for an online supplier. As we make online purchases, it is far too easy to develop the assumption that everything will always go smoothly and that everyone is always honest. Yet, one should keep in mind that we are talking about international transactions with significant sums of money involved. Unfortunately, there is nothing Canadian customs officers can do to resolve such a tangled and difficult case – instead, the entrepreneur’s best course of action would have been to contact the police.

That aside, the situation could have been averted in some other ways as well. If the young man had asked for the help of a customs specialist before getting involved in an international transaction, he could have gotten advice and information on the typical steps of such a transaction. Such advice would not have prevented the entrepreneur from coming upon a fraudulent supplier, but he could have saved some money by arranging to pay part of the sum upon reception of the shipment instead of agreeing to pay the full price in advance. A customs specialist may also have suggested the entrepreneur to provide a letter of credit from his bank to the supplier’s bank. These are just some of the many safe commercial practices that could have avoided the young entrepreneur many headaches. When it comes to avoiding being burnt by online fraud, knowledge truly is power.

About the author

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Carl Boivin

Business Development

A great communicator who loves discussion, Carl-Olivier developed an interest for international trade. After adding customs training to his professional profile, he successively held multiple positions in the company, acquiring in-depth knowledge of applicable customs procedures and regulations. With about ten years of experience in the world of customs, he skillfully passes his knowledge of customs processes and his expertise in the field to business people who wish to gain a better understanding of the challenges involved in international trade.

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