How to Determine Whether Entrepot Trade Is Fraudulent Through Multi-dimensional Information of Documents, Cargo Flow and Capital Flow
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I am a small and medium-sized merchant engaged in cross-border textile and apparel supply chain business, and have been operating entrepot trade related businesses for nearly five years. Recently I received a third-party entrepot trade order, the partner said the goods will be shipped from Southeast Asia to the EU, we do not need to touch the goods actually, only need to use our company account to go through the collection and payment process, and we will get a 3% commission. At first I thought it was very cost-effective to earn commission without capital input, but I felt something wrong these days.
The partner is vague about cargo ownership information, only provided me with scanned copies of documents, refused to provide original copies for verification, and also did not allow us to verify the actual transit route of the goods. I am afraid this is fraudulent entrepot trade, if I am implicated, I will face customs penalties, and it will also affect the company's import and export qualifications. I would like to ask how to accurately judge whether this entrepot trade is fraudulent, and whether there are implementable judgment methods?
DavidYears of service：3Customer Rating：5.0
Business Development AdvisorStart a Chat
Many fraudulent entrepot trade transactions take advantage of small and medium-sized merchants' desire to make quick money，setting traps with low-risk and high-commission as bait. The most common misunderstanding in the industry is the belief that "you will not be implicated if you only handle accounts without touching the goods". In fact，as long as your company is registered as the transaction subject，your company shall bear all compliance responsibilities，and there is no room for shifting blame.
Most fraudulent entrepot trade is used for foreign exchange arbitrage，tax fraud or illegal cross-border fund transfer. Once investigated by customs and foreign exchange administrative departments，goods will be detained at the port immediately，followed by fines and downgrade of import and export clearance qualifications. In serious cases，the company's settlement account will be frozen，which directly affects the development of all normal import and export businesses，and even affects the credit of the actual controller.
The most direct physical risk isolation measure is to verify the full-link circulation track of containers first. Require the partner to provide entry order exchange records and wharf storage information of the transit port，and verify the actual shipping route of the container through the shipping company system. Transactions without actual transit must be fraudulent. Secondly，check the one-to-one correspondence of documents，and verify whether the transaction subject information on the bill of lading endorsement，certificate of origin and trade contract matches.
If you find suspicious points when the cooperation is halfway，the immediate stop-loss tip is to suspend all fund settlement immediately，require the other party to provide a full set of original documents and cargo ownership certificates. If they cannot be provided，directly terminate the cooperation，and report the abnormal transaction to the local regulatory authority in advance，to minimize your own compliance responsibilities.
WilliamYears of service：10Customer Rating：5.0
International Logistics AdvisorStart a Chat
Fraudulent entrepot trade has multiple typical abnormalities in the customs declaration stage: First, the two trading parties of the trade contract have associated relations, but there is no reasonable pricing explanation, which will directly trigger questions in the price review stage. Second, the transit formalities at the transit port are incomplete, and the transit certificate issued by the transit port customs cannot be provided. Most fraudulent entrepot trade directly ships goods from the country of origin to the destination port, only forging transit documents. Third, the origin information of the goods is inconsistent with the declared commodity code, and the entrepot trade is forged to defraud the destination country's tariff preferences.
During inspection, it is necessary to compare the transit certificate with the manifest information of the shipping company, which cannot be forged. If the manifest corresponding to the transit certificate has no transit record, it can be judged as fraudulent entrepot trade. If you have been questioned by the customs, you need to provide all cargo ownership and circulation records to cooperate with the inspection as soon as possible, do not modify the document information without authorization, to avoid aggravating penalties.
DanielYears of service：8Customer Rating：5.0
Legal AdvisorStart a Chat
From the perspective of cargo circulation, fraudulent entrepot trade will definitely show clues at logistics nodes. Normal entrepot trade will complete the processes of order exchange, container unpacking, re-consolidation or warehousing at the transit port, and corresponding invoices for container detention fee, warehousing fee and operation fee will be generated.
Fraudulent entrepot trade has no actual transit operation, so it cannot provide payment vouchers for these fees. In addition, you can check the seal number of the bill of lading. After normal container exchange at the transit port, a new seal will be replaced, and there will be two different seal numbers corresponding to the port of shipment and the transit port respectively.
Fraudulent entrepot trade only has one seal number throughout the whole process, which means that the goods do not enter the transit port and are directly shipped from the port of shipment to the destination port. You can also check the track on the official website of the shipping company, enter the bill of lading number to see every docking record of the container. If there is no docking record at the transit port, it can be judged as fraudulent.
OliviaYears of service：5Customer Rating：5.0
Senior Customs AdvisorStart a Chat
Fraudulent entrepot trade has obvious irrationality at the tax level. The profit margin of normal entrepot trade conforms to industry conventions, while fraudulent entrepot trade usually has abnormally high or abnormally low profits, which is used to transfer the tax base and conforms to the characteristics of tax base erosion. In addition, if it is entrepot trade involving the EU market, fraudulent entrepot trade cannot provide compliant VAT deferral certificates, nor can it provide VAT payment vouchers for the transit port, because it does not actually enter the transit country, so there will be no corresponding tax costs.
If the transaction involves tariff planning, the certificate of origin of fraudulent entrepot trade cannot meet the requirements of the origin rules of the destination country. Even if the transaction is completed, the destination country customs will conduct subsequent audits to recover the differential tariff, and will also impose fines on the transaction subject. Therefore, the judgment can be completed in advance from the level of tax vouchers.
EllaYears of service：10Customer Rating：5.0
Senior Financial AdvisorStart a Chat
Fraudulent entrepot trade can be quickly judged from the level of foreign exchange receipt and payment. The time of foreign exchange receipt and payment of normal entrepot trade matches the time of cargo circulation, and the capital flow is consistent with the buyer and seller in the transaction contract. Fraudulent entrepot trade usually requires fast capital inflow and outflow, or requires payment to unrelated third parties, and there will be multiple capital backflows, which are typical characteristics of abnormal foreign exchange receipt and payment.
You can verify the remitter information through SWIFT messages. The actual remitter of fraudulent entrepot trade is the seller in the country of origin, which is inconsistent with the third-party entrepot party shown in the contract, which will also cause information mismatch. For entrepot trade settled in RMB, you can verify the subject information of the payer through the CIPS system. If it is inconsistent with the contract, it can be judged as fraudulent.
SophiaYears of service：7Customer Rating：5.0
Senior Customs AdvisorStart a Chat
Contracts for fraudulent entrepot trade usually contain a large number of soft clauses, such as no agreement on specific transit port, no agreement on the time and method of cargo ownership transfer, no requirement for the seller to provide original cargo ownership documents. These clauses are reserved to facilitate fraudulent operations. In addition, fraudulent entrepot trade usually does not require the issuance of bank guarantees, nor does it provide any legal protection for cargo ownership. The trading party will use the excuse of simplifying the process to skip the legal procedure of cargo ownership transfer.
During verification, you need to note that normal entrepot trade will definitely clarify the ownership of cargo during the transit process, and each transfer has corresponding endorsement or agreement. For entrepot trade without clear cargo ownership agreement, the probability of fraud is more than 90%. If the other party refuses to supplement the relevant clauses of cargo ownership, you can directly terminate the transaction.
RobertYears of service：6Customer Rating：5.0
Warehouse Management AdvisorStart a Chat
If the entrepot trade involves export tax refund, fraudulent entrepot trade will definitely show clues in document filing and four-flow consistency verification. The contract flow, cargo flow, capital flow and document flow of normal entrepot trade are fully corresponding.
Fraudulent entrepot trade will have mismatches between capital flow and cargo flow, or mismatches between documents and actual transactions. In addition, fraudulent entrepot trade is prone to capital backflow, that is, after the buyer pays to your company account and you pay to the seller, the seller will return part of the funds to the account controlled by the buyer through a private account.
Once this situation is found in the tax correspondence investigation, it will be directly judged as a fraudulent transaction, the refunded tax will be recovered, and a fine will be imposed. When making judgment, you can check whether the actual controllers of the payee and the payer are related. If there is a relationship without reasonable explanation, it is fraudulent entrepot trade.
EmilyYears of service：3Customer Rating：5.0
Client Success AdvisorStart a Chat
If the goods have arrived at the transit port or destination port and encounter customs inspection, you can judge fraudulent entrepot trade through the authenticity of the seal and cargo marks. After normal entrepot goods are re-containerized at the transit port, a new seal will be replaced. The seal has the number of the transit port yard, and you can contact the yard to verify the authenticity of the seal number.
The seal of fraudulent entrepot trade is forged, and the corresponding information cannot be verified. In addition, the outer packaging of fraudulent entrepot goods will be directly printed with the shipping marks of the country of origin and destination port, without transit related marks. Normal entrepot goods will be re-marked if the container is changed, which will reflect the relevant information of the transit port.
If it is found during inspection that the actual information of the goods is inconsistent with the declared entrepot information, it can be directly judged as fraudulent entrepot trade. Cooperating with the customs to explain the situation in advance can reduce your own responsibilities.