Back in Summer, we received an enquiry which sounded good. Very good in fact. It led to a meeting which, if I weren’t such a cynic, may well have resulted in huge financial loss, imprisonment - or worse. So, I hope this cautionary tale will read by small business owners and a lesson learned.
We sell hovercraft all over the world so it was no surprise when ‘Alex’ contacted us by telephone from (he said) Russia, keen to know more about pricing, lead times and specifications. After several calls, he made it clear he was the middle-man and his commission was to be considered. The entire deal was worth some £2m, so we agreed 20% for brokering the deal. This is pretty familiar stuff, though the numbers are usually less. At this stage, we were dubious it would go anywhere - we’ve heard these promises before, but if you don’t run with it, you’ll never get the deal will you? One of these big deals has to – eventually – come good!
Alex was somewhat reticent about revealing who the client was, but that’s understandable as he was ostensibly protecting his position with regards a £400,000 commission. He told us the craft were to be used for rental on a frozen lake in Russia where the jet skis and boats were impossible to use in the frozen winter – okay that made sense. He asked us to submit an invoice for the full amount (150 hovercraft totaling £2m) for him to forward to his client who he called just ‘Dmitri.’ Duly sent, we were asked if we could schedule a meeting. ‘Of course’ we said, ‘when would you like to visit us?’ ‘No,’ he told us, ‘Dmitri will be in Milan next week on other business, would you meet him there?’
Some years ago, we started writing the ‘HoveRules’ – a document which now comprises 23 inviolate rules and is growing all the time as we learn more and try not to repeat mistakes we’ve made (I’d recommend that you do it for your own business, if only because it’s very liberating!) Rule number 7 (an early one) is that we don’t travel to meetings to see people we have no trading history with, and that haven’t in some way shown commitment to trade with us.
So why did my wife (and business partner) and I find ourselves on a flight to Milan a few days later? Well, we were due a break and had pondered where to go for a few days to recharge our batteries after a few frantic weeks at work. Easyjet flights £36 return and a 4* hotel at £50/night was cheap enough and – as I said above – if you don’t see it through to its conclusion, you’ll never do the deal will you! At worst, we’d get our break in a city that, otherwise I wouldn’t have found a reason to visit.
On arrival, we were meeting my friend who lives a few hours from Milan. Alex told us we didn’t need an interpreter – he would translate for us as Dmitri spoke only French and Russian. But – as I said at the outset, I’m a cynical type of feller and would rather have a trusted companion translating for me. At this point, we still did not have a surname, a company name, address or any other information – we knew only that we were meeting Alex and Dmitri at the Hotel ME Milan, one of the best in the city. As you can imagine, I was going into this extremely sceptical it was going anywhere. We arrived at the hotel and some ten minutes later ‘Dmitri’ turned up. He was a short, rotund man, around 55 years old, dressed in an expensive suit and clearly of middle-eastern origin. A firm handshake, confident manner and he took us to the bar where we settled down to business with a drink. I presented him with a bottle of ‘Chase’ – an English Vodka as a gift and he seemed quite appreciative of the gesture (So he should be the stuff is £44 a bottle duty free!) There was no sign of Alex - I still don’t know if that was poor planning or a deliberate ploy. It was therefore very fortunate we’d taken my friend along or god-alone knows what we’d have ‘agreed’ to!
I asked Dmitri how he’d found us and he asked why that was important. I asked him what his full name was, where he was from and whether he had a business card. He wrote a large letter ‘X’ on a napkin and refused to give me a phone number. I asked what he wanted the hovercraft for - he replied it was to rent out through hotels in the Balkan states – a different story than Alex’s. How did he find us? ‘At a racing meeting.’ More nonsense! He asked no technical questions, only vaguely alluding to the fact he would expect a warranty on the craft. Basically, he displayed no interest in the products and wanted to get straight down to how he would pay – at which point the scam was revealed and I acknowledged we had wasted a decent bottle of vodka and a day of our holiday.
He would be paying £500,000 in cash he told us.
Oh. Now, 500 ‘large’ (Realising I was dealing with a crook, I found myself talking all 'Guy Ritchie') isn’t small change. To meet money laundering regulations, I’d need (at least) his full name, proof of where the money had come from and to meet him at my bank in the UK to pay it straight in. Needless to say, this wasn’t what he had in mind at all! Whilst my friend progressed the negotiations a little, I had a chance to look the man over again. He wore a pretty good suit but the shoes, glasses and (give away of giveaways!) wristwatch were all cheap. Unless I’m a very poor judge of character, this wasn’t a truly wealthy man as he purported to be and reinforced my position - we were, to quote the Dragons, ‘out!’ Via our translator, he suggested leaving the cash payment to the end of the deal, when the last craft were delivered - that the invoice amount would be reduced accordingly (see the problem here, I would have agreed a £500,000 discount on his purchase price for the same number/value of craft and he’d have that in writing) but it was clear it was all about this half million in cash. He got ‘upset’ saying we didn’t trust him (at least he was right about that) and said maybe we should go back to ‘making 10 craft each year’ until we pointed out we build close on 100… he was really quite surprised at that.
We left. Cordially. We shook his hand, wished him the best - and fled.
Afterwards, my friend filled us in with the bits we missed during their (at times) heated conversation but the bombshell came later in the day when he spoke to his father-in-law back in Venice. He clicked his fingers ‘I saw this on television!’ he said – ‘this is a scam being run by a middle-eastern gang. It’s forged money that they want to get into the UK. They’re targeting small UK companies and giving them an attractive ‘order’ that they can’t refuse.’ Known apparently as 'The Milan Scam.'
Finally, all the bits slotted into place. The cash, the man, the structure of payments all supported what he was telling us. We’d have been committing a very serious crime, they’d ‘have’ us hooked and could blackmail or use us in any way they wished. I’ll be clear, there was no way we’d have risked our business or a prison sentence to do this deal – and I’m guessing these are pretty unpleasant people to deal with if you changed your mind later on. My friend received one phone call from ‘Alex’ the day after and told him we couldn’t build the hovercraft quick enough to satisfy their order or some such excuse.
We enjoyed a few days break down in Milan (lovely city by the way!) and flew back to the UK no worse off for the experience, but reiterating Rule 7 to ourselves - we don’t run round after people who haven’t proved their credentials and/or serious intent.
We’ve submitted the information to UK authorities in the hope that exposing the scam may prevent small UK businesses from getting caught in this web. Half a million in cash is a pretty powerful incentive and I can imagine some businesses being overawed by it, to the detriment of clear thinking. The further we went with it the more this ‘deal’ stunk, but we had to see it through and it proved once again that if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck!