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This is a story about how an established publically traded company, and a 35 year 3M distributor, was hijacked to create the illusion of a legitimate PPE transaction and the steps I took during due diligence to spot the irregularities.

Every morning at 9:30 am when my Do Not Disturb turns off, my phone blows up. There are usually a few hundred WhatsApp chat notifications vying for my attention. This morning it was a seemingly rock-solid offer to swoop in and take over a Canadian Nitrile Glove production line because the buyer couldn’t provide the needed Proof of Funds.

This is how it starts – the rush. We need to close quickly or we will lose the lot… the price… something. But the need for speed is always how it begins. And that’s not untrue. With the majority of buyers only interested in spot buys already on the ground stateside, it’s no wonder the get rich quick crew is focused so heavily on PPE.

It all started with lots of 3M 1860 respirator masks. The formula was not unfamiliar. I spent 3 years teaching hedge funds and family offices all over the world how to do due diligence in blockchain deals. I recognized the scam instantly. It goes something like this:

SOP (Standard Operating Procedure):

  • Buyer issues LOI (Letter of Intent) made out to 3M/3M Global, PO (Purchase Order), and POF (Proof of Funds)
    • 3M is never the seller
    • The Buyer’s PO can be doctored
    • The Buyer’s BCL (Bank Comfort Letter) or Bank Statements can be used in PO Financing as collateral
  • Buyer signs 10% commission agreement with intermediaries
    • Most IMFPA’s are unregistered multilevel marketing schemes
  • IMFPA (Irrevocable Master Fee Agreement) is distributed to all intermediaries and completed
    • The most common document is from the ICC (International Chamber of Commerce) and has all intermediaries sending a word document through a broker chain revealing everyone’s passport numbers, bank information and more
  • Upon acceptance by Seller, 3M Attorney will provide SGS, Lot Numbers and Security Codes
    • 3M has
  • 3M issues SPA (Sale and Purchase Agreement)
  • Buyer funds escrow
  • The transaction falls apart…

There’s a good reason transactions like this fail. Aside from too many brokers in a chain and critical confidential information being shared to an unknown number of suspects, besides that, this is not 3M’s process… at all.

So many pieces of this deal were suspect. Not the first of which is that 3M’s sales revenue is $32 Billion. This one transaction was many times that. This is why attorneys hire us. They don’t know the intricacies of PPE deals, despite having closed multi-billion dollar oil and gas deals or closing Fortune 500 mergers. The art of due diligence goes much further than the cursory look most attorney’s take.

A host of global regulations, including, but not limited to: the Foreign Corrupt Practices Act (FCPA); the UK Bribery Act (UKBA); and the U.S. Patriot Act, require organizations to develop and maintain a thorough understanding of the plethora of potential risks inherent in their often vast supplier and third-party networks. The consequences of failure to comply with these regulations are significant and include enforcement action, often hefty fines, and potentially lasting reputational damage. Thorough background and integrity checks on all suppliers and other third parties are therefore crucial, as such checks empower organizations to fully understand, assess, and monitor the many potential risks to which they may be exposed.

According to advice directly issued by the FBI; this is what suspicious activities look like from rogue and risky sellers:

  • Unusual payment terms (e.g., supplier asking for up-front payments or proof of payment)
  • Last-minute price changes
  • Last-minute excuses for delay in the shipment (e.g., claims that the equipment was seized at the port or stuck in customs)
  • Unexplained source of bulk supply

In order to protect yourself (and your clients if you are a procurement specialist), the FBI recommends that buyers consider the following recommendations to protect their companies or agencies:

  • If the seller claims to represent an entity with an existing relationship to the buyer, verify claims through a known contact—do not contact the vendor through information provided in an email or phone communication.
  • If possible, have a trusted independent party verify the items for sale are physically present and of the promised make, model, and quality, and take delivery immediately upon payment.
  • If immediate delivery is impossible, route payments to a domestic escrow account to be released to the seller upon receipt of the promised items.
  • Verify with the manufacturer or verified distributor that the seller is a legitimate distributor or vendor for the items being offered.
  • Be skeptical of last-minute changes in wiring instructions or recipient account information—do not re-route payments without independently verifying the direction came from an authorized party.
  • Verify the email address used to send emails, especially when using a mobile or handheld device, by ensuring the sender’s email address appears to match who it is coming from.

Without certainty, do not proceed.

If you think your company or agency is the victim of a fraud scheme related to COVID-19 immediately contact the FBI’s Internet Crime Complaint Center at ic3.gov.

 

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Adryenn Ashely

As a mentor to CEOs worldwide, Adryenn is directly responsible for adding significant revenue to her clients' bottom line. Her elite consulting clients cover a broad spectrum of industries, including Healthcare, Blockchain, Entertainment, Artificial Intelligence, and FinTech. Adryenn earned her “high tech priestess” stripes by crashing computers and breaking into banks. With a reach of 110 million globally, she starts conversations global that matter.
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