You would think that South Korea’s largest petrochemical company, LG Chem, has a smooth-running accounts payable process in place, and it may very well have one. After all, it’s a US$24-billion-a-year-in-revenue conglomerate that is ranked No. 13 in the list of the world’s biggest chemical groups in sales.
But in a reminder that fraudsters can con even the world’s giant enterprises, LG Chem made a US$21-million wire payment in April to the bank account of a party claiming to be Saudi Aramco Products Trading – but wasn’t. “We have requested an investigation by prosecutors,” a spokesman for LG Chem said.
It is unclear whether the change in the bank account after so many years raised a red flag with LG Chem finance staff or if they confirmed the veracity of the email with Saudi Aramco before wiring the payment
Such fraudulent emails seem to be getting common in Asia. Last year, says the CFO of a global commodities trader in Singapore, “I saw some three to four instances of emails with my CEO signature asking to remit money to some other accounts. Fortunately we did not remit, because there were some doubts.”
“You receive invoices in very nice emails from something like ‘Exxonmobile.com,’” says Felix Wang, General Manager for Finance and Administration at Japan’s Itochu Plastics in Singapore. The ‘e’ at the end of the email address should raise a red flag (the company name is ExxonMobil), but the discrepancy could be very easily overlooked.
If the invoice date is not the same as the due date, “we automatically suspect that something is wrong,” Wang continues. “The most dangerous times are when [the invoice date and the due date] just happen to coincide.”
The two finance leaders were participants in a CFO Innovation roundtable discussion earlier this year, where other finance executives echoed their experience. But no one at the roundtable said that their AP team was deceived – unlike LG Chem.
According to the Korean company, it received an email from a long-standing supplier, Saudi Aramco Products Trading, a unit of the Saudi national oil company, informing LG Chem of a bank account change. The email contained the correct particulars around a shipment of naptha in the second half of March, including the amount due (24 billion won).
It is unclear whether the change in the bank account after so many years raised a red flag with LG Chem finance staff or if they confirmed the veracity of the email with Saudi Aramco before wiring the payment. What is known is that the payment was made to the new account, which was later discovered to be not owned by the supplier.
Interestingly, Saudi Aramco Products Trading itself had been a target of a similar scam last year. In October, the Saudi national oil company disclosed that the trading unit received a fraudulent invoice for US$30 million from Indian state-run company Oil and Natural Gas Corp., which had supplied it with naptha.
“The attempted fraud has been foiled and did not have any financial impact on either the two companies or on trading relations between them,” Saudi Aramco said in a brief statement, apparently in response to media claims in India that the trading company had been duped into actually making a payment.
Duty of care
For LG Chem, the 2015 incident raises the possibility that Saudi Aramco Products Trading’s email system may have been compromised. If this is proved true, the company has indicated that it may consider legal action against the naptha supplier – presumably on the ground that the lack of duty of care enabled the fraudster to make the fake email seem credible.
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