Doing business in Nigeria: distinguishing between the profitable and the questionable

Business America, Dec, 1997

The majority of business firms in Nigeria are legitimate and reputable. Nigeria is the United States' largest trading partner in Sub-Saharan Africa, and many U.S. companies have significant investments there. Major U.S. exports include oilfield equipment, agricultural commodities, electronics, and automobiles. However, in Nigeria, as in some other countries, the illegal activities of a minority of individuals have begun to overshadow the legitimate operations of the majority. Fraudulent business solicitations by Nigerian companies and individuals have been flooding U.S. and other foreign companies for a number of years, and many individuals are still being deceived by offers that are literally too good to be true.

The key to success in the Nigerian market is identifying solid opportunities. establishing close personal ties and being patient. This article can help guide readers so that they can avoid falling prey to various scams. At the same time, U.S. businesses should be careful to avoid stereotyping the entire Nigerian business community because of highly publicized frauds. U.S. investors and exporters can still find many legitimate business opportunities in Nigeria.

The U.S. Department of Commerce regularly receives inquiries from U.S. firms requesting assistance in determining whether business proposals they have received from Nigeria are legitimate or not. The information below will assist the U.S. business community in discerning which types of proposals are fraudulent and should be disregarded.

The Commercial Section at the U.S. Embassy in Lagos stands ready to assist U.S. businesses in finding reputable partners. Prospective exporters are urged to contact the nearest Commerce Department Export Assistance Center about agent/distributor, gold key, market research, and other services.

Types of Fraudulent Proposals

Money Transfer and Government Contract Schemes. The most prevalent occurrence of Nigerian fraud involves money transfer schemes. These schemes typically attempt to involve foreign firms or individuals in supposed efforts to defraud the Nigerian government. Some also violate U.S. statutes. The fraud perpetrators propose to transfer a large amount, usually millions of U.S. dollars, to an overseas bank account owned by a foreign firm. The firm owning the account is told it will receive a percentage of the transferred funds as "commission." The funds are often described as overpayments from previous government contracts, or they may be more legitimately described as advance payment for a government contract that has just been awarded to the U.S. company. Such solicitations request account information about the company's bank, as well as blank, signed company letterhead and proforma invoices.

The U.S. firm is sometimes solicited for a "transaction fee" to enable the supposed transfer of funds. The victim may be strung along for up to a year, paying various "fees" which add up to thousands of dollars, before realizing that the promised funds do not actually exist. Letterhead and bank information are also used to extract money from the bank account of the U.S. business.

Variations of the Money Transfer Scams -- Charity Scams. In a more recent variation of the money transfer scam, targeted charities, non-profit organizations, and religious groups receive letters from Nigerians who profess their devotion to the group's cause and their desire to make a sizeable donation.

Will Scams. Some individuals and churches have been led to believe that a long-lost relative, missionary, or classmate has died and left them a small fortune in his will. This, again is another variation on the money transfer scam.

Real Estate Scams. Real estate agents have been singled out as targets for this third variation of the money transfer scam. The fraud perpetrator often poses as a retiring government official, and requests assistance in buying a retirement residence or other property in the United States.

Other Schemes

Fraudulent Orders for U.S. Products. One-quarter of reported fraudulent business solicitations from Nigeria involve large orders for the products of U.S. companies. Such proposals may request samples for which the writers never intend to pay, or ask the U.S. firm to forward registration or import licensing fees. These fees do not exist and are in reality nothing more than veiled attempts to acquire funds. Only if an American exporter sells to the Nigerian government through an agent is there a registration fee requirement. When registration fees are legitimately connected to government contracts, they are clearly published by the ministries to which they are payable, and they do not exceed naira 5,000 (approximately $61).

Swindlers may stress the urgency of the transaction, and send a fraudulent bank draft as payment in hopes that the victim will ship the order before realizing the draft is invalid. American businesses should be cautious whenever overseas bank drafts are used as payment by Nigerian companies or individuals. While there is a possibility that a such a draft could be legitimate, it is far safer to request payment in the form of an irrevocable letter of credit. The letter of credit should be confirmed by a reputable and known financial institution.