Business register fraud: Prevention and Options for Action
LLP Law | Patent
Business register fraud, business directory scams or address book fraud – no matter what you want to call it, business register fraud is a phenomenon that has been luring young companies into contract traps and burdening them with high payments for years. The target group is often founders of new businesses, start-ups and up-and-coming SMEs. Still inexperienced in the business world, they fall for such scams more easily than their established competitors.
The operators of supposed business registers use false pretences to deceive them into concluding a contract. This alleged contract then forms the basis for invoices, often in the four-digit range. The following article explains the scheme used by fraudsters, how you can recognise a business register scam and how you can defend yourself against it.
How does business register fraud work?
Business register scams come in various guises. Some fraudsters use confidence-inspiring phone calls, others use cleverly designed forms. What they all have in common is that the addressee should not realise at first that they are accepting a chargeable offer.
The fraudulent company either refers to a contract that was supposedly concluded in the past or it pretends to be an official authority. In order to increase credibility, the fraud attempts are underpinned with current and correct company data or the presentation of an advertisement that the person concerned has actually placed elsewhere in the past. But where do the fraudsters get this data from? If a newly founded B2B company, SME or start-up is entered in the local commercial register, the company data is also published in the Bundesanzeiger (Federal Gazette). It is therefore easy for fraudsters to obtain the relevant information.
Written contract trap
Let’s first look at the most common form of address book fraud: A letter that appears to be legitimate and is intended to entice the addressee to sign. This signature then appears to be contractually binding and is intended to persuade the victim to pay completely overpriced invoices. The fraudsters pursue various strategies. For example, it may appear to be an official letter from the local court or the trade licence office. In doing so, the authors orientate themselves on official forms from the authorities and adapt the outward appearance to the original documents in a deceptively genuine manner. The content of the letter also gives the impression that it is, for example, the necessary entry in the official register. At most, there is mention of the conclusion of a contract in the small print.
Another tactic is that the letter is not modelled on the authorities, but resembles the design of other, established providers of address book registers. For example, a small font size is chosen and the content is formulated as complicated as possible. The recipient is also tempted not to read the text in full due to the confusing wording. In terms of content, the letter often requests that the company data be checked and, if necessary, supplemented. To this end, the data previously taken from the Federal Gazette is deliberately falsified. If the letter is signed and returned, invoices suddenly start to arrive.
Deception by telephone
It is not only dubious letters that should be carefully read and scrutinised. Telephone calls with employees from a company register can also be fraudulent.
In a popular strategy, the caller tricks the target person into believing that a contract already exists between you (“Cologne scam”). Here, too, they back up their presentation with the startup’s current company data. The phone call is then about whether the entrepreneur would like to extend the contractual relationship or update their details. Here, too, the impression should be created that this is an established and reputable company register. The invoice also arrives in the post a few weeks later and appears to be legitimised by the previous telephone call.
These fraudulent companies often actually exist and list the relevant companies in the B2B sector and SMEs in their register “in accordance with the contract”. The problem, however, is that these registers are usually unknown and incomplete. Registration at a completely overpriced price is therefore pointless and does not benefit the B2B company or start-up concerned.
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Prevention and options for action in the event of business register fraud
What should you do if you have fallen victim to such business register fraud and are now confronted with horrendous bills? Did it actually lead to an effective contract? How can I defend myself against this? Can I avoid paying?
First of all, you should keep calm and not be tempted to act rashly. The fraudsters are playing with the idea of creating a pressure situation for the person concerned. So don’t let yourself be intimidated by reminders and debt collection threats. Before you make a questionable payment, contact a lawyer first.
How do I recognise business register fraud?
Before we turn to specific options for action, a few words about preventive measures. Recognise a scam in good time and avoid stress in good time.
Read every letter that lands in your letterbox carefully. The more unclear and confusing a document appears, the more attention you should pay to it. Fraudsters play with psychological manipulation. It is their intention to tempt you to sign prematurely out of laziness. It often places crucial information in unusual places. For example, notices about the conclusion of the contract or specific prices are hidden in footnotes or in the small print. It is also important to pay attention to the spelling of the addressee’s name. Fraudsters often play with slightly falsified names and internet domains. A quick Google search can quickly expose such name tricks. Also look at the alleged company headquarters and possibly the return fax number of the sender. Many operators of a business directory purporting to be published in Germany are based abroad. This would be unusual for reputable publishers.
What legal steps can I take?
What can you do if the invoice is already on the table? Was it an effective contract in the first place? Is it even your obligation to pay? Unfortunately, there is no satisfactory answer here: it all depends on the individual case. The legal steps that can be taken now depend on the specific documents. Together with a lawyer, you should first analyse what exactly you have signed.
In some cases, it may be possible to contest the contract. Either on the grounds of error or fraudulent misrepresentation due to business register fraud. The contract then becomes invalid and you are no longer obliged to pay. Alternatively, you can dispute the fact that the contract was concluded at all. You can use this strategy, for example, if the fraudsters have created the impression that the service is free of charge. If no costs were discussed during the alleged conclusion of the contract, a contract for a chargeable service cannot have been concluded. Depending on how the contract is structured, you may also have the option of cancelling or withdrawing from the contract. This depends on the specific individual case. Illegal clauses in the general terms and conditions can also lead to parts of the contract being invalid anyway. Our lawyers will be happy to advise your medium-sized B2B company or startup on sensible options for action.
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Conclusion
The phenomenon of business register fraud shows how important it is to be vigilant and informed in business life. This type of scam can have devastating financial consequences, especially for entrepreneurs, start-ups and SMEs. Check every letter carefully, scrutinise suspicious phone calls and seek professional advice if in doubt. This way, you can effectively protect yourself and your company. Our law firm LLP Law|Patent is at your side with many years of experience to protect you from such fraud attempts or to cancel any contract you may have concluded.
Robert Lankes | Rechtsanwalt (Lawyer)
Mr. Robert Lankes supervises the areas of corporate law, IP rights and construction and real estate law at LLP Law|Patent. He will support you in choosing the right legal form, for example, in forming a company, in disputes between shareholders and in company purchases. In the IP area, he will represent you in the context of competition, warnings and interim relief, and in the main proceedings. In construction and real estate law, he advises developers and tradesmen as well as tenants or co-owners. Mr. Lankes is an experienced negotiating partner and litigator in negotiations and discussions with third parties, as well as in court.
