Risk Reminders on the International Operation of Cross-border E-commerce Companies Issue No.2

In recent years, global cross-border e-commerce businesses have grown rapidly. However, more companies are engaged in this business and facing issues such as freezing of funds, banning brands and on the verge of bankruptcy with the continued increase of complaints, alleged infringements, and account bans.

To further ensure the safe operation of cross-border e-commerce companies, offer guidance for understanding and keeping abreast of changes in sector rules, and take effective measures to actively prevent and properly respond to various risks, based on the first issue of Risk Reminders, the Secretariats of the International Commercial Dispute Prevention and Settlement Organization (ICDPASO) and the China Association of Trade in Services (CATIS) jointly remind companies to pay attention to the compliance risks of cross-border e-commerce platforms.

Platform compliance risks may involve many aspects such as law, finance, business reputation and operating capabilities. Companies that fail to comply with the rules of the e-commerce platform may face warnings, fines, product seizures, bans on sales and accounts and other penalties, seriously affecting their profitability, investment confidence and normal operations. On the other hand, there are also situations where some e-commerce platforms abuse their dominant market position, based on non-transparent internal policies, appeal rules, and big data algorithms, to impose penalties of warning, freezing fund or banning accounts of cross-border e-commerce companies without providing the specific basis, rendering companies difficult to appeal.

1. Manipulation of Reviews

Typical examples of review manipulation include accepting refunds in exchange for good reviews, flooding product listings with good reviews and malicious negative reviews, specifically "incentivized reviews", fake transactions and sellers hiring buyers or third-party agencies to flood product listings with good reviews. In addition, requests for good reviews, communication records between buyers and sellers unrelated to the transaction, and irregular transactions may also be identified by the Big Data of the e-commerce platform as suspected fake reviews and sales.

Manipulation of reviews will face multiple liabilities. In terms of administrative liability, companies may face penalties such as stopping illegal acts, fines and revoking their business qualifications. In terms of civil liability, firstly, companies violating the agreement with the platform may face the risk of liability for breach of contract; and secondly, they may also be liable in tort if the manipulation causes losses to other competing sellers, and damage to buyers and third-party. In terms of criminal liability, manipulating behaviours such as refunding for good reviews, flooding the product listings with good reviews, and bogus negative reviews reaching a serious degree may constitute a crime under local law. Companies selling on an international e-commerce platform should pay special attention to its internal rules to avoid being punished due to unfair rules, abide by the reasonable commercial practices of the country of sale, and avoid unnecessary business losses arise from ignoring the differences in business practices among countries.

we suggest that companies strengthen internal control and establish a corresponding false reviews identification mechanism, stop manipulating reviews immediately, and take timely supervision and rectification to reduce legal risks when violations such as false reviews are discovered, while vigorously conducting internal training in risk prevention.

2. Issues on Product Quality

Product quality issues are concentrated in the complaints of exported products that have caused safety incidents or have quality problems, which may expose companies to the troubles of bans on sale, fines, time limits for rectification, account bans and even litigation against the seller based on the platform's agreement between the two parties.

We suggest that companies should conduct a front-end investigation to verify the factual basis, the appeals and the stage of the incident for the complaints or claims. In addition, enterprises should make a check on relevant products internally, objectively assess the possible quality or compliance issues of the products involved, and estimate the overall risk based on the relevant provisions of signed contracts and the coverage of the insurance.

3. Issues on Related-Accounts

Common ways to determine the existence of related accounts include related account information, IPs, and cookies, etc. The broad overlap of computer hardware, bank account information, shop registration information, affiliated companies, and products may also be used as proof of the existence of related accounts. Unlike other risks, the related account suspension is unappealable. At present, the major cross-border e-commerce platform agreements all take stricter regulations on related account issues, including warnings, freezing of account funds, and account suspension. There are multiple factors in identifying related accounts, and the more suspected identical factors the greater the related risk.

We suggest that companies conduct strict self-examination to avoid the problem of related accounts. At the same time, to prevent being misidentified as associated accounts, we also suggest that companies turn off the auto-loading function for email forwarding be turned off, and avoid the use of a unified customer service template by differentiating the names of customer service personnel, and corresponding one-to-one between account numbers, computers, IPs, VPNs, NICs and routers.

4. Abuse of Market Dominance by Platform

In the cross-border e-commerce transaction chain, the enterprises and platforms are in a position of information asymmetry, and it is difficult for the enterprises to fully enjoy the party autonomy under the agreement. Faced with issues such as non-transparent reasons and resolution process for suspending accounts on some platforms, inappropriate penalties and wrong account suspension, companies are difficult to succeed in appealing.

We suggest that cross-border e-commerce companies should fully understand the e-commerce platform access rules, actively conduct compliance self-inspection and develop channels for communication with the platform. Eligible enterprises can consider multi-platform operation, or develop cross-border e-commerce by operating independent stations to effectively diversify the risk of business concentrated on a single platform. In case the legitimate rights and interests are infringed by platforms or other parties, companies should fully safeguard their rights and interests through legal means including hiring legal experts, seeking help from industry associations and professional institutions, etc.

Given the above situations, the Secretariats of ICDPASO and CATIS hereby provide risk reminders for the reference of global cross-border e-commerce companies. At the same time, enterprises are reminded that the responses and rights protection methods should be handled based on the legal systems, dispute resolutions, and precedent cases of different countries (regions).

For further consultation, please contact:

The Secretariat of ICDPASO 

E-mail: secretariat@icdpaso.org,

Tel: 0086-10-65918576 ext. 8602

The Secretariat of CATIS 

E-mail: tgf@catis.org.cn,

Tel: 0086-10-84217221