Unlike the countless inexperienced middlemen and outright swindlers who jumped into the mask market at the beginning of the Covid-19 pandemic, Tim Morgan knew what he was doing. In the 1990s, he taught English in Japan and later traveled throughout Asia, scouting factories that produced Nike watches and shades for Sunglass Hut, before he returned to Cleveland in 2000 to form his own import business, International Sourcing Group.
Two decades of navigating supply chains and negotiating with far-flung manufacturers taught Morgan it was best to steer his firm clear of the mask frenzy, which was rife with fraud and confusion. In the summer of 2020, though, he was inundated with requests for a similarly cheap but tough-to-get commodity: nitrile gloves. Hospitals and businesses were burning through them faster than they could be shipped from Asia, home to most of the world’s protective equipment production.
This story was originally published by ProPublica and is republished here under a Creative Commons license.
“There was this explosion around gloves when they were trying to reopen the economy,” Morgan said. Companies were “just so desperate to be able to reopen and keep their workers safe.”
Now, two years later, Morgan leads a group of American businesses that have banded together to reclaim an estimated $100 million lost to scammers, who seized advantage of the country’s mad scramble for supplies. Members of the PPE Fraud Coalition say the pandemic exposed weaknesses in the international trade system and left many legitimate importers in shambles.
“These kinds of stories have affected so many American businesses that thought it was safe to operate in Vietnam — and I thought it was safe to operate in China,” Morgan said. “Ever since the pandemic, all the flaws in the system have come out.”
Morgan’s story began when an American expat he knew in Vietnam connected him to what he believed was a legitimate glove factory. In normal times, Morgan would have packed his bags and checked out the factory or hired a third-party inspector, but with lockdowns and travel restrictions, this wasn’t an option. Instead, Morgan set up deals by phone and video conference.
Bank records show that International Sourcing Group wired $1.5 million on July 15, 2020, to an account in Ho Chi Minh City as a deposit for nine shipping containers of gloves. About $1.4 million dropped into another company’s foreign account, followed by $1.65 million into a different account.
“I sent money — about $7 million of other people’s money — to Asia over a very quick period of time,” Morgan said. “We had to kind of trust the process and hope that everything would move quickly. It didn’t.”
Emails Morgan would later share with the Justice and Commerce departments show the sellers began to offer excuses. First, it was the holidays. Then, they just stopped responding. Finally in September, his Chinese seller sent a shipping container, which arrived with just a fraction of the gloves Morgan had purchased. The Vietnamese sellers vanished altogether; he wondered if their glove factory had ever existed.
Unable to fly abroad, Morgan couldn’t do anything. His customers demanded refunds, so he took out loans and entered repayment plans to return what he could. It wasn’t until the summer of 2021, as his company teetered near bankruptcy, that Morgan cut through several layers of red tape involving three countries and flew to Vietnam, where he was required to quarantine for three weeks in a rundown motel overlooking the bank he believed had his millions of dollars.
He fashioned a desk out of water bottles and boxes and kept a diary, which included photos of the streetscape below and musings about televised sumo wrestling, his only distraction. Finally, he was released only to find law enforcement had frozen the accounts of his alleged supplier. Law enforcement, Morgan claimed, offered to help him get his money out but only if he paid them a portion of what he collected. He refused. As Morgan told it, a fixer he hired informed him that his saying “no” had upset a high-ranking officer, so he’d better leave. He returned to the United States with a rich knowledge of sumo wrestling, none of his money, and legal and travel costs creeping toward half a million dollars.
Unlike the many fly-by-night brokers who entered the PPE market to get rich quick, Morgan knew international trade — or, at least, he thought he did. But his faith was now shaken. Stateside, he reached out to the Commerce Department, which a spokesperson said does try to help business owners in such a bind by making phone calls and sending emails. He wrote to his congressmen, who he hopes will pressure the Justice Department to do something, though it’s unclear what.
As his frustration grew, and as it appeared he might not have much recourse, Morgan began to hear from other businesses with similar stories. They, too, had years of experience in Asia and had lost millions. Their customers also demanded answers. Amid the countless accounts of profiteers who had made money on masks or went to prison trying, the companies felt no one would listen to them unless they banded together and got interest from lawmakers and industry groups. Late last year, they formed the PPE Fraud Coalition, which says it represents scores of U.S. businesses that got fleeced in deals rooted in Thailand, South Korea, the Philippines, China, Vietnam and Russia.
Rob Williams, president of R.L. Williams Company in Conover, North Carolina, said he wants to draw more attention to legitimate companies that stepped in to address unprecedented demand for PPE supplies, which the U.S. neither manufactured nor stockpiled in anywhere near sufficient quantities. These smaller importers were crucial to the pandemic response, Williams said, and did all they could to fulfill orders, only to be left holding the bag.
“I had big companies call on me and wire me money like that,” Williams said, snapping his fingers for emphasis. “So everybody is screaming to get product for front-line workers, health care. The rush of demand was unbelievable.”
Bjorn Chay, who runs a natural supplement company in Greenville, South Carolina, has built a large network in Asia from his decades working in international trade. That didn’t keep him from getting hoodwinked, he said. He shared documents and receipts showing $3 million in payments to companies in Thailand and Vietnam, much of which is now tied up in frozen accounts and bureaucratic tangles. After a year of waiting, he traveled to Thailand and went to the factory that was supposed to ship gloves to him. “I get there. Guess what? There’s nothing,” Choy said. “It was just an empty building.”
These businessmen and others “should have done more due diligence,” said William Reinsch, an international trade expert at the Center for Strategic and International Studies. “If we had better trade rules, and if these businesses were dealing with rule-of-law countries, which is one of their problems — they’re not — they’d at least have more recourse.”
Reinsch said that Covid-19 produced a lot of this kind of international fraud, and that it’s likely going to continue even as the pandemic wanes. “We’re in an era of whack-a-mole supply chain crises,” he said, and scammers are going to take advantage. But, he pointed out, Covid-19 also created huge opportunities for fraud in the United States.
“No country has a monopoly on criminals,” he said.
J. David McSwane is a reporter in ProPublica’s D.C. office covering health care, energy, federal contracts, and land issues.
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