Fallout From the DN.com Disaster

One of the most important things that any escrow business needs to do is keep up and running for its customers. The whole essence of being an escrow company is that you are the trusted partner between two or more organisations that don’t really know each other. Providing an escrow service is all about doing trusted transactions.

It just so happens Thursday last week the Chinese escrow company DN.COM was taken off the air by the Chinese government. Clients who were midway through escrow transactions had no way of finding out what was going on and large sums of money were left in limbo.

Eventually, DN.com sent out an email that indicated the problem was caused by a change in the entity of the business.

I must admit that there is a frightening chain of events that really strike at the heart of being an escrow business. For a start, escrow is all about being really careful with other people’s money….and as I said in the opening paragraph, it’s about trust. It’s all about being very detailed, focused and losing sleep over a rounding error in a transaction.

To have the business effectively shutdown by the government shows that it's everything but focused on the details. It makes you wonder what else is being forgotten along the way in any escrow transactions….which brings up another point.

How do you become an escrow agent in some of these jurisdictions? In most western economies, escrow is a serious business that is highly regulated by the government to ensure that all parties are protected, even in the situation where there is a failure of the business.

My understanding (and I could be corrected) is that these types of controls are not in effect in the Chinese market. What this means is that funds transferred to a Chinese escrow agent may be used for working capital, rather than being held in trust. If for any reason the business struggles, then the funds used to pay for goods may also be used to prop it up. The business may choose not to do this but there is no governing body that they are accountable to as an escrow agent. This effectively means the business is actually NOT providing any escrow but IS just a middleman swapping money between parties.

There’s a really good reason why Escrow.com spends an absolute fortune on compliance. As well as being legal, this process provides buyers and sellers with the confidence and trust that their chosen escrow service is looking after their transactions.

Now here’s where the whole DN.com business gets really nasty. It just so happens that a scam website dnd.com created a mirror of the DN.com website (prior to it going down). Google indexed the pages and when it came up in the search listings customers could mistakenly click on dnd.com and think that it was DN.com. They would then enter their username and password into the scam system…..I think you get the rest.

So whatever you do right now, if you are a customer of DN.com…..update your password! Also, if you use the same password elsewhere, first of all hit your head on your desk a number of times and repeat, “I’m an idiot” each time. Then go and update all of your passwords at any financial institutions so they are different.

To be very clear....I don't have anything against DN.com and I find that it's terrible that a disreputable organisation decided to take advantage of their predicament. At the same time, DN.com's problems were ultimately of their own making.....hopefully they've learned a few lessons so this doesn't happen in the future.

As a side note, I’m very selective about who I let sponsor my blog. The reason why I’m proud to have Escrow.com as one of my sponsors is because they’ve developed a high level of trust over many years by making sure they are compliant to all governmental authorities. I know who I use for my escrow….

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.