Why does Amazon not REQUIRE a US registered business to be a seller in the US?

Ok, one thing I don’t understand is they go through all these lengths to try to block bad actors from opening seller accounts, but they allow people to register an account with foreign registered companies? Someone who’s in a foreign country and is committing some kind of fraud on the US marketplace is basically out of reach for any kind of prosecution/lawsuit (unless it’s a big enough case to be worth going international for).
Anyone who’s serious about doing business in the US will register a corporation in the US. And you don’t need to be a citizen to register a US company. I would say the majority of sellers on the US marketplace who don’t have a US company are either straight up scammers or are selling shoddy products.

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I believe its far more complicated than that.

  1. If I were a China based seller and I was actively approached by amazon to sell in the US marketplace with Mandarin speaking support reps, I would jump at the chance.

  2. If you’re a business dealing with volume and have insurance (sinosure) in China then there are certain benefits and advantages viz a viz the government there.

  3. Keeping just these two above, there would be no reason for China sellers to open a US business - they are not operating from the vantage point of being US sellers and are not being incentivized to do so. There primary concern is to sell to the largest market. It is not their job to figure out the nuances of US law outside of the amazon ecosystem because they are simply not being advised nor are they being marketed to in that manner.

  4. Now amazon itself is not concerned with the law per se, no institution is, it is concerned with penalties and fines that surpass the reward. This is where risk and reward comes in. The classic example is an entity will take up a fine for dumping chemicals if the fine to do so is less than the cost of dumping the chemicals. Extremely reductive example.

  5. Yes this allows bad actors that are simply looking to game the system and in China, like in Vietnam and in the US there are plenty of courses and advisers that market to Chinese vendors on how to do so. That, is no excuse, of course but keeping the above in mind - it’s not something that motivates China sellers as much as selling their goods.

  6. Times are getting tight the world over and especially in China so things will escalate. And considering that US sellers aren’t particularly diligent in following rules (visit the NSFE) - I’d be hard pressed to take a single variable and brush non-US sellers with it.

Some thoughts.

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Ay, there’s the rub.

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What are we rubbing and where?

Rosin, on

The hangman’s rope WE sold them, n’est-ce pas?

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Well TBD, I love boom times. I hate gloom times. I really do hope my business can weather the next downturn and that China is still a supplier then until I exit. But that’s my bias.

Well, what I’m saying is, if they truly want to cut down on fraud, having the requirement to have a US business do the selling (whether that business is owned by someone in the US or foreign owned) would greatly cut down on the amount of scam accounts. Anyone who’s serious about selling would easily open a US corporation (there’s plenty of service companies that help foreigners open a US corp and fulfill the legal requirements to keep it in good standing).

I was not aware Amazon was still recruiting chinese sellers. I know they used to do that for growth reasons, but now that they’ve switched gears to cracking down on bad sellers I would think this would be an easy way to tighten things up.

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Again, that is only looking at things from a single marker/function, which amazon does not.

There are about 3000 sign ups for FBA a day or some such - I can’t remember the stat but it’s insane. Why would anything change?

There are a few interesting tidbids here

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Wow, 45% of Amazon US sellers are based in china. That’s an eye opening number. Now I understand why things are the way they are.

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The new trend seems to be more and more of cutting out the middle man. Why bother selling to a distributor/trading company or importer for them to sell to a retailer when you can sell it yourself and grab all that extra profit. It’s not just a China thing btw the world is changing and everyone is hurting right now.

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Only real reason would be someone in the US to provide service / take returns etc, but for the most part it’s cheaper to just give replacements/refunds and have the original product thrown in the trash than give up the margins of selling wholesale vs retail.

I sell mostly cheaper items and I don’t take back any returns from FBA, it all goes in the trash. It’s cheaper to just trash it than to pay someone to properly accept, grade, repackage, and resell those items.

What a can of worms an Amazon requirement for registration of a business would be.

There is no Federal requirement for registration of a business to operate in the US, Registration with the IRS is when there is a need, and until a business has a tax issue, like employees in the US or profits in the US in generally not required.

Corporations are registered in their states, and some states also require a business license. Corporations which exist in other than a given state may have to register as a “foreign corporation” in each state which has jurisdiction over them. And foreign corporations can be taxed on income withing the state.

You think sales tax has been a pita, image what forcing registration in 50 states would be like.

Unincorporated business may have to register in some local jurisdictions.

Cutting down of fraud will not occur by increasing governmental red tape before a seller sells. It will be caused by Amazon doing appropriate due diligence, which we know they will not pay for.

The solution which currently occupies my mind is requiring all Amazon sellers to be bonded for a minimum of $10k with increasing requirements based on their sales volume. It might be a boon to the insurance industry, and a bane for casual sellers.

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A US corporation registered in delaware (or any state) can operate in all 50 states. There’s no requirement to register in every state. I do get your point though that adding a requirement could creep into more requirements later.

Amazon already requires insurance for high volume sellers, and it’s a lot more than 10K, they require 1 million in liability insurance. They only require it for sellers who exceed 10K / month in sales though. That requirement should probably apply to everybody. If anything lower volume sellers are more likely to be unable to pay up in the event their products cause liability, so the insurance requirement should apply to everybody equally.

As for Amazon doing appropriate due diligence, that’s area is also a fine line. They are a private company (that’s not a financial institution) so there’s limits to what they can do and what’s appropriate to do. For example, it would be completely inappropriate if they had access to state/federal databases to do identity verification. And the more information they have and store about sellers, the more problems it’s going to cause when there’s inevitably a data breach.

Untrue. A Delaware corporation with a presence in some other states must register as a “foreign corporation” and page state taxes on income attributed to that state.

My Delaware corporations, have had to register in states we operated in.

Amazon requires liability insurance which does not protect buyers from fraud by Amazon sellers.

When I held an auctioneers license I had to be bonded to protect consignors and buyers. Bonds are required for many types of business by various states.

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Right, if you have a presence there you have to, but for ecommerce purposes you don’t need to register to to ship products there. Though that’s something that could potentially change at some point.

Yes, the liability insurance doesn’t protect buyers if they get scammed by a seller, but that’s something that Amazon already handles internally with the A-Z Guarantee and systematically withholding funds from sellers (the “account level reserve”). For this type of fraud there’s no reason to involve an outside insurance company (other than to make money for insurance companies). The platform has the authority already to withhold payments for as long as they feel that they need to until they’re reasonably sure the customer won’t file a complaint. There’s some older accounts that don’t have these account level reserves, but for the most part you don’t get paid for your sales for roughly a week if you’re FBA, and even longer if you’re FBM (it’s what, a week after tracking shows delivered?). This money is basically Amazon’s insurance against seller problems.

You want to make Amazon safer.

I have suggested ways Amazon could. The cost and process of bonding would reduce the number of questionable Amazon sellers.

I don’t buy from most of the bad apples on AZ because they sell for less elsewhere. The bad apples create problems mostly for the sellers who have to compete with them.

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They could actually do a more reasonable version of the bond internally.

They could require that sellers deposit and maintain a $1000 balance to cover any costs incurred. The amount can be fully withdrawn only if the seller account is closed. The account level reserve will always be the higher of what it is under the current system (which serves as sales volume based bond), or $1000 (which serves as a general bond for bad sellers). It would basically force sellers to put up some money and be liable for their actions. The biggest issue is new sellers running scams, and another issue (though this doesn’t affect customers) is new sellers thinking it’s a great idea to send a bunch of stuff to FBA, having none of it sell, and then walking from the business. With some kind of minimum reserve, they could at least seize it from scammers, and hold people liable for FBA storage/disposal fees for unsellable items. Right now people can pay the $40 fee, and do whatever they want, then if it doesn’t work out they can cancel the credit card they put up and not pay for any refunds/chargebacks/etc. Having a “security deposit” for new sellers wouldn’t actually be a bad idea.

For many years, that threshold - which has always been p/o of Section 9 the ASBSA, as far back as when it was titled “Participation Agreement” rather than “Amazon Services Business Solutions Agreement” - was only laxly enforced.

In Q3 of 2021, enforcement was ramped up greatly (as heralded in a certain Amazon email missive of 27Sep21, titled “Action Required: Provide proof of liability insurance coverage”) - producing the slew of threads on that subject which appeared in the OSFE @ that time, and the occasional discussions of problems that various members of our Seller Community have faced with compliance which still appear in the NSFE.

Any action which makes entry harder to the Amazon marketplace would be an improvement for many buyers and sellers but would also generate unhappy hurt would be sellers.

Amazon has made a great deal of progress in restricting entry to this marketplace, and still has the same problems. It is too big for any but draconian barriers to entry, and they would need to be transparent.

Since Amazon is incapable of transparency, that would be another reason it will not happen.

It would also need to be 100% automated, and we know how bad Amazon’s implementation of artificial intelligence are.

The best situation to be had, is that you protect yourself as a buyer or a seller to the greatest extent possible within the realities of what exists right now. And many sellers are unwilling to run the risk of losing sales by taking protective actions, which may include not listing items which are prone to buyer or competitor fraud.

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This is true, the lack of transparency and the fact that bots make most of the important decisions on the platform make it so any new requirements end up being problematic. I’ve seen recommendations like “don’t submit an original bank statement PDF, print it and scan it because the original PDF’s encoding might confuse Amazon’s OCR software.” The sad part is that type of advice has a lot of merit because if whatever Amazon uses to automatically scan your documents doesn’t see what it wants to see (and if it gets tripped up by the document’s encoding it’ll probably come back with nothing), it’ll just kick you an automatic rejection email and make you submit something else.

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