FEBRUARY 27, 2013 12:14AM

78% of China Employees Steal From Their Employers...

Rate: 0 Flag

cd23 In China, almost 80% of all employees admit stealing from their employers.  The good news is that most of them steal less than $1,000 of property or inventory a year.  The bad news is that 10% of them steal an average of $67,535 and less than 5% of the bigger thieves ever get caught. Why? Because they are usually not stealing cash (unless they are employed at a restaurant, bar, or other cash-based business).  Most employee theft involves billing fraud, vendor kick-backs, credit fraud or black market sales of client data or inventory.  The theft is rampant in foreign-owned businesses where even accountants are paid handsomely to “overlook” the irregularities they stumble upon.  At present, over $1.3 Billion in annual losses are attributed to employee theft in China with roughly 9,000 foreign-owned companies taking the biggest hits.

The Chinese have an honor code amongst themselves of “Don’t ask about mine and I won’t tell about yours."

This code is centuries old and many Chinese justify their theft by over 300 years of colonial exploitation.  When the average Chinese worker is earning less than $6,000 a year, they almost feel entitled to steal from foreign employers, and when caught, feel little or no shame.  Employee theft in China is rarely prosecuted, unless the employer is a State-Owned Enterprise. This is primarily due to the ancient Chinese tradition of “face” where it is rude and inappropriate for one citizen to cause another any embarrassment. Thus if one employee sees another stealing or committing some other crime, they will pretend to see nothing and go about their business. The last thing Chinese employees want to be is a witness or part of any problem.

As a rule of thumb, a company in China can calculate it's average employee losses at 8% of their gross revenues in the service industry and 12% in the retail sector.  In China the biggest prizes for employee thieves are IP technology, trade secrets and most of all, client lists.  Client lists are most treasured because a thief may sell them to several competitors for as much a $50,000 - $100,000 each, as was the case with a mid-size investment bank in Beijing whose VIP list was sold seven times by a former employee who when caught by China Security Solutions merely explained, “I want to send my son overseas to study at UCLA and cannot possibly do that on my salary.” Because her cause was "honorable," even her Chinese manager lobbied for a second chance on her behalf.  This is the Chinese mind set – the end always justifies the means, and employers pay the price.

Wolf_in_sheeps_clothing_by_Dereliict

Some company employees applied from the onset to be the resident thief and were paid well to do so by a competitor looking to acquire trade secrets, price lists, or coveted VIP client lists. These are China's notorious "Business Moles" that you can read about here...  http://www.cityweekend.com.cn/beijing/articles/blogs-beijing/expat-life/scam-alert-business-mole/  Many of these biz moles will stay on at a company for years and even appear to be some of the most responsible and diligent employees.  It is estimated that a full 30% of all technology and luxury good retailers have been infiltrated by these most dreaded thieves, but there is no way to know for sure.  CSS managed to catch 17 of them in 2012 with total damages calculated in the millions.  This case highlighted in the New York Times is indeed typical of the growing bold technology hijacking taking place in China http://www.nytimes.com/2012/02/15/world/asia/chinese-official-to-hear-trade-theft-tale.html?_r=0

But because of the language and culture barriers, spotting the theft is difficult for foreigners, and even veteran company auditors don’t know what to look for. Traditional methods of cheating the boss like skimming is occasionally used, but much more sophisticated and devious schemes are employed that only trained fraud investigators in China would spot (like China Security Solutions).  Vendor kick-backs, tax filing, and accountant frauds are regular theft ploys but insider billing frauds most common. BTW... foreign employees are also known to pilfer but statistically 86% have been local Chinese so far.

How many thieves work for your company?

CSS and their proprietary undercover methods are unique and discreet. Since 2010 they have caught almost 300 employee thieves (usually in the act) for many foreign and domestic companies in China using both undercover operatives, hidden cameras, and white hat hackers. Their methods are so discreet that only the employer and the dishonest employee(s) know why they are really “resigning”. Usually this provides the required leverage to obtain repayment from the thief, even if five to ten year payment plans are required. 

Depending on the size of a company, CSS can typically locate and document the losses and source of the loss within 30 days if there are less than 24 employees.  In large companies usually 90 days is sufficient time. Their fees depend upon their results. The more theft/thieves they find the more they charge unless they are retained on an annual retainer in which case the fee is a flat rate that provides two integrity checks per year.  Many international companies in Beijing use CSS as part of their employee screening process since doing background checks in China is not easy without the right connections and “guanxi”. No company wants to hire problem waiting to happen, but with no background information on an employee,  they are virtually rolling the dice, taking a gamble with with every new hire.

hackergraphic 

Most IP theft originating in China is accessed via professional hackers, but roughly a third of these hackers rely on inside help.  Network passwords sell for an average of $25,000 these days - a small price to pay when the prize is worth millions of dollars. CSS has a proprietray method of baiting hackers that has been 83% effective to date.  Hackers oare often allowed to steal false files that have been embedded with special tracer software that allows CSS to identify the true IP address of the hackers, who usually hide behind a VPN. Many governments use the same technology that is not available to private investigators. In fact CSS is the only private firm in Asia to have this special ability.

CSS has proven very adept at catching the most difficult commercial thief of all - the hacker.  When a hacker teams up with a company insider, the damage can run into very serious and costly damages.  One hacker found his way into a Mercedes Benz network in Shanghai and copied their entire buyer database, which was probably sold to several competitors for perhaps $1 million dollars. Catching hackers in China is a tedious process that some say is like chasing the wind.  But using the right bait, CSS is able to lure them into their nets.  CSS often partners with other security firms on a global basis to enlarge the size of their nets.

CSS has a growing and diverse staff of veteran foreign investigators who train local Chinese actors to work undercover with them or alone. Their experience has shown that 47% of all employees in China are willing to sell information about their company, 29% were willing to copy company hard drives, and 25% were willing to sell copies of keys and security codes.  It is all a matter of price. One office secretary sold a CSS undercover agent keys and access codes to their warehouse containing over $7 million of inventory for only 100,000 yuan – the equivalent of about $15,000. To her this money represented two years of salary and her motives? “I wanted to take my children and parents to Disney World in America.”

Insider Trading Is The Ultimate Employee Theft

CSS's biggest success was a case of insider trading of a public company employee  who was feeding sensitive information concerning an impending law suit and eventual buy-out by a larger competitor to a group of shady Shanghai investors. For the information the employee received 5,000 rmb every month. The young man was nabbed by CSS before the stock play took place and three shady Shanghai investors fled China to avoid prosecution. Forbes magazine recently highlighted the problem of insider trading in China (the ultimate employee theft) with this article exposing the multi-billion dollar takeover of Nexen Energy in Canada by CNOOC, a Chinese state-owned enterprise.  http://www.forbes.com/sites/steveschaefer/2012/07/27/sec-hong-kong-billionaires-trading-firm-used-inside-info-to-profit-on-cnooc-nexen-deal/

Another service CSS provides is a vulnerability check of your business since outsiders can more easily spot internal problem areas. Whereas a company manager cannot see the forest from the trees, CSS can and they will provide a detailed report of their observations and recommendation to reduce employee fraud to a bare minimum.  “In China, the employees are clever, crafty, and creative. They will always find a way to steal, either money, time, inventory, or information.” explained Alex, a veteran CSS. Investigator.”  He went on to say “Our job is to quietly minimize the bleeding, and so far we are doing a decent job of it.”  With a dozen testimonial letters hanging on his office wall, it appears Alex has indeed been a busy man in China!

The recent business boom in China over the last decade has caused internal thefts and embezzlement to increase 370% over this time period, and with so few prosecutions, the trend is expected to continue. What is most stolen by employees? The below chart gives you a breakdown but information and property are tied for first place.  Almost 40% of all business failures in China result from internal frauds and threats. A full 20% of accountants in China will be accused of embezzlement at least once every five years.

What Do Employees Steal From Employers In China?

Foreign HR officers are also faced with a nightmare every time they must hire a new employee.  Criminal records are not public information as they are in the West and former Chinese employers will never cause a fellow Chinese to "lose face".  So former misdeeds of an employee are seldom ever revealed nor discovered, forcing an HR director to eithergo with their gut instincts, or pay 10,000 yuan for black market information from moonlighting police officials willing to risk their careers by selling backfround information.  CSS provides a cheaper solution to this problem so HR won't have to roll the dice with everty new hire.  As you can see, dishonest employees create havoc for foreign companies in China. For a sampling of the horror stores, see this article from a Beijing magazine; http://www.cityweekend.com.cn/beijing/articles/blogs-beijing/expat-life/scam-alert-employee-fraud/

The solution? Active loss prevention measures should be taken by every business owner in China who has more than five employees. Hidden cameras are never enough since the costliest thefts take place outside the office premises. Free risk-management and loss prevention seminars are held regularly by China Scam Patrol in Beijing for small business owners. To register send an email to Seminars[at]ChinaScamPatrol.com. For more information about CSS loss-prevention services you can visit their web site at www.ChinaSecuritySolutions.com.

rolling-dice-325x280

Your tags:

TIP:

Enter the amount, and click "Tip" to submit!
Recipient's email address:
Personal message (optional):

Your email address:

Comments

Type your comment below:
Comments are now closed.