78% Of China Employees Collect More Than Wages From Foreign Employers – They Steal!

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/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.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 a code of honor amongst themselves… “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 its 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.

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. But CSS managed to catch 17 of them in 2012 with total damages calculated in the millions.

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 theft, tax filing, and accountant fraud 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.

Their proprietary undercover methods are unique and discreet. Since 2010 they have caught almost 300 employee thieves (usually in the act) for over 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 background information on an employee,they are virtually rolling the dice, taking a gamble with with every new hire.

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 damages.

CSS has a growing an 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 here this money represented two years of salary and her motives? “I wanted to take my children and parents to Disney World in America.” 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.

Hiring employees in China is in itself a major gamble for foreign and local employers alike since unlike the West, criminal records are private in China. When you hire an employee you know very little about their background unless you have “guanxi” (connections) with the local police or Public Security Bureau. Having lived and worked within China for 5-20 years, CSS investigators rely on their contacts to help employers weed out bad apples from a batch of new hires. Otherwise an HR officer must rely on their gut instinct and roll the dice. Even if an employee was fired for theft from a previous employer, the employee is still protected from disclosure by that good old Chinese “face”.

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 http://www.ChinaSecuritySolutions.com.


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