Corporate Fraud Jumps 13% in China, Led By High Rate of Cyberattacks

(Beijing) — About 86% of companies in China reported they were victims of fraud in 2016, up sharply from the previous year, as a majority said they were preyed upon by their own joint venture partners, according to a report released on Thursday.

The incidence of fraud in China rose by 13% percent last year, higher than the 9% jump in the global average that saw 82% of companies surveyed worldwide report experiencing fraud in 2015, said the report by risk management specialist Kroll.

Regulatory or compliance breaches were the most common types of fraud among companies in China, with others including theft of physical assets, stock data and information.

The report also noted the high occurrence of cyberfraud, with 86% of respondents in China saying they had been victims of “cyber incidents” in 2016, slightly above the global average. Some 82% said the target of such attacks was their customer records, more than twice the global average.

About 55% of respondents said they had been defrauded by joint venture partners, more than double the global rate, and senior employees were also cited as a common source of fraud. The report found that companies in China were victims of corruption, bribery, market collusion and misappropriation of company funds more often than the global averages.

“Fraud in China has become increasingly complex and challenging,” said Colum Bancroft, managing director and co-head of Kroll’s Greater China investigations and disputes practice.

“A quarter of survey respondents, a higher proportion than all other countries and regions surveyed, indicated that they were dissuaded from operating in China due to concerns over fraud and corruption. Apart from junior employees, fraud in China was often committed by senior or middle management, resulting in potentially more significant losses.”

The report’s release comes as the wider issue of consumer fraud has gripped China following two high-profile cases last year that saw an impoverished student and college professor both cheated of large sums of money.

Corporate fraud was also in the headlines this week, when telecom giant Huawei Technologies Co. Ltd. confirmed that six of its former employees had been detained for improper use of company intellectual property. Other big corporate names reporting similar cases in recent years include the likes of online search leader Baidu Inc., and leading game operators Tencent Holdings Ltd. and NetEase Inc.

Beijing has taken a number of steps to combat the problem, including requiring people to register with their real names for all cellphone accounts. The country is also trying to create privacy protection laws that would make it more difficult for unscrupulous companies to sell customer data to outside salespeople and potential fraudsters.

Contact writer: Yang Ge (geyang@caixin.com)