10 Tips For Safeguarding Your China Operation From Thieves

A Hot Tip about Joint Ventures in China

Posted on: 1 Mar 2013

While you are focused on hackers, your own employees may be doing the most damage!

How to safeguard your company’s assets in China? Here’s ten tips from a veteran risk management investigator… By: Howard Crenshaw According to Interpol’s 2012 overview of China, commercial IP theft still poses a major threat to the west, but now the data theft is spreading way beyond technology and trade secrets. In 2012 most of the data being stole were VIP client lists, especially in the financial and business consulting sectors. The report further cited “employee theft and misdeeds” as the cause for 37% of the foreign business failures in China. With very successful prosecutions in the Chinese courts where verdicts are typically bought and paid for, this frightening trend will most probably continue. But Douglas Frazier a transplanted private investigator from the U.K. now working for China Security Solutions in Beijing Solutions says most foreign business operators in China are just too busy trying to run their business to worry about their own employees. “Most CEO’s always worry about hackers and other external threats, when in fact most damage is done internally by a company’s own staff.” explained Frazier. But the veteran investigator offered ten basic tips he says every business owner in China should heed; 1. Never keep IP data on any networked computer and ensure that it is at least 256K encrypted 2. Keep a log of all access to company keys 3. Avoid using a wireless network in your office if you are on 1-9 floors of a building 4. Do random unscheduled audits of your billing department with a new accounting temp 5. Do not hire any employees without thorough verification of their resumes and references 6. Change all access codes monthly and whenever an employee is terminated 7. Install real or dummy CC TV cameras in all warehouse space by every entrance 8. Ask all employees to consent to annual polygraph examinations when hired 9. Never use just one accountant 10. Get a free CSS security vulnerability assessment of your company Frazier works primarily undercover for CSS and is one of three investigators assigned to Beijing where their team caught 47 employees just in the last six month alone, stealing an average of $35,210 from their foreign employers. The thefts of client lists have been especially lucrative for thieves, many of whom infiltrated the victim’s company at the direction and with the sponsorship of a competitor. Price lists and quote information on multi-million dollar contracts typically sell for $25,000 and may be sold to several competitors by a shrewd mole. Some of the horror story can be read here; http://www.cityweekend.com.cn/beijing/articles/b logs-beijing/expat-life/scam-alert-business-mole/ Frazier’s biggest case to date was for a local Beijing securities firm whose VP of Sales noticed they were losing five percent of their most prized whale clients every month. Over a three month period those investors represented a $675,000 loss to the firm in gross profits. One week of human and electronic surveillance revealed that a veteran employee bitter about not receiving a raise in two years was collecting a 150,000 yuan commission for every whale client he diverted to a competitor located less than a kilometer down the very same street. The veep was shocked at the news and just assumed the most senior employees would be the most loyal to the company. “This is a very common misperception.” remarked Frazier. Although the company opted not to prosecute the veteran consultant who was less than two years away from retirement, they were able to stop the bleeding, and obtained a quick resignation. What was truly shocking about this case was that the company had invested over $500,000 in sophisticated network security software and closed circuit television cameras and a state of the art biometric electronic access system to their office. They did not however, consider the human element and as Frazier points out “Every chain is only as strong as it’s weakest link.” CSS has been searching out weak links in China for three year and three multi-national corporations, two Chinese banks, a casino, and more than two hundred companies rely on their annual “integrity checks” to keep their company in the black and safe from both employee theft and hackers as well. Most business owners in China wrongly think they must be a huge technology firm in order to be at risk. But after reading this article they wake up and smell the proverbial coffee… http://www.cityweekend.com.cn/beijing/articles/blogs-beijing/expat-life/scam-alert-employee- fraud/ Inventory swap-outs is another growing problem, especially at shipping ports, where cheap replica products replace the high quality goods stolen by the container load – almost always with the cooperation of an inside employee. Combating the “enemies within” is a very sensitive matter for any company, but especially so in China where “face” is a big part of Chinese culture. CSS prides itself on discretion and almost always relies on undercover operations and electronic monitoring that never alerts any employees that there is even a problem in the office – or at the warehouse. Understandably, no company executive wants to admit they are being swindled by their own rank and file, but sadly 78% of all Chinese employees are known to steal from their employer at some level. CSS started its China operation in 2010 after spinning off from it’s sister company China Scam Patrol which focuses on commercial due diligence. It is a small but effective company with only nine employees. Unlike some huge investigative firms caught up in the bureaucracy of administration and budget approvals, CSS is able to offer its clients affordable and prompt service where every single day could mean another $20,000 of losses. No matter which security firm is employed, business owners in China who ignore, neglect or simply overlook the fact that every company has hidden thieves, will probably become another statistic in yet another ICC or Interpol report. With China competition growing larger and profit margins smaller, there really is little room for internal theft, which by the way can be calculated to equal 9% of a company’s gross revenues according to the ICC. Frasier noted that in the last two years that he has worked for CSS, the thievery has become more and sophisticated making it harder to detect for business owners. In the private equities sector for example, 329 employee frauds were reported in 2010, but only 192 in 2012. Some hope these numbers reflect better security and enforcement, but Frazier’s grin says otherwise. With a chuckle he says “In the loss prevention industry, most experts will agree that the Chinese are the most clever, crafty, and devious thieves in the world, compared to Americans who are simply just quite bold.” No matter which honors and dishonors can be attributed to the ethnic heritage of the perpetrators, one this is certain – one in every three foreign business are failing in China because of internal thefts and collusion of a criminal nature. Perhaps half of these failure sould be saved just by following some common sense tips offered above or by a one hour consultation with an expert corporate security firm. By writing this article I did my part, but what is that old saying… “You can lead a horse to water but you can’t make them drink.” Reprinted From China B2B – April 2012
Posted: 01 March 2013

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