78% of all employees cheat from their employers in China. Learn how to spot them.
37% of foreign companies fail in China due
to employee theft and misdeeds.
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
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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
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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
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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
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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
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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
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with background information on an employee, they are virtually rolling the dice, taking a gamble with with every new
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.
Most IP theft originating in China is accessed via professional
hackers, but 28% of these hackers have inside help. Network
passwords sell for an average of $25,000 these days –a small
price for a thief to pay when the prize is worth millions of dollars.
CSS has a proprietary method of baiting hackers that has been 83%
effective to date. Many times hackers have been allowed to s‡teal ·
false files used with tracer software embedded that allows CSS to
identify the true IP address of the hacker who usually hides behind a VPN. Many governments use the same
technology that is generally not available to private investigators. In fact, CSS is the only private firm in Asia to have
this special ability.
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 W K L V P R Q H \ U H S U H V H Q W H G W Z Rd to ta\ keH mDy cUh ilVd re n R I V D O D U \ D Q G K H U P R W L Y H V " ‡ , Z D Q W H
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CSS’s biggest success was a case of insider trading of
a public company employee who was feeding sensitive
information concerning an impending law suitand
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 Nexgen Energy in Canada
by CNOOC, a Chinese state-owned enterprise.
Another service CSS provides is a vulnerability check of a 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.” H [ S O D L Q H G $ O H [ D Y H W H U D“ OQu r j o&b is6 t o6 q u i et ly, Q Y H V W L J D W R U · + H Z H Q W R Q W R V D \
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 www.ChinaSecuritySolutions.com.