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Elaborate Shanghai sales team fraud scheme saw companies lose millions

By Yang Zekun | China Daily | Updated: 2024-06-13 09:28

A sprawling salary fraud scheme involving fictitious sales teams has defrauded hundreds of Shanghai companies of over 50 million yuan ($6.89 million) in the past two years, according to authorities.

The scam came to light after a Shanghai internet technology company hired a salesperson surnamed Yang, who requested that his entire sales team be brought on board. After three months of lackluster performance, the company attempted to terminate their contracts, sparking a labor dispute with Yang.

Further investigation revealed Yang was simultaneously employed by a consulting firm, raising red flags about his social security and housing fund contributions. The consulting firm eventually discovered Yang submitted inflated expense reports and made no progress on sales targets.

Police inquiries unraveled a complex web of deceit. Over 200 individuals were arrested, including Yang, who swindled his way to more than 740,000 yuan over two years.

Prosecutors found that scammers typically targeted small financial management firms where sales roles did not require office attendance and background checks were lax, which helped facilitate the fraud.

Fraudsters sometimes proposed bringing their teams into the hiring company to skim commissions from their subordinates, with some taking more than 40 percent of their team's earnings.

Xue Song, a prosecutor from the Shanghai Pudong New Area People's Procuratorate, said fraudsters often falsified their resumes, educational backgrounds and previous work experiences during interviews. They also forged bank statements showing high salaries and commissions to secure better pay and conditions when applying for jobs.

Xue said that due to their frequent switching of companies, the fraudsters often declined social security and housing provident fund benefits to avoid detection. They either delayed or negotiated with employers to postpone such contributions.

When the end of their three-month probation period approached, employers would propose terminating or reducing the salaries of nonperforming fraudsters, who then sought legal protection through labor arbitration, he said.

"Labor arbitration bodies often viewed these cases individually and failed to detect the fraudulent nature of the claims, typically favoring employee rights and leaving the defrauded companies at a disadvantage in arbitration, leading to losses or settlements," he said.

Since October, the Shanghai Pudong New Area People's Procuratorate has charged Yang and other major ringleaders with fraud. The prosecutions resulted in prison sentences ranging from eight months to 11 years and three months, along with corresponding fines.

More than 70 of the over 200 fraudsters had sought labor arbitration, with all such cases resulting in losses for the defrauded companies.

That exposed barriers to the sharing of information among companies and administrative departments that would have facilitated oversight and the detection of fraudsters. In response, prosecutors have begun to coordinate the establishment of an interconnected information-sharing mechanism.

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