What to do if you identify internal fraud? - Risk management for foreign companies


If a foreign-invested company detects any evidence of internal fraud, especially in cases where a minority shareholder or the general manager may be involved, they should immediately conduct an internal investigation and determine the best way to regulate business risk.

Proper internal control mechanisms are vital to conducting a thorough fraud investigation.

  • Start a fraud investigation

Details related to the fraud should be examined using business documents and other paper trails, employees closely related to the relevant department should be interviewed, financial audits and legal reviews conducted, and the person under investigation must be questioned.

It should be noted that the fraud investigation procedure should comply with Chinese laws. The infringement of any citizen’s personal information, personal freedom, and other personal or proprietary rights must not be breached.

  • Resolution of internal fraud matters

Internal fraud disputes can be resolved through negotiation and settlement, civil litigation, labor litigation, and criminal prosecution.

Chinese laws entail different procedures and dispute resolution methods to be used according to the type of fraud and the prevalent legal requirements of the company.

Therefore, it is advisable for the company to conduct a full review of legal requirements, anticipate the benefits, costs, and risks before proceeding with an appropriate anti-fraud practice.

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