What are the three most common types of fraud that foreign investors are exposed to when doing business in China? (Part 3/3)

Q&As

Asset Misappropriation

  • Inventory misappropriation: Inventory misappropriation involves the unsanctioned manipulation of stock or outright theft of inventory. In China, this type of fraud often takes place through false sales and shipping, with the theft of inventory accomplished by conceiving fictitious purchase orders. Another example involves the local management purchasing unnecessary stock, often in the aim of receiving personal compensation from the suppliers, and concealing the additional inventory to avoid raising attention.
  • Fraudulent disbursements: Common examples of fraudulent disbursements in China include unsanctioned payments made to staff and suppliers. Utilizing billing schemes, fraudsters conceive fictitious suppliers to channel money to a shell company or a personal bank account. Payroll schemes, sometimes involving fraudsters creating ghost employees to channel fictitious salary to their own bank accounts, are another common example. Also very much relevant to the China context, expense reimbursement schemes are sometimes utilized by fraudsters, and by overstating expenses or creating fictitious costs they are able to increase their remuneration. At the company level, fraudulent disbursements are sometimes utilized for corporate tax evasion purposes.

 

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