Foxconn investigating $43M fraud ring involving faulty iPhone parts

Posted:
in iPhone edited December 2019
Apple assembly partner Foxconn is reportedly investigating claims its employees have conducted fraud using iPhone components, by selling iPhones with parts that were deemed defective and were expected to be destroyed.




The fraud ring is believed to have earned NT$1.3 billion ($43 million) over a three-year period. An unnamed Taiwanese businessman is allegedly the mastermind, who worked with a selection of management staff at Foxconn's Zhengzhou factory. The group used the facility to acquire faulty or flawed iPhone components, which would normally be destroyed under normal Foxconn's normal policies.

The parts were then assembled into what seemed like fully-functional iPhones, and since they were produced at a Foxconn facility, were sold as if they were legitimate Apple devices.

First reported by Mirrormedia and spotted by TaiwanNews, Apple and CEO Tim Cook were allegedly informed of the issue in June this year, then later an audit was launched internally at Foxconn. The verification of the claims are still ongoing at this time.

Foxconn released a statement to CNA emphasizing it has always followed codes of conduct, and requires employees to abide by workplace ethics and related norms. The statement also confirmed an internal investigation is underway.

The assembly partner's investigation is likely to be conducted by its "anti-corruption team," established in 2015, one that is believed to be focused on just its Taiwanese employees and facilities.

Former Foxconn chairman Terry Gou declined to comment on the report, except to say it's unsurprising that "Unreasonable things may happen to one or two workers" for a company of Foxconn's size.

The Zhengzhou factory is a major production facility for Foxconn, with the capability of producing half a million devices per day. At that scale, thousands of defective products are likely to be discovered each day, giving ample opportunities for corrupt employees to skim components for fraudulent purposes.

While the investigation relates to the activities within one facility, it remains to be seen if similar efforts will be made to uncover corruption at Foxconn's facilities elsewhere.

Foxconn has been under fire for other iPhone-related issues, including breaking Chinese labor laws by using five times more temporary workers than permitted to assemble the iPhone 11, having issues meeting hiring promises in facilities in the United States, and the ongoing saga of its Wisconsin factory deal.

Fraudulent components have been an issue for Apple for quite some time, with it spending over five years fighting iPhone repair fraud in China. In that investigation, it was found fraud rings would take parts out of working iPhones for resale, replace the parts using fakes, then submit the devices for repair under warranty.

Comments

  • Reply 1 of 8
    wood1208wood1208 Posts: 2,543member
    Expected. People want to be reach by doing any illegal means. Most of time, employees are part of it because they know internal way to do it. Walmart and similar retailers lost billions in employee thief. Recently Palo Alto Networking, there few IT employees in charge of company computer/database with upcoming earnings information made millions. Think of % of those not caught ?
  • Reply 2 of 8
    sflocalsflocal Posts: 5,728member
    Considering the size and revenue of FoxConn, $43M is chump-change.  Corruption is too easy for a company of that size, particularly if it's people that are familiar with the inner-workings of FoxConn.  Will be interesting to see what comes out from this.  I hope the perps are identified and prosecuted to the full extent.
    watto_cobra
  • Reply 3 of 8
    lkrupplkrupp Posts: 9,455member
    sflocal said:
    Considering the size and revenue of FoxConn, $43M is chump-change.  Corruption is too easy for a company of that size, particularly if it's people that are familiar with the inner-workings of FoxConn.  Will be interesting to see what comes out from this.  I hope the perps are identified and prosecuted to the full extent.
    Well, what about the end users who bought these defective iPhones? When they take them to an Apple store for service and are told they are not official iPhones who will those end users blame? Not themselves for being stupid, cheap, and gullible, not Foxconn, not the criminal employees who perpetrated the fraud. Nope, they will blame Apple and scream to all their friends how Apple is evil and won't stand behind their products. After all, it IS an iPhone is it not?
    watto_cobra
  • Reply 4 of 8
    LOL. That’s just the tip of the iceberg. China’s entire economy is built on theft.
    agilealtituden2itivguywatto_cobra
  • Reply 5 of 8
    hentaiboyhentaiboy Posts: 1,244member
    "Unreasonable things may happen to one or two workers"


    JWSC
  • Reply 6 of 8
    Unfortunately we all pay for it, the price of theft is built into the price of these devices.
    JWSCwatto_cobra
  • Reply 7 of 8
    iOS_Guy80 said:
    Unfortunately we all pay for it, the price of theft is built into the price of these devices.
    Absolutely. Same with insurance fraud and the like. 
    watto_cobra
  • Reply 8 of 8
    dewmedewme Posts: 3,814member
    iOS_Guy80 said:
    Unfortunately we all pay for it, the price of theft is built into the price of these devices.
    The cost of theft is built into many things we all pay for, including products sold at retail, groceries, credit card interest rates, property insurance rates, etc. Lying, cheating, stealing, and acts of willful defiance of established laws, regulations, and rules is second nature for most humans in every country and culture on Earth, including as we see mentioned here, China. Morality is a culturally imposed artifact that has never shown itself capable of universally overriding the human genetic predisposition to do whatever one feels is in own's own best interest at the time. Morality works for some, some of the time, but it's a very leaky filter.
    watto_cobra
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