China: significant increase in fraud and risk incidents during 2016

According to the Kroll Annual Global Fraud and Risk Report, 86% of respondents with operations in China experienced a fraud incident in 2016.  One third of these respondents named senior or middle management as key perpetrators.

Cyber incidents are now the “new normal” for companies across the world. The proportion of companies that fell victim in the past year rose significantly to 82%, from 75% in 2015 and 70% in 2013, highlighting the escalating threat to corporate reputation and regulatory compliance.

The situation in China is somewhat more concerning as 86% of companies surveyed reported fraud in 2016, above the global average of 82% and representing a 13% increase from 2015. Respondents in China named regulatory or compliance breaches as the most common type of fraud, 41%, nearly double the global average. This was followed by vendor, supplier, or procurement fraud, which was 11% higher than the global average.

Corruption and bribery

Other significant types of crime reported in China included theft of physical assets or stock as well as theft of data and information. Chinese companies surveyed also fell victim to above average rates of corruption and bribery, market collusion and the misappropriation of company funds. In addition, such respondents identified joint venture partners as the key perpetrators.

Colum Bancroft, Managing Director, Co-Head of Kroll’s Greater China Investigations and Disputes practice commented, “Theft in China has become increasingly complex and challenging. A quarter of survey respondents indicated that they were dissuaded from operating in China due to concerns over fraud and corruption. Often committed by senior or middle management, the results pose potentially more significant losses. It also often involved cross-departmental and multiple-party-collusion, rendering many traditional internal control measures ineffective.”