Shanghai sees massive payroll fraud with 178 convicted in a sophisticated salary deception scheme

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18th April 2024 – (Shanghai) The People’s Procuratorate of Pudong New District in Shanghai has prosecuted a significant case involving a sprawling network of 188 individuals accused of orchestrating an elaborate salary fraud. To date, 178 have been convicted, underscoring the gravity of the scam that targeted numerous small and medium-sized enterprises in the city.

This extensive operation came to light when an out-of-province company set up a subsidiary in Shanghai, unwittingly hiring 85 sales staff who were, in fact, part of a professional salary fraud ring. This group had been meticulously executing their scheme across various companies in Shanghai, leading to severe disruptions in business operations and causing some enterprises to fold.

The scam was ingeniously simple yet devastatingly effective. The fraudsters, often possessing only high school or junior college qualifications, would forge academic credentials and fabricate rich resumes to gain employment. Once hired, they would create a facade of activity – including falsifying client visits and engagements – to draw regular salaries and claim business expenses without contributing any real business value.

The scale of the fraud was substantial, with the procuratorate identifying over 260 victimized companies and estimating the financial damage at more than 35 million yuan. The cunning of the scheme lay in the fraudsters’ ability to prolong their employment by constantly promising imminent client deals and revenue, thus delaying their dismissal and continuing to draw salaries.

Among the accused was a couple who boasted of simultaneously holding positions in over ten companies each month, earning them upwards of 200,000 yuan per person. Over a span of two years, the husband alone had been employed by nearly 200 different companies, accumulating close to 2 million yuan in salaries.

According to Xue Song, a prosecutor involved in the case, “An out-of-town enterprise that opened a subsidiary in Shanghai faced total paralysis in its sales operations due to all its recruited sales personnel being involved in this fraud. This not only damaged the company’s performance and reputation but also undermined confidence in Shanghai’s business environment.”

The fraudsters typically targeted companies with lax HR vetting processes. They would claim to possess valuable client resources, which in reality were actors hired for small sums to pose as high-net-worth clients during staged meetings.

Since October 2023, the Pudong New District Procuratorate has systematically prosecuted the suspects involved in this extensive salary fraud network, charging them with fraud. The proceedings reflect Shanghai’s stringent measures against corporate fraud and the broader implications for business integrity in one of China’s leading financial hubs.