Apple has launched an investigation into reports of a huge fraud campaign at its Foxconn plant in China.
The scheme involved rejected iPhone parts obtained from this facility being used to build genuine-looking iPhones and sold as that to unsuspecting buyers.
The kingpin of the scam is at this stage only known as Mr X, an unnamed businessman from Taiwan. He worked with a number of Foxconn managers and in the process made a profit of well over $43m.
Managers who were in charge of destroying rejected/flawed iPhone parts reportedly kept them and later had them assembled into working iPhones, finally selling them as ‘legitimate’ devices.
The gang reportedly also resold many rejected components on the black market.
The Zhengzhou facility has the capacity to produce around 500,000 phones per day, which explains how the con artists could make such huge profits. A local newspaper reported recently that the fraud was uncovered and reported to Apple six months ago.
Apparently, a whistleblower reported the scam to Apple’s CEO Tim Cook by email. The company’s Business Assurance & Audit division then started a formal investigation.
Foxconn released a statement saying that the company and its workers have always adhered to workplace ethics and codes of conduct. It has now launched an internal investigation.
Terry Guo, Foxconn chairman until a few months ago, had no comment but said that in a firm with more than 1 million workers, things like that could happen.
Apple is no stranger to fraud: in April, two students were charged with defrauding it out of about $1m by abusing its warranty policies.
And last year, a crime syndicate in Shenzhen, China reportedly conned Apple out of a large sum of money in a very similar scam.
Foxconn has in the past faced charges of breaking Chinese labour laws, and in the US it was involved in various controversies linked to factory and hiring promises.