Apple is investigating an alleged fraud by some Foxconn executives who used substandard iPhone parts to assemble iPhones for sale, amounting to an incredible T$1.3billion ($43 million) over three years. Foxconn, the electronics maker, said on Wednesday, December 18, that it had opened an investigation into alleged iPhone fraud by employees selling defective parts, Chinese media reported.
A Taiwanese businessman is said to have worked with executives at Foxconn’s Zhengzhou plant to acquire and assemble defective iPhone parts and sell them under the guise of “iPhone products made at a Chinese production site”.
Typically, defective parts are destroyed in accordance with normal procedures. The businessman and his gang have profited from the illegal transactions, allegedly making T$1.3bn ($43m) in the past three years.
The case is largely about the management team responsible for destroying defective parts arranging for them to be sold to a group involved that assembles them into iPhones and sells them to unsuspecting buyers. A local report said the fraud was discovered and reported to Apple, which has launched a formal investigation.
An email showed that the investigation was led by Apple’s Business Assurance and Audit team, which reports directly to the company’s board of directors. One whistleblower appeared to have emailed Cook to report the fraud. Foxconn has yet to comment, but Mr Gou, the former chairman, has been accused of privately saying it was not surprising that there had been an “unreasonable incident” involving a small number of employees at a company with more than a million employees.
The iPhone has been at the center of many fraud cases because of the high price of the iPhone. There have also been criminal gangs suspected of using shanzhai iPhones in exchange for genuine products from Apple, causing more than $6 million in damage.