Why Supply Chain Corruption Cases Are Frequent: Involving many industry giants, DJI claims losses exceed one billion yuan

The well-known listed company Lens Technology Co., Ltd. (hereinafter referred to as “Lens Technology”) recently exposed the supply chain bribery scandal. According to the verdict issued by the People’s Court of Liuyang City, Hunan Province on August 31, Zheng Qiuli, the former assistant to the chairman of Lens Technology, accepted bribes of more than RMB 5.54 million from a number of suppliers and was found guilty of bribery by non-state employees in the first instance and sentenced to 7 years . Prior to this, the Liuyang court also sentenced another Lensi technology employee corruption case: 4 employees were sentenced to 10 months to 3 years and 10 months for accepting bribes of approximately 1.16 million yuan from suppliers.

Recently, many well-known companies have issued anti-corruption announcements to investigate and deal with internal corruption incidents, including Baidu, JD, Tencent, Meituan, Xiaomi, Didi, and many other industry giants. The details of the relevant cases are shocking.

On May 19 this year, a judgment of the Shenzhen Intermediate People’s Court exposed the “tip of the iceberg” of internal corruption in the drone giant Shenzhen DJI Innovation Technology Co., Ltd. (hereinafter referred to as “DJI”): the purchasing manager paid 5% Proportion of the purchase amount received from the supplier’s benefits, as much as 3.6 million yuan.

It is worth thinking about why corruption in the supply chain continues to be banned repeatedly?

After the supply chain corruption case broke out, DJI pointed out in an open letter: In the industry, corrupt officials and some suppliers have formed a “safe haven” for mutual protection. The problems have been investigated and exposed, but the suppliers would rather lose Companies are unwilling to assist in the fight against corruption for subsequent orders, and instead recommend dismissed corruption-related personnel to other companies for continued benefit transfer.

Why Supply Chain Corruption Cases Are Frequent: Involving many industry giants, DJI claims losses exceed one billion yuan 1

30 bribery of the former assistant to the chairman of the post-80s

Lens Technology is well known as the core supplier of Apple glass cover. Since its listing on the GEM in 2015, it has been sought after by the secondary market for its “Apple Supplier” and “Sapphire Concept”. Founder Zhou Qunfei once became the richest woman in China on the Hurun Women’s Rich List.

As a link in the entire Apple supply chain, Lens Technology also has many suppliers. Faced with the huge amount of money temptation from downstream suppliers, the people around the chairman failed to control: In June 2019, Zheng Qiuli, who was an assistant to the chairman of Lens Technology, was found to have accepted huge bribes from suppliers.

According to the judgment of the Liuyang Court, Zheng Qiuli, born in the 1980s, served successively as Director of Purchasing Department of Lens Technology Liuyang Park, Director of Purchasing Department (Combination of the Three Parks), Assistant to the Chairman, and Director of Central Purchasing Department from February 2014 to May 2019. And other positions.

During this period, Zheng Qiuli took advantage of her position to accept many times from Shenzhen Kebiao Purification Equipment Co., Ltd. (hereinafter referred to as Kebiao), Hunan Hanyu Technology Co., Ltd. (hereinafter referred to as Hanyu), Shenzhen Di Fulan Technology Co., Ltd. (hereinafter referred to as Di Fulan Company), Dongguan Huinuo Electronic Materials Co., Ltd. (hereinafter referred to as Huinuo Company), Dongguan City Chuangke Material Technology Co., Ltd. (hereinafter referred to as Chuangke Company), Shenzhen Jing Yi Machinery Hardware Equipment Technology Co., Ltd. (hereinafter referred to as Jingyi Company) property, totaling 5,541,460 yuan.

The verdict showed that the relevant supply chain benefits are huge, and Zheng Qiuli is also courageous enough to accept bribes from suppliers 30 times, and accept a company up to 2.5 million yuan.

The court found that, in 2013, Kebiao undertook a batch of purification projects for Lansi Technology Langli, Xingsha, and Liuyang Park, and advanced funds. From February 2014 to March 2015, in order to get the project funds as soon as possible, the deputy general manager of the company Zeng Mou gave Zheng Qiuli a total of 331,000 yuan in cash five times.

In the second half of 2017, Hanyu Company intends to sell damping cloth and other accessories to Lens Technology. The general manager of the company Wan Mou approached Zheng Qiuli and asked her to provide assistance during the product introduction process. From the second half of 2017 to May 2019, Wan Mou gave Zheng Qiuli a total of 400,000 yuan in cash three times.

In January 2017, Defulan became the polishing fluid supplier of Lens Technology. From September 2017 to January 2019, in order to increase sales and maintain the price, Defulan’s shareholder Liu Mou gave Zheng Qiuli a total of 2.5 million yuan in cash 14 times.

At the beginning of 2017, Huino became the supplier of Lens Technology polishing fluid. From October 2017 to 2018, in order to speed up the payment of goods, Huinuo’s former legal representative, current major shareholder, and general manager Guo gave Zheng Qiuli a total of 220,000 yuan in cash four times.

In 2014, Innovation Technology became a supplier of Lens Technology’s abrasive materials. From June to July 2018, in order to increase sales and maintain the price, Gao, the legal representative of Innovation and Technology Corporation, gave Zheng Qiuli a total of 1.6 million yuan in cash twice.

In June 2017, Jingyi became a supplier of mechanical parts for Lens Technology. From December 2018 to February 2019, in order to increase sales and maintain the price, Mr. Yu, the person in charge of Jingyi Company, gave Zheng Qiuli a bank card, and paid a total of 490,460 yuan to the card twice.

The verdict showed that Zheng Qiuli’s illegal income returned was nearly one million yuan more than the bribe that was found by the court.

On August 12, 2020, the Liuyang Court ruled that Zheng Qiuli was guilty of accepting bribes by non-state employees and sentenced him to 7 years in prison; the returned illegal income of RMB 6,456,443 was confiscated according to law and turned over to the state treasury.

Supplier’s “competitive advantage”

It is worth noting that, one year before the Zheng Qiuli case, another case of employees accepting bribes from suppliers occurred in Lens Technology. The verdict obtained by The Paper shows that in order to gain a competitive advantage, the supplier has paid bribes to many people from Lens Technology.

The Liuyang court found out that Yu Hongfeng, an employee of Lens Technology’s Engineering Technology Department responsible for the development and verification of mobile phone protective films, used his position as a supplier to Lens Technology from June 2015 to June 2018. When providing mobile phone protective film samples, by timely feedback of the sample verification status, informing the problems of the sample and improvement methods, etc., the samples of Elite Company can successfully pass the verification in the shortest time among all the samples provided for verification, and obtain a competitive advantage. Elite Company obtained a large number of orders from Lens Technology.

In order to thank Yu Hongfeng for his care, Elite Company paid a commission to Yu Hongfeng based on 1% to 3% of the project turnover of the order. During this period, Yu Hongfeng successively accepted bribes from Elite Company totaling 680,000 yuan. Yu’s wife Xu Chang knew that the above payment was a bribe received by Yu Hongfeng, and she still provided Yu Hongfeng with the bank cards of herself and her mother and cousin, and helped transfer and conceal the funds.

In October 2017, due to a business trip to Vietnam, Yu Hongfeng paid a portion of the bribes received from Elite Company to his colleague Tao Deren who was in charge of related projects. Tao Deren helped Elite Company to provide project samples successfully passed the verification in the shortest time. Obtain an order for the project. From November 2017 to June 2018, Tao Deren and Yu Hongfeng received a total of about 160,000 yuan in bribes from Elite Company, of which Tao Deren received about 80,000 yuan.

Another employee of Lens Technology Engineering Department, Liu Ming, who is responsible for the development and verification of mobile phone protective film, helped Elite Company in a similar manner from the end of 2015 to May 2016, and received more than 300,000 bribes from Elite Company. yuan. In May 2016, after Liu Ming resigned from Lens Technology, in order to continue to help Elite Company maintain the goods supplied to Lens Technology, after obtaining the consent of Elite Company, Liu Ming approached Yin Yuan, an employee of Lens Technology’s technical department. In consultation, Yin Yuan took advantage of his position to ensure the normal supply of goods for the project through timely feedback of the situation and notification of improvements. During this period, Yin Yuan received about 100,000 yuan in bribes from Elite Company.

On May 20, 2019, Liuyang City People’s Court sentenced Yu Hongfeng to 3 years and 10 months’ imprisonment, Liu Ming’s 1 year and 6 months’ imprisonment, Tao Deren’s 1 year’s imprisonment, and Yin Yuan’s 10 months’ imprisonment for the crime of bribery of non-state staff. month. Xu Chang was guilty of concealing and concealing his criminal proceeds and was sentenced to 3 years in prison and 4 years of probation.

On July 17, 2019, the Changsha Intermediate Court upheld the original verdict in the second instance.

Purchasing manager’s “rebate” and REP model

The Paper found that in another case of supply chain corruption similar to Lens Technology, the so-called “REP model” evolved: an intermediary directly talks to the supplier’s boss, and very few people know the matter.

On May 19 this year, the Shenzhen Intermediate People’s Court announced a ruling that exposed this “hidden rule” of internal corruption of the drone giant Shenzhen DJI Innovation Technology Co., Ltd.

The two defendants in the case, Lu Long, born in 1988 and Itami, born in 1982, were originally the purchasing managers of DJI. Lu Long worked at DJI from 2015 to July 2018, and Itami from February 2015 to May 2016. During Itami’s tenure, Weixinrui was introduced as a supplier of DJI. After Itami left, Lu Long took over and was responsible for Weixinrui’s procurement business.

In the first half of 2016, after Lv Long discussed with Itami, Itami asked Lin, the general manager of Weixinrui Company, for the benefit fee, and proposed to charge it at 5% of the purchase amount. Lin agreed after consideration and arranged for the company accountant Lin Yingmei. After receiving the payment from DJI, 5% of the payment amount was used as a benefit fee and transferred to Itami’s personal account.

The court found that between July 2016 and August 2018, Weixinrui Company made 28 transfers of RMB 3,482,288 (the same currency below) to Bank of China’s Itami account, and one transfer of RMB 144,500 from Lin’s account to Itami’s account. , A total of 3626788 yuan was transferred. Itami gave Lu Long more than 1.39 million yuan. Lin stated in the witness testimony that according to Itami, the 5% benefit fee will not only be allocated to Lu Long, but also to quality management personnel, R&D personnel, and staff who place orders.

The direct effect of bribery is a soaring purchase amount for suppliers.

According to the supplementary explanation issued by DJI, from December 2015 to June 2016, the average monthly purchase amount of DJI from Weixinrui Company was maintained at about 215,000 yuan; from July 2016 to August 2018 (The month that Lu Long left his job) The average monthly purchase amount remained around 3.648 million yuan, and the average purchase amount soared 16.9 times. According to the statement of DJI’s client, as of the time of reporting, the total purchase amount involving the Lu Long and Itami cases amounted to approximately 75 million yuan.

According to Lu Long’s confession, he was sent to DJI after signing a labor contract with Zixiang Technology Co., Ltd. in Hong Kong in 2014. In 2015, he was transferred to the post of purchasing manager and met Itami in the same year.

“Itami invited me to dinner, complaining that the procurement job was disgusting, and he had no power or status. I asked if I had thought about making some extra money. I asked him how to make money in such a low position. He asked him if he was safe. Talk to the supplier’s boss, not with other people. There are very few people who know things and it’s very safe. He said that this model is called the REP model. He acts as an intermediary and nothing happens to me.” Lu Long confessed Said: “Regarding the rebate points, Yidan told me that Weixinrui Company is a capacitor manufacturer. Let me do this and give me 1-2 points of rebate. I don’t know how much he takes.”

The court found that both Itami and Lu Long cooperated with each other under the domination of common interests and had a clear division of labor. They both committed the crime of bribery by non-state officials and were the principal offenders in the joint crimes. In the first instance, Lu Long was sentenced to 5 years in prison and Itami was sentenced to 2 years and 6 months in prison. During the second instance of Shenzhen Intermediate People’s Court, DJI issued a “Letter of Understanding” for Itami, believing that he had a better attitude toward pleading guilty, and took the initiative to compensate the company for losses, and requested the judicial authority to impose a light sentence. The Shenzhen Intermediate People’s Court commuted Itami to a fixed-term imprisonment of 1 year and 6 months, and the sentence of 5 years for Lu Long’s first instance was upheld.

1 billion loss: supply chain corruption causes purchase prices to be 20% higher

The corruption case of DJI’s purchasing manager was reported from reports.

According to the above verdict, in August 2018, the Legal Department of DJI received an anonymous letter of reporting that a former employee of the company, Itami, had colluded with the company’s procurement officer Lu Long, and sent huge bribes to Lu Long through the bank account several times in order to seek for suppliers. interest.

DJI’s internal investigation found that after Itami left his job, Lu Long placed orders with the supplier several times, and the purchase amount increased from more than 300,000 yuan to more than 30 million yuan per year. After learning that DJI had started an internal investigation, Lu Long offered to resign at the end of August 2018.

Lu Long, who intended to escape punishment by leaving his job, failed to do so. Soon, DJI filed a report to the public security organs and launched a massive company anti-corruption storm.

On December 26, 2018, Shenzhen Nanshan Police Station sent officers to Fanhai Square, Qianhai Road, Nanshan District to capture Lu Long. On January 10, 2019, After receiving the notice, Itami surrendered to the police station.

Just a week after Itami was investigated, on January 17, DJI issued an “anti-corruption announcement” that shocked the industry. In this internal announcement, DJI even used terms such as “shocking” and “tip of the iceberg” to describe the incident, and stated that it “is expected to involve more than a hundred people” and the amount involved exceeds hundreds of millions of yuan.

DJI once issued an open letter on its official response to corruption. Source: Network screenshot

DJI once issued an open letter on its official response to corruption. Source: Network screenshot

The announcement pointed out that after DJI’s investigation, in the decision to introduce suppliers, some personnel in the R&D, procurement, and quality control departments had a lot of corruption; sales, administration, after-sales departments and factory personnel also used their power and process loopholes to obtain Personal interest. The anti-corruption announcement showed that DJI handled 45 employees suspected of corruption and malfeasance. Among them, the number of R&D and procurement personnel involved in supply chain decision-making corruption was the most, with a total of 26; sales, administration, after-sales, and factories totaled 19. 16 people were transferred to justice for serious problems, and 29 people were directly expelled.

The details of corruption in the Lu Long and Itami cases also confirmed the statement that “purchasing belongs to the worst-hit area of ​​corruption” mentioned in the “Anti-Corruption Announcement” of DJI.

DJI announced that in 2018 alone, due to supply chain corruption, the average purchase price of DJI exceeded a reasonable level by more than 20%. High-priced materials were 20%-50% more expensive, and many low-priced materials were expensive. Sold to the company at 2-3 times the price. The company’s loss is conservatively estimated to cause more than 1 billion yuan. “Every cent of the lost 1 billion yuan is a net profit. We could have used it to invest in company development and employee welfare, but it was lost due to corruption.”

In the anti-corruption announcement, DJI also disclosed several main methods used by procurement personnel in supply chain corruption:

1. Ask the supplier to quote the reserve price, and then cooperate with the supplier’s contact person to increase the price, and the price increase will be shared by both parties in proportion;

2. Use the power in hand to designate suppliers on the grounds of technical specifications or deliberately kick out normal suppliers on the grounds of technical non-compliance, and put suppliers who can give a certain percentage of rebates into the short list. Long-term rebates;

3. Deliberately use price cuts as an excuse to eliminate all normal suppliers and allow suppliers who can give rebates to be shortlisted. After entering the shortlist, an exclusive monopoly will be formed, and then the price will be increased and the two parties will share;

4. Use internal information and power to introduce poor suppliers, and collude with suppliers to buy R&D personnel, and do not perform material verification if the quality is unqualified. Lead to exclusive supply of poor quality and high price materials for a long time;

5. Collusion between inside and outside to set up a leather bag company, use the power in hand to take the order from the bag company, transfer the order to the factory, and share the price difference between them.

Why does supply chain corruption continue to be banned repeatedly?

In recent years, corruption and anti-corruption cases involving well-known companies have been frequently exposed, including Baidu, JD, Tencent, Meituan, Xiaomi and many other industry giants that have reported employee corruption incidents.

On August 24, 2018, issued an anti-corruption announcement, announcing 16 typical cases of anti-corruption of Group. Among them, 3 employees were suspected of accepting bribes and were suspected of “non-state staff bribery”, 4 were dismissed and criminalized by public security organs Detained, the remaining 12 personnel were dismissed.

According to the Beijing News, on July 18, 2019, Xiaomi issued a notification email saying that Hao Liang, a former employee of the marketing department in China, took advantage of his position to hand over the company’s business to a company in which his close relatives hold shares, which harmed the company’s interests; Zhao Qian, an employee of the district marketing department, used the convenience of his position to ask for a benefit fee from the cooperative supplier. The amount was relatively large and harmed the company’s interests.

In response to these two corruption incidents, Xiaomi’s approach was: dismiss the personnel involved and never hire them; refund the improper profits, confiscate all options, transfer the suspected illegal personnel to the public security organs, and join the blacklist of employee dishonesty. Zhao Qian was arrested by the public security organs.

On June 16, 2020, Didi disclosed a major corruption and fraud case-Yu Mousheng, the former senior director of a certain department of Didi, used his position to facilitate illegal provision of “help” to suppliers during his tenure, and received huge benefits and fees from suppliers. Shopping cards, cars, etc. Yu Mousheng has been taken criminal coercive measures.

The announcement also stated that since 2020, the Didi Risk Control and Compliance Department has coordinated with multiple departments to investigate and deal with 17 fraud and violation cases, involving 30 violations, of which 20 were dismissed by the company for serious violations, and 2 were suspected of being involved. The violation was transferred to the judicial authority.

In the same month, Bytedance also exposed a corruption case. Specifically, the internal audit found that since 2017, the former head of administrative catering has involved more than 10 million yuan in total; since 2018, the former head of EA has been involved in more than 6 million yuan.

It is worth thinking about why the supply chain corruption continues to be banned repeatedly?

“The job corruption problem faced by DJI does not just occur in a certain company, but it makes all walks of life gritted their teeth and feels powerless.” After the anti-corruption storm, DJI once posted on its official website “About Opposing Job Corruption”. “The open letter” further expresses helplessness. “In the industry, corrupt officials and some suppliers have formed a “safe haven” for mutual protection: the problem has been investigated and exposed, but the supplier would rather lose the company’s follow-up orders than help To combat corruption, on the contrary, the dismissed corruption-related personnel are recommended to other companies for further benefit transfer.”

The open letter reads: How much impact can job corruption have on the entire industrial chain? From the procurement of raw materials, processing of semi-finished products to finally becoming available parts for the company, even if the corruption in each link only increases the procurement cost by only 5%~10%, when it reaches the company through the three-tier industrial chain, the cost increases invisibly by 16%~33 %, it is shocking. Under the background that the country continues to reduce taxes and fees to optimize the business environment, the huge hidden costs of enterprises due to job corruption have become a huge obstacle that China’s technology manufacturing industry and even China’s innovation must face. Correspondingly, only a few very mature companies can limit job corruption to a relatively small range after long-term training and multiple management iterations; most companies are still on the way to achieve this goal. Challenges continue to explore.

For this reason, the founder of DJI Company called for strengthening the construction of the integrity of enterprise employees, and through the cooperation of the enterprise and the government, the establishment of a “integrity archive database of employees in high-risk positions” in the industry. Establish a lifetime reputation system to allow high-risk practitioners close to major capital and benefit resources to work in the sun. Through a complete work history of employers and an appropriate property declaration system, employees in high-risk positions can be subject to open and fair supervision.

The founder of DJI believes that this system can ensure that high-reputation professionals receive higher legal salary returns and more respected career achievements; at the same time, it eliminates speculators with incorrect values, thereby forming a benign “high salary and honesty” cycle.