(Editors note: this story was amended on June 30 to clarify that several e-commerce websites, not just Alibaba.com, were used to commit fraud, according to Chinese authorities)
In an unusually large Internet fraud case,Chinese police from the provincial capital of Hangzhou have arrested three dozen Putian City residents following a wide-ranging investigation into a sophisticated group of online scammers who duped overseas buyers out of more than $6 million.
Announced today at a press conference held by Hangzhou police, the investigation was carried out over a 40-day period last winter and spring, and targeted online scammers who posed as legitimate suppliers hosted by Hangzhou-based Alibaba.com’s international e-commerce website and several other sites. Alibaba.com assisted police in gathering evidence and identifying suspects.
The investigation culminated in a series of raids from April 11 to April 15 during which 50 Hangzhou police officers swept into seven residences and offices in Putian, located in China’s Fujian province. In the raids, which were supported by local authorities, police seized 35 computers, three vehicles, 60 fake identity cards and 137 bank cards computers; 36 people were arrested, said Hangzhou Police Bureau Deputy Chief Jin Jie. They are awaiting trial.
Hangzhou police accused the suspects of operating a criminal gang that used fake personal and business identities to open more than 100 “Gold Supplier” accounts on Alibaba.com. That allowed them to pose as legitimate companies selling to overseas businesses that source goods through the Alibaba website.The alleged scammersalso used other international trading websites including Made-in-China.com, EC21.com and ECPLAZA.net, according to police.
Internet scammers are becoming increasingly sophisticated in their use of Internet technology to cover their tracks while perpetrating international fraud, Jin said. Most of those arrested have college degrees and can speak and write English well,which madeit easier for them to trick unwary Western buyers into sending them money for goods—mostly consumer electronics—that were never delivered, authorities said.The alleged scammers worked together and each had very specific roles, police said. Some procured fake IDs, some were in charge of managing dozens of bank accounts while others communicated withbuyersonline.
Officials for Alibaba.com, which has been waging an aggressive campaign to root out scammers who use the trading website to commit fraud, hailed the investigation as a sign of progress. “The arrest of the suspects hits online scammers hard,” Alibaba.com CEO Jonathan Lu told reporters at the press conference, which was held in Hangzhou.
Because most online scams are for relatively small amounts of money and because it is often difficult to identify and physically track down suspects, police are usually reluctant to pursue Internet fraud cases, especially if they involve overseas buyers. “Since the amount is small, buyers won’t even bother to complain or report to the police,” said Jane Jiang, head of Alibaba.com’s Trust and Safety department.
Jiang estimated that the total amount of money taken in the Putian frauds at $6.6 million. Alibaba has so far paid $1.94 million from aspecial fund to compensate those who lost money to the alleged Putian scammers operating on Alibaba.com.
In the investigation, Alibaba.com staff gathered extensive evidence of illegal trading activity on the website before taking the details to Hangzhou police. Byworking with law enforcement, Alibaba officials hope to raise the odds that scammers using the website will face arrest, fines and even jail time, deterring further fraud. “We will continue to cooperate with defrauded buyers and police to pursue the investigation, arrest and sentencing of those who commit crimes using our platform,” said Linda Kozlowski, director of Global Marketing and Customer Experience for Alibaba.com. “If scammers think they can hide on the Internet and that no one will go after them, they are wrong.”
Albaba is trying to rehabilitate its reputation, which took a hit in February after the publicly traded company’s chief executive and chief operating officer resigned in the wake of an outbreak of fraud—sometimes abetted by Alibaba.com employees—on the website. The executives stepped down after Alibaba Chairman and CEO Jack Ma said they failed to prevent “a systemic breakdown of [Alibaba.com’s] culture of integrity.”
Since the resignations, the company has implemented a number of changes aimed at controlling the problem, including increased electronic surveillance of online activity on the website. The number of fraud complaints received monthly by the website declined by 70% between February and June, Alibaba officials said.
“We do not believe that the problem of Internet fraud can be solved through a one-off crackdown,” said Lu during the press conference announcing the Putian arrests. Lu, a former CEO of online retailing website Taobao who took control of Alibaba.com in February, promised to continue to use a variety of measures to “strike the criminal scams.”
