Sophisticated Fraud Scheme in Shenzhen Costs Apple Billions

By Jonathan Zhong, October 11, 2018

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Are you an iPhone user in Shenzhen? Are you constantly bringing your phone to be repaired? 

Well, Apple have just revealed details of a criminal scam which set the company back billions over the past five years in warranty and repair costs.

According to Apple Insider, criminal organizations in Shenzhen uncovered a significant loophole in Apple’s warranty policy. The groups began removing fundamental iPhone parts before bringing the phones back to Apple Stores to seek replacements.

The criminal scheme dates back to May of 2013, when one Apple Store in Shenzhen experienced the most complaints ever recorded in one week, as 2,000 people brought their faulty phones back looking for explanations or repairs. Apple’s warranty dictates that such faults require the company to replace or to fix the phones at their own financial cost. 

The fraudsters then found a way to further capitalize on this by reselling the component replacements or using them to refurbish other iPhones in smaller Chinese cities. The criminal undertakings thereby cost the company billions over the past five years.

Statistics from Apple reveal that in 2013, the company’s budget for handling global warranty claims was USD1.6 billion, while by the end of the same year, the actual amount spent on refunds reached USD3.7 billion. 

Apple scientists set out to find the source of the problem and introduced a series of measures to combat these fraudsters. Customers were thus required to show proof of iPhone ownership when seeking a warranty claim. 

While the fraudsters also responded with a series of aggressive retaliations against Apple over the years, the US company has managed to significantly curb the scale of these criminal acts in China. The percentage of warranty frauds across the greater China region dipping from 60 percent down to just 20 percent this year, according to IdropNews

[Cover image via Pixabay]

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