Years Later, Apple Has Finally ‘Dramatically Reduced’ Warranty Fraud in China

Apple's hero store in China

Apple is the world’s most valuable company with a slate of expensive devices that are typically in high-demand more often than not. Which makes it a pretty big target.

In a new in-depth report from The Information, a years-long effort on Apple’s part has been revealed as the company attempted to combat a iPhone fraud in China. It starts with a reflection on an event that took place in 2013, at Apple’s only physical retail store in Shenzhen at the time. According to the report, the storefront had to close down for a short period of time as it was inundated with customers looking for repairs on their iPhones. That store apparently logged more than 2,000 warranty claims a week, which was more than any other Apple retail store in the world.

Apple had to look into the matter, considering the high number, and the company revealed a sophisticated, large-scale fraudulent scheme being run against it. The report’s sources state that these rings of fraudsters were either buying iPhones, or outright stealing the devices, and then removing important pieces under the hood, including logic boards, display panels, and more, and replacing them with fake components. Which sometimes included gum wrappers:

“After some investigation, Apple discovered the skyrocketing requests for replacements was due to a highly sophisticated fraud scheme run by organized teams. Rings of thieves were buying or stealing iPhones and removing valuable components like CPUs, screens and logic boards, replacing them with fake components or even chewing gum wrappers, more than a half-dozen former employees familiar with the fraud said. The thieves would then return the iPhones, claiming they were broken, and receive replacements they could then resell, according to three of those people. The stolen components, meanwhile, were used in refurbished iPhones sold in smaller cities across China, two of the people said.”

It took Apple four years to make a dent, but, as the report indicates, Apple has “dramatically reduced” the rates of fraud related to repairs in China.

Interestingly, the report also indicates that while Apple obviously has to fight back against the fraudulent schemes, the company is wary to leverage local law enforcement for fear that it may lead to a negative image within the country. Apple was fighting an uphill battle back then in China, and still is to this day, between its own warranty options that weren’t too great for customers in the area at the time, and Chinese smartphone companies that are eating up market share.

This effort is likened to a car “chop shop”, where the original model cars are taken apart, piece-by-piece, and then those parts are sold off. Apparently some fraudsters would actually stand outside Apple’s stores with suitcases filled with iPhones, most of which were already installed with fraudulent parts, and have people they hired to return the devices.

“Thieves would stand outside stores with suitcases full of iPhones with some of the original components stripped out and replaced with inferior parts, two of the people said. The fraudsters would hire people to pretend to be customers to return them, each taking a device to stand in line at the Genius Bar, the people said. Once the phones were swapped, the actors would pass the new phones to the fraudsters and get paid for their time, the people said.”

The fraudsters actually went above and beyond, too, even gaining Apple customer information to try and line up their devices with serial numbers and warranty information, even with the fraudulent pieces inside. The police in China have indeed broken up rings of data thieves in the region, which have been acquiring Apple customer data.

The fraudulent efforts are not stopping, and the report indicates that while Apple may have gained a strong foothold in China, it is seeing nefarious activity in other regions where it is starting to launch its devices. And let’s not forget that rings of thieves are in the United States, too, as a recent report revealed following several arrests and arrest warrants being issued.

The full report is definitely worth checking out through the source link below.

[via The Information]