DJI, one of the top drone manufacturers in the industry, recently announced it fired some of the company employees after fraud cases that could cost the company millions of dollars if the information becomes public.
The company also stated it conducted an internal investigation and found that some employees inflated the cost of certain product materials and components for personal gain. DJI also made it clear that it contacted law enforcement regarding the incidents and that it would strengthen its internal controls. The matter now goes into the jurisdiction of the Shenzhen police, the city where the company is based.
SZ DJI Technology Co Ltd is the world’s largest drone maker and a privately-held company. According to its latest report, the company employed roughly 12,000 people at the end of 2018 and was planning on increasing its staff to 14,000 employees by the end of 2019.
Fraud: Legal Definitions
Legally speaking, fraud is considered the deliberate deception to achieve some gain or to deprive a victim of a legal right. The U.S. recognizes two main types of fraud: civil (in which case the victim sues the perpetrator directly to recover damages) and criminal (the government persecutes the perpetrator).
Furthermore, according to the U.S. Code of law, the perpetrator must fall within the following categories for an offense to be considered fraud:
- Falsify, conceal, or cover up a material fact on purpose;
- Make a materially false or fraudulent statement or representation;
- Make use of any false document knowingly.
According to a specialty fraud attorney, the penalty is a fine and up to 5 years imprisonment in most cases. However, if the case of fraud also involves an act of international or domestic terrorism, the penalty increases dramatically.
But since the company in question is based in China, it falls under the jurisdiction of Chinese law, which has strict provisions and penalties for the criminal act of fraud. Critics note that although China has the legal framework to prosecute these crimes, they are not generally enforced.
Fraud in China
The Chinese government seems to tolerate, at least partially, the act of fraud among its companies. The Bank of China recently disclosed that it was collaborating with U.S. government to recover half a billion dollars embezzled by managers who ran to America, but experts believe this is only part of what’s currently happening in the Chinese market.
Legally, the Chinese legal framework establishes multiple offenses as fraud:
- The unlawful raising of funds;
- Using forged documents for financial gains;
- Defrauding financial institutions;
- Insurance fraud;
- Credit card fraud.
If the police investigation conducted by the Shenzhen police finds the DJI employees guilty, they may be facing criminal prosecution by the Chinese government. The penalty itself will depend on how the authorities will interpret the seriousness of the crime. The company itself may also be facing prosecution if it is determined it has previous knowledge of the fraud.
But so far, the evidence seems to point in the other direction. The crimes were uncovered after DJI’s internal audit in 2018, after which it conducted an internal investigation and contacted the authorities. It is estimated that almost 100 people are involved, and 45 current and former employees have been put under official investigation.
The company loses are estimated at a CNY1 billion (roughly $150 million), which means those found guilty may be facing tens of years or even life in prison according to Chinese law. Moreover, depending on the circumstances of the cases, perpetrators can also have their property confiscated and face a fine.
China is no stranger to fraudulent cases, whether it’s conducted Chinese companies, or even international companies only based in the country. Given past examples, it’s difficult to predict how the case of DJI will play out, though it seems that at least from the company’s side, there are some measures taken to get to the bottom of thing