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Alibaba Falls Prey to Fraud

Alibaba employees allowed either intentionally or negligently the creation of fraudulent ‘store-fronts’ by letting over 2,000 suppliers evade authentication and verification measures with the consequence that some buyers were defrauded.  Alibaba stated that this was an organized attack on the company’s integrity for illegal gains.  Approximately 100, out of a workforce of 14,000, which were involved in these scams were fired. 

Two of Alibaba’s top executives, Chief Executive David Wei, and Chief Operating Officer, Elvis Lee resigned although they were not implicated in the scam.  That was a noble act under the circumstances, but the unfortunate aspect of this debacle is that Alibaba will be denuded of executive talent medium term.  It also comes at a time when Chinese regulators are putting the online payment industry under close scrutiny.  Alipay, a subsidiary of Alibaba.com is China’s leading independent third party online payment platform.

Alibaba operates as an e-commerce platform to facilitate transactions between buyers and sellers predominantly in the SME space.  To keep its service reliable it acts also as a custodian of supplier reliability by conducting supplier authentication and verification.  It appears that Alibaba was slow in responding to increasing complaints from the buyer community and it took nine months to take serious actions.   In essence it came short on corporate governance and compliance.  This is a serious setback for a company which was highly successful in creating an e-commerce platform when many companies failed during the initial dot.com bust.  Source:  Alibaba and Press Reports

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