Foxconn Executives Arrested in Bribery Scheme

At least a dozen executives from Foxconn Technologies — the Taiwanese company most famous for being a main Apple (NASDAQ:AAPL) supplier and forcing its employees to work under highly questionable conditions — have been arrested on the suspicion that they accepted bribes from other iPhone suppliers. The arrests were first reported by Chinese-language site TenCent Technology.

According to a report from AppleInsider, suppliers to Foxconn were forced to give 2.5 percent of their sales in kickbacks and offer additional bribes with each order. The scheme seems to have been started by Foxconn’s retired senior vice president Liao Wancheng. Another executive named in the case is the man in charge of Foxconn’s Committee of Surface Mount Technology, Deng Zhixian.

The investigation into the case has been going on for about a year. It is estimated that the culprits funneled hundreds of millions of New Taiwan Dollars into offer shore accounts set up as dummy corporations, AppleInsider said. Foxconn told the New York Times that it will cooperate with the investigation, which it said only affects a small portion of its business. “Foxconn holds our company, our employees, and our suppliers to the highest standards in responsible business practices and the results of our internal audit have driven a number of enhancements to our company’s procurement policies to ensure that such violations cannot be repeated,” Foxconn said in a statement seen by the Times.

While Foxconn is known as a flexible company that can get products to market quickly and reliably, it has suffered from an image problem since a group of worker suicides at its factories in China in 2010. Foxconn, part of Hon Hai Group, is based in Taiwan but performs most of its operations at huge factories operated in China. Earlier this month, equity research firm standpoint research downgraded Apple’s stock on the grounds that the company and its suppliers treat their employees terribly.

“For Apple Computers to pay their workers $2 an hour while they have $150 billion in the bank is nothing short of obscene,” wrote Standpoint Research analyst Ronnie Moas in the note seen by StreetInsider. “They have workers who are doing back-breaking and eye-burning work in depressed states of mind and in many instances have already committed suicide. Instead of treating their employees like human beings, they are treated like animals.”

After all the bad press that came with the worker suicides, Apple joined the Fair Labor Association. The most recent FLA report released in December found that Apple and Foxconn were doing a good job adhering to the FLA’s protocols, although they still hadn’t done enough to ensure that employees don’t work excessive hours.

Foxconn is most well-known for supplying Apple, but it is also a supplier for other U.S. tech companies. Most recently, the struggling smartphone maker BlackBerry (NASDAQ:BBRY) announced a deal with Foxconn to manufacture and distribute BlackBerry devices to consumers in developing countries. The deal boosted BlackBerry’s stock, as passing inventory management over to Foxconn made the company less vulnerable to the inventory write downs that have plagued its financials. Now it remains to be seen how the bribery charges against senior executives will effect Foxconn’s operations as a whole.

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