By Star Chang, posted Feb 23, 2011 at 2:19 PM, 985 views,

Alibaba’s Sellers Committed Fraud

China’s largest e-commerce website, Alibaba.com, has disclosed widespread fraud on its online marketplace that connects mostly China suppliers with buyers around the world. The company disclosed that more than 2,300 of its suppliers engaged in fraudulent sales, with the help of Alibaba sales staff. The fraud often involved the sale of popular consumer electronics products at unusually low prices with low minimum order requirements. The company has fired about 100 sales representatives who allegedly involved in defrauding customers, and the CEO and COO of the company has resigned too…

Alibaba.com was founded in 1999 by Jack Ma. It has become one of the world’s largest business-to-business platforms in the world, with more than 56 million registered users in more than 240 countries and regions, linking sellers of Chinese manufactured goods to millions of wholesalers overseas. The company is about 40% owned by Yahoo.

The fraud disclosed involved mostly Chinese manufacturers and wholesalers that sell to companies outside of China on Alibaba.com. But it was more damaging because the suppliers involved had obtained the certification of China Gold Supplier, which means that they had been certified as legitimate by an outside auditing company. Alibaba says it investigated after noticing an increase in complaints of fraud by buyers using its websites in late 2009. Between late 2009 through 2010, a total of 2,326 Alibaba China Gold Suppliers were found to have committed fraud when selling goods to users. The result is that some buyers were duped into doing business with fraudulent companies, in some cases paying for goods they didn’t receive. The average amount of fraud involved in the cases was less than US$1,200, Alibaba did not gave the total amount involved.

Alibaba usually requires vendors to provide business-registration documents to set up storefronts on the site. But some vendors submitted fake business registration licenses with the help of the company sales staff. Alibaba claimed that they are working with law enforcement to go after suppliers that engaged in intentional fraud and willing to assist buyers who were defrauded. They will also terminate sellers who were fraudulent or who demonstrate a high probability to commit fraud, and hope for the voluntary clean-up of membership base to improve the overall supplier quality on their marketplace.

Alibaba is a significant source of products for retailers and wholesalers around the world, the fraud disclosure is sure to make western retailers even more cautious about buying from China suppliers. Fraud like this is not common on the online business-to-business exchanges where retailers find overseas suppliers, it will effect both buyers’ and suppliers’ confidence in other exchanges as well.

Source: Shanghai Daily, WSJ, Internet Retailer