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Apple's Foreign Suppliers Demonstrate Widespread Scamming and Horrific Abuse of Employees

Apple's bombshell report on its suppliers shows anti-employee practices as common as iPods. White collar criminologist William K. Black investigates.

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Anti-employee control fraud creates real economic profits for the firm and can massively increase the controlling officers’ wealth. Honest firm normally cannot compete with anti-employee control frauds, so bad ethics drives good ethics out of the markets. Companies like Apple and its counterparts create this criminogenic environment by selecting least-cost – criminal – suppliers who offer components at prices that honest firms cannot match. Effectively, they hang out a sign – only the fraudulent need apply to be suppliers. But the sign is, of course, invisible and cannot be introduced in court so Apple and its peers also get deniability. They are shocked, shocked that its suppliers are frauds that cheat their employees and put them and the public’s health at risk in order to make a few extra yuan or dong for the senior officers.

Fraudulent suppliers, therefore, have compelling incentives to locate in nations and regions in which they can commit fraud with impunity. The best way to evaluate the fraudulent CEOs’ view as to the risk of prosecution for their frauds is to observe whether they take cheap means of hiding their frauds. When the CEOs do not even bother to avoid creating a paper trail documenting their frauds one knows that they view the risk of prosecution as trivial. Nations that are corrupt, have weak rule of law, weak or non-existent unions, poor protections for workers, a reserve army of the impoverished, and have few resources devoted to prosecuting elite white-collar crime provide an ideal criminogenic environment for firms engaged in anti-employee control fraud. The ubiquitous nature of anti-employee control fraud (and tax fraud) in many nations explains why U.S. industries have been so eager to “outsource” U.S. jobs to fraud-friendly nations. Companies like Apple also discovered long ago that Americans often made poor senior managers in these nations because they objected to defrauding workers. Not a problem – there are plenty of managers from other nations that have no such ethical restraints. Foreign suppliers run by Asian managers are increasingly dominant.

The endemic nature of anti-employee control fraud also demonstrates an important technical point. The wages reported in the most fraud-friendly nations are substantially overstated because workers work far longer hours without receiving the compensation to which they are entitled. Their hourly rate is much lower than reported, which means that the wage gap between U.S. and the most fraud-friendly nations is significantly greater than reported. U.S. firms that have foreign suppliers in these nations are well aware of this data bias and make their outsourcing decisions based on the real (much larger) wage gap.

The Harm to Employee and Consumer Health is Grave

TheNYT article notes that it was bad publicity in the U.S. that finally forced Apple to make greater disclosures about its suppliers’ frauds:

The calls for Apple to disclose suppliers became particularly acute after a series of deaths and accidents in recent years. In the last two years at firms supplying services to Apple, 137 employees were seriously injured after cleaning iPad screens with n-hexane, a toxic chemical that can cause nerve damage and paralysis; over a dozen workers have committed suicide or fell or jumped from buildings in a manner that suggests a suicide attempt; and in two separate blasts caused by dust from polishing iPad cases, four were killed and 77 injured.

The Washington Post article noted:

Apple found that 62 percent of the 229 facilities it inspected were not in compliance with the company’s maximum 60-hour work policy; 13 percent did not have adequate protections for juvenile workers; and 32 percent had problems with the management of hazardous waste.

 
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