Saturday, May 05, 2012

This time fraud uncovered inside Taobao

Taobao, Alibaba's B2C e-commerce platform, has been hit by internal fraud. Last year, Hong Kong-listed Alibaba.com faced a similar scandal which led to the resignation of the CEO and COO.

Now Taobao employees have reportedly taken bribes to delete negative comments about certain online merchants.Tao Ran, vice president of Alibaba Group, stated in an interview with Xinhua:

"As Taobao is like a virtual society, it is unavoidable for some businessmen to obtain illegal profits there by getting involved in bribery. People sometimes get lost when being faced with the temptation of money, but they are just the minority."

But the issue is not that there are dishonest businesses out there. Everyone can reasonably expect that. The issue is that this is the second time in a year fraud has been exposed within Alibaba itself. That demonstrates a lack of internal controls which is not acceptable. And it comes little more than a year after fraud on Alibaba.com shook the leadership of the group.

It seems likely that the group's management has been distracted by its shareholder fight with Yahoo Inc. and by its curious plans to privatise Hong Kong-listed Alibaba.com (less than 5 years after the company's IPO). If Alibaba cannot control internal fraud on its various platforms, user confidence will quickly erode. Of course with Taobao's 75% market share, at this point users do not have much of an alternative. But that can always change...



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