Part I & II of our expose on Amazon fraud showed how it has become open season for companies listing fake Amazon reviews. After outlining the extent of the massive scam, we argued in detail how Amazon is providing and sanctioning the world’s biggest fraud with an estimated 25% fake reviews across the online retailer’s platform. Fakespot, a company that analyzes fake reviews, claims 30% of all reviews on Amazon are fake.
Now we want to describe how this rot at Amazon has metastasized.
In 2017, Amazon started a major push into the Chinese market. At that time the company had over 200,000 Chinese businesses selling on their site and that number could be double or triple today. If you have any question that Amazon is promoting Chinese businesses, notice their pages often contain no English except the words “Amazon seller.” One of the many ways Amazon actively recruits more sellers is by routinely holding summits in Mainland China, and even registered with the Federal Maritime Commission to provide ocean freight. This greatly simplifies the process for Chinese companies to ship goods directly to Amazon fulfillment centers, cutting costs and the inefficiencies of middle men.
With the massive influx of Chinese trade, Amazon also saw a corresponding increase in fake reviews, counterfeit products, and fake companies (the Chinese call them “stealth companies”). In China they say about Amazon that the “word is out in the counterfeit community that it’s open season on Amazon,” according to Chris Johnson who focuses on intellectual property and brand enforcement.
“Amazon is making money hand over fist from counterfeiters, and they’ve done about as little as possible for as long as possible to address the issue.”
Legal Circuit Breaker #1 – Fake Stealth Companies
To basically eliminate major risks such a legal (for doing illegal actions) and liability (not being sued), many Asian and especially Chinese companies sell their products using fake companies with large amounts of fake reviews– and Amazon is coordinating the shipping and completing the fulfillment. Amazon has made it very easy and created a golden opportunity for Chinese operators. They will ship the products to America using their own ocean freight business directly to Amazon fulfillment centers. For Amazon this eliminates cost, making their online product offering more robust.
For consumers, fake companies and products can appear very legitimate with outstanding ratings. And because of the Fulfillment by Amazon Program (FBA), which lets manufacturers send their goods to Amazon’s fulfillment centers in exchange for a bigger commission, Chinese fraudsters gain the stamp of approval that comes with an FBA tag.
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Four years ago, a Pennsylvania woman sued after a retractable dog leash she bought online snapped and hit her in the face, leaving her permanently blind in one eye. The company that made the dog leash just disappeared. Now A federal appeals court has ruled that Amazon can be sued over a defective product sold by one of its third-party vendors. Amazon claims they should be protected because they were just the online seller, but the Pennsylvania woman could never find, or even contact, the fake company. We believe the company also used fake reviews, and Amazon probably provided the majority of shipping and fulfillment work to get this fake company on it’s platform. All to avoid having a formal contract with the company.
The Federal Court claimed in their ruling:
“There are numerous cases in which neither Amazon nor the party injured by a defective product, sold by Amazon.com, were able to locate the product’s third-party vendor or manufacturer….This enables third-party vendors to conceal themselves from the customer, leaving customers injured by defective products with no direct recourse to the third-party vendor.”
If our court system could not locate the products, the third-party vendor, nor the manufacturer, this proves to us how the Chinese use fake companies as a legal circuit breaker. Thus Amazon has allowed this type of fraud to be integrated into their system, before anyone knows there is a major problem.
Legal Circuit Breaker #2 – Fake Reviews
“At least 50% of Chinese sellers are using some form of review strategy against Amazon’s terms of service,” claims Zach Franklin of AMZKungfu. Franklin, who was originally from Detroit but now lives in Shenzhen, is a consultant for Chinese Amazon sellers. “To many Chinese Amazon sellers, the question of how to succeed on Amazon has a simple answer: reviews equal sales.” Some operations had so many fake companies that one claimed that, “in our company, we literally needed a diagram detailing all of our selling accounts so our staff could keep track of these accounts.”
This Asia infusion into Amazon has started a fake review war all over the giant retailer’s platform. As Steve Lee, a Los Angeles-based vendor claimed, “You have to play the game to sell now…And that game is cheating and breaking the law.”
“Amazon is setting up an environment where people feel like they have to shortcut and cheat,” said Jamie Whaley. “The whole system is being manipulated, and people don’t know it.”
We have measured in certain categories that over 70% of the companies are providing fake reviews.
Amazon appears willing to allow any illegal selling strategy to slide until a wave of negative press arrives that threatens its revenues. As one Chinese service provider described it, “Amazon turns a blind eye…if it doesn’t hurt them.” Add together that Chinese sellers don’t have the pressure of sales taxes, they don’t have to conform to high safety and quality standards, and they are pretty much immune from any lawsuit– and it’s completely open season for fake reviews. The entire Amazon ecosystem looks pretty outstanding for the average crooked Chinese seller. This has given the offshore cheats a totally unfair and asymmetric advantage over honest, law-abiding American companies.
As more and more companies realize Amazon is turning a blind eye to fake reviews, many feel the only way to stay relevant is to cheat along with everyone else. It’s shocking how many major US bands are now participating in this illegal activity. They understand and accept the legal ramifications but many feel they can’t afford to lose market share to unethical vendors, all while Amazon supports and rewards the worst offenders.
In business school you are taught to establish a top selling brand and customer loyalty through honesty, hard work, and by outsmarting your competitors. Well thanks to Amazon.com and Jeff Bezos, everything you learned in business school can be thrown out the window. The biggest cheats succeed on Amazon, many of them by using multiple fake review farms with fake companies. Those who don’t get caught are the big multi-millionaire winners, and that’s nearly all of them since no one has been officially “caught” in years, and no one at all since Amazon started its major Chinese push.