Inside Apple’s billion-dollar war on repair fraud

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Cult of Mac's buyback program pays good money for your gear, even broken ones.
Chinese iPhone fraud involved removing components from devices then deliberately breaking them so Apple would replace the handset.
Photo: Warren R.M. Stuart/Flickr CC

Fraudulent iPhone repair claims are big business in China. To the point where about 60 percent of the handsets being repaired under warranty in that country were part of scams.

Apple has had to make draconian efforts to even slow the rate at which Chinese criminal gangs are stealing from it.

As in the rest of the world, Apple used to take customer’s claims that they’d accidentally broken their iPhone at face value. Then the company discovered that criminals were removing valuable components from iPhones, putting in fakes, then breaking the device. Apple would replace the phone and the criminal could sell the components.

And this wasn’t happening in small numbers. The Information reported “In 2013, Apple set aside $1.6 billion at the start of its fiscal year for global warranty claims, but ended up spending $3.7 billion on them in the period, according to the company’s annual report for that year. Fraud in China was a signficant contributor to warranty claims during that period.”

The components are often used to make “frankenphones.” Devices that look and act like iPhones, but are made from a mix of real and fake parts.

Fighting back against iPhone fraud

Apple ceased immediate iPhone replacements in China, instead sending devices to special facilities where they could be examined by experts for fake parts.

Criminals would often steal serial numbers of real iPhone models, so Apple began checking to see if another device with that same serial number is still in use.

The company has made progress.  Fraudulent returns in China are down to about 20 percent.

But China isn’t the only place crooks try steal from Apple. Apple Stores across the U.S. have been targeted by criminals. Or people just use iPhones in their scams.