Shanghai A foreign company has a related company B in Europe that plans to develop the Chinese market and needs to hire a Chinese Ms. C as a sales manager to develop the Chinese market. However, in order to save costs, company B is unwilling to establish a representative office or foreign company in China.

In order to meet Ms. C's requirement to pay social security, company B arranged for Ms. C to sign a false labor contract with Shanghai A foreign Company. A foreign Company did not pay any salary to C or arrange for C to carry out any work, and only paid Ms. C social security to relevant Chinese departments every month (the social security fees were paid by company B overseas to A foreign company in the name of service fees). Ms. C's work is arranged by company B, and her salary is also paid separately by company B.

Ms. C became pregnant and gave birth to a child less than one year after signing the labor contract with A foreign company. Subsequently, A foreign company cooperated with Ms. C to apply for a maternity allowance of over RMB 30,000 from the Shanghai social security department.

After being reviewed by the social security department, it was found that there were doubts. After investigation, it was determined that C had fraudulently obtained maternity insurance benefits by falsifying proof materials, and was ordered to return the fraudulently obtained social insurance benefits, and a penalty of twice the amount fraudulently obtained was imposed.

Subsequently, after the intervention of the public security organs, Ms. C was prosecuted, and the court found that Ms. C had fabricated a labor relationship and received a large amount of maternity allowance. Her behavior had violated the criminal law and constituted the crime of fraud. The court sentenced C to one year in prison and fined her RMB 50,000.

Shanghai social security bureau has also imposed penalties on A foreign company, requiring it to immediately rectify and include it in the company's dishonest "blacklist".

Dongjin Remind:

The regulation of social security funds by the state is becoming increasingly strict, and problems can easily be identified through big data analysis and comparison. Therefore, if companies use various forms of social security payment, "affiliation" and receive pension, medical insurance, work-related injury subsidies, maternity allowances, etc. to deceive social security funds, it is illegal. After investigation, they will be ordered to return the fraudulent social security funds and fined not less than twice but not more than five times. Those who defraud a large amount of social security funds will be held criminally responsible.

Mike Chang

Partner

mikechang@shanghaiinvest.com