On December 29, 2023, the 7th Meeting of the Standing Committee of the 14th National People’s Congress passed the Second Amendment to the Company Law of the People’s Republic of China and the Twelfth Amendment to the Criminal Law of the People’s Republic of China. The implementation of these two laws will have a profound impact on the management and operation of the Company. In order to further improve the Company’s criminal compliance work and make the Company’s operation and management behavior comply with the upcoming Company Law, on April 2, 2024, the Company organized more than 80 senior executives, chief and deputy managers of first-level departments and business backbones from all subsidiaries, sub-subsidiaries and holding companies to hold on-site and online law popularization training seminars on Criminal Risk Warning of Listed Companies and Corporate Compliance and Interpretation of the Revised Key Points of the New Company Law.

In terms of behavior, fraud is usually classified as corruption, asset embezzlement and fraud of information disclosure. Corruption is known as commercial bribery, as well as illegal remuneration, extortion and other acts. Asset embezzlement, as the name implies, is illegal embezzlement of other people’s or organization’s assets, including false expense reimbursement, private use of public vehicles, etc. Fraud in information disclosure refers to the behavior of concealing and distorting facts and providing false information. With the improvement of laws and regulations, the requirements for modern enterprises are also getting higher and higher, this kind of fraud has become the focus of attention, and the fraud of various financial statements that we often hear belongs to this kind of behavior.

Knowing what fraud is, we also need to know what the harm of fraud is, and why enterprises should pay attention to anti-fraud work. According to the Professional Fraud and Abuse of Power Report submitted by the American Certified Fraud Practitioners Review Association to the United Nations, the loss caused by fraud to enterprises is about 5% of corporate revenue, and according to relevant surveys, as of the end of the third quarter of 2023, the average profit margin of A-share listed companies is about 8.2%. According to the average loss of 5%, the loss caused by fraud accounts for about 60% of the net profit of listed companies. However, for a large number of unlisted small and medium-sized manufacturing enterprises, the average annual profit margin is often around 4%-5%, and the economic losses caused by fraud may be related to the survival of the company.

In addition to direct economic losses, indirect losses such as declining corporate credit, reputation damage, and regulatory penalties also have a significant impact on enterprises.

The most famous is the 2001 Enron Incident in the United States. Due to financial fraud, the energy giant with an operating income of USD 100 billion collapsed and went bankrupt in just a few weeks, which directly led to the introduction of a series of strict regulatory measures such as the Sarbanes-Oxley Act in the United States. Therefore, strengthening anti-fraud governance can not only help enterprises reduce risks and save losses, but also prevent problems before they occur and avoid the next Enron Incident.

For ZGM, when it comes social responsibility of a listed company or the strategic goal of building a world-class mining enterprise, anti-fraud is an unavoidable topic.

In the past two years, the Company has focused on anti-fraud internal control governance, and has continued to make efforts in strengthening mechanisms, setting up special groups, and advocating culture., to continuously improve the Company’s anti-fraud governance level. Firstly, the Company continued to improve its internal control mechanism, established a special anti-fraud system, and clarified the definition of fraud, the focus of anti-fraud work and the attribution of responsibilities. Secondly, the Company designated the audit department as a special anti-fraud organization, responsible for the implementation of cross-departmental and company-wide anti-fraud work, and required each business department to undertake its internal anti-fraud work. In addition, the Company has set up a channel for reporting fraud and measures to protect the privacy of whistleblowers. Finally, the Company, based on the corporate culture, advocates the integrity of employees, conducts anti-fraud training and integrity and moral education for new employees, creates a corporate atmosphere of respecting integrity, and eliminates the breeding environment of fraud.

As the front-line department of anti-fraud work, the Audit Department, guided by the Company’s system and corporate goals, takes anti-fraud as the focus of its work, and has set up a special audit post to be responsible for the supervision and inspection of all kinds of fraud. At the same time, the Audit Department also integrates anti-fraud work into daily work, pays attention to whether there are signs of fraud in the process of implementing routine cost audits, project audits, etc., and conducts in-depth investigation and evidence collection on suspicious behaviors to ensure that the signs of fraud are fully covered and investigated, and that no room is left for fraud.

Anti-fraud is a long-term and continuous work for an enterprise, which requires continuous updating and improvement of the system, the attention and the role model of leaders, a devoted and diligent anti-fraud department, and more importantly, an environment of integrity created by all employees. We hope that everyone will realize that as employees of ZGM, everyone is a part in the anti-fraud work and has the courage to say no to the fraud around them. We also welcome any clues about fraud, and we will absolutely protect your privacy.

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Hotline: 0979-8950668

Email: liangwenke@email.zanggekuangye.com