China's General Administration for Industry and Commerce has accused internet giant Alibaba of allowing unlicensed merchants onto its Taobao and Tmall platforms, allowing counterfeit goods to be sold and failing to protect consumer rights, according to a report prepared in July following a meeting between regulators and company executives, AP reports . However, officials have decided to postpone its publication until after the IPO to avoid the information affecting the results of the offering.

The report says, in particular, that Alibaba has long neglected the illegal business conducted on its platforms and has done nothing to stop it. According to the agency, the violations identified not only indicate a major crisis within the company, but also affect the business of other Internet companies "that are trying to operate legally." The agency accused Alibaba of displaying "illegal advertising" that misled users and contained false information about prices. Some Alibaba employees were also accused of taking bribes, and the company was accused of failing to effectively combat fraud. The agency and Alibaba will cooperate in terms of improving the company's management system, the report says. What exactly they are going to change is not specified.

Alibaba officially responded to the regulator's accusations on January 28. The AP notes that Chinese businesses typically publicly show obedience when responding to officials and promise to correct violations. The tone of Alibaba's response stands out, with the AP calling its response "unheard of." The company accused the regulator of bias and the official responsible for monitoring internet companies of violating procedures. The company will later file a formal complaint against the report's authors.

"We welcome fair and just oversight, but oppose selective omissions and malicious practices," Alibaba said in a statement. "Biased conclusions based on flawed methodology have caused irreparable and grave damage to Taobao and other Chinese internet companies." The company did not specify what kind of procedural violation Alibaba suspected officials of.

Last spring, the company acknowledged that its efforts to combat counterfeit sales on its marketplaces had not always been successful, according to documents Alibaba filed with the U.S. Securities and Exchange Commission (SEC) ahead of its September IPO. The company did, however, note that it had put in place procedures to verify the authenticity of products sold and other anti-fraud measures, so that its Taobao store in the U.S. is no longer blacklisted as a site for selling counterfeit goods.

Alibaba dismisses regulator's accusations of tolerating counterfeit sales as nitpicking