Competitors dodgy inward linking, what to do?
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Report the link exchange system to Google and they may take action on it.I would not follow suit, you'll put your site at risk if you do black hat SEO.
"The websites linking to the competitor are not related sites, or particularly well ranking sites, so shouldn't really give a boost, but it's obvious they are."
Just because a site is not related or ranking well does not mean anything, they are still passing PR and they are probably using the correct anchor text.