LONDON (Reuters) – The counterfeiting crisis is quietly driving the global gold industry.
FILE PHOTOS: The Sicpa Oasis Validation System is represented by one kilogram bar of gold at the Swiss Metalor Refinery in Marin, near Neuchâtel, Switzerland, July 5, 201
fraudulently inscribed with the logos of major refineries are being brought into the world market to smuggle smuggled or illegal gold, say the heads of Reuters' refining and banking agencies. Counterfeits are difficult to detect, making them an ideal fund for drug dealers or warlords.
Over the past three years, bars worth at least $ 50 million stamped with Swiss refinery logos but not actually manufactured by these facilities have been identified by four of Switzerland's leading gold refineries and discovered in JPMorgan Chase's arches & Co., One of the major banks in the heart of the bullion market, said senior executives at gold refineries, banks and other sources in the industry.
Four of the executives say at least 1000 of the standard-size bars known as kilobar for their weight have been found. This is a small share of the output of the gold industry, producing approximately 2 million to 2.5 million such bars each year. But counterfeits are complex, so thousands more may remain undiscovered, according to the head of Switzerland's largest refinery.
"The last fake bars … have been professionally made," says Michael Mesaric, CEO of Valcambi Refinery. He said that maybe a few thousand were found, but the likelihood is that "there is a way, a way, even more in circulation. And he still exists and continues to work."
False gold bars – blocks of cheaper Metal coated with gold are relatively common in the gold industry and are often easy to spot.
Counterfeits in these cases are finer: Gold is true and very high purity, with only counterfeits being counterfeit. a relatively new way of navigating global conflict-blocking measures Such counterfeits are a problem for international refiners, financiers and regulators as they seek to clean up the world of illegal bull trade.
High gold prices are booming the unofficial and illegal extraction of The 2000s Without the printing of a prestigious refinery, such gold would have been forced into underground networks or discounted. Through the piracy of Swiss and other major brands, metal extracted or processed in places that would not otherwise be legal or acceptable in the West – for example in parts of Africa, Venezuela or North Korea – can be injected into the market by direct funds to criminals or regimes that are sanctioned.
It is not clear who makes the bars open so far, but executives and bankers have told Reuters that they believe most originate in China, the world's largest gold producer and importer, and have entered the market through dealers and trading houses in Hong Kong, Japan and Thailand. Once accepted by the mass merchant of gold in these places, they can quickly spread to supply chains around the world.
The word for forged bars began to spread quietly in the gold industry after the first half of 2017, when JP Morgan, one of the five banks that finalized deals in the London gold market worth $ 10 trillion a year, that its vaults contain at least two gold kilobars, stamped with the same identification number, reported 10 people familiar with the matter. Reuters could not determine exactly where the vaults were.
J.P. Morgan declined to deal directly with questions about fraudulent bullion or comment on any of the details in the story. "It is our standard practice to alert the relevant authorities and refiners immediately if we detect incorrectly labeled gold kilobars during routine inspections and procedures," the bank said. "Fortunately, we have yet to see an incident that led to the loss of a business or customer."
The Shanghai Gold Exchange, which regulates the Chinese gold market, said in a statement that it was not aware of counterfeit bars made in or shipped through China . "The Shanghai Gold Exchange has created a complete delivery and storage system. The process of entering the warehouse (gold) is strictly managed and in accordance with the regulations, "the notice said.
When others who store and trade such gold find forged bars, they return them to their respective refineries, some of which have operations in Asia. The bars returned to Switzerland were reported by refiners to the Swiss authorities who detained them, the refiners said.
Swiss Customs stated that 655 forged bars were reported in 2017 and 2018 to local prosecutors in Ticino, a region bordering Italy, which contains three of the four major refineries in Switzerland. "In any case, the marking of the 1 kg balloons is false," the customs official said by email, without further comment.
The prosecutor in Ticino confirmed that he received three reports of gold bullion with suspected serial numbers, but stated that he could not disclose any more information. Police in Neuchatel, where Switzerland's other major refinery is located, said that neither it nor the local prosecutors there had received reports of counterfeit bars. The Attorney General of Switzerland said that his office is not currently addressing this topic.
Refinery executives say that bars have been reported and forged in other countries.
Kilobaras are small – about the size and thickness of a mobile phone – unlike the roughly 12.5-kilogram gold blocks typically stored in the vaults of central banks around the world. Kilobars are the most common form of gold in circulation worldwide, passing seamlessly between banks, refiners, dealers and individuals. The identification features printed on the bar surface include the logo of the refinery that made it, its purity, weight and unique identification number. Each costs about $ 50,000 at current prices.
In some parts of Southeast Asia, it is not uncommon for people to use gold instead of cash for large purchases, such as real estate, bankers and analysts said. "This is the only investment tool that moves from institutional investors such as banks to the public and back again," said an executive at a Swiss refinery.
In China, almost all gold exports are banned as part of rigorous, long-standing controls on capital movements. This, according to market analysts, has prompted a demand among well-functioning Chinese who want to send money from the country to find ways to smuggle them.
Approximately 400 to 600 tonnes of gold are poured annually across the border from mainland China to Hong Kong in car boots and vans, most of which in kilobars, said Cameron Alexander, head of precious metals research at GFMS Refinitiv Consultants, which conducts detailed studies of world gold flows. Hong Kong Customs said it had received no complaints about kilobaras with fake trademarks in the last decade.
Japan also has a long-standing problem with gold smuggling in which forged stamps can be used for use, according to refinery executives.
Swiss brands are not the only ones that have been pirated, but are the most targeted because of their global reach, executives say. The four largest refineries in Switzerland – Valcambi, PAMP, Argor-Heraeus and Metalor – process about 2000-2 500 tonnes of gold annually worth about $ 100 billion. Their brands are among the most common and trusted in the industry. PAMP and Metalor declined to comment on the record; Argor said there was always a risk that brands would be counterfeit and recommended that people buy bars only from trusted distributors.
For recipients, pirated bars pose a threat to compliance: Anyone who holds such metal – including jewelers, banks, and electronics companies – inadvertently breaks global rules designed to avoid metal of unknown or criminal origin out of circulation. The rules are intended to limit the supply of gold that finances conflict, terrorism or organized crime, damages the environment or undermines national governments.
Governments in America and Europe are forcing banks and manufacturers of articles such as jewelry and electronics to take more responsibility for their suppliers of minerals. For example, a clause in the Dodd-Frank Act, adopted by the US, obliges US companies to disclose whether the gold they use came from countries in central Africa where it could be mined for conflict financing.
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Richard Hayes, CEO of the Perth Mint in Australia, one of the largest refineries in the world, says his company has not traded with branded kilobars by Perth Mint. Given the experience of other refineries, he has no doubt that they are circulating.
"This is a wonderful way to wash conflict gold," he said. "Gold is real, but it is not ethically radiated … They look completely real, they test correctly and they weigh right."
The perfect appearance makes the bar very effective. "Because gold is completely fungal," Hayes said, "you can defuse it in true production. It's very, very difficult to control.
J.P. Morgan supplies gold from major refineries to many of the world's largest banks, jewelers and investors, and the opening of forged bars in its vaults has led to a complete review of the gold it holds, market sources said. One said that the check was discovered about 50 fraudulent bars. Another said he had found several hundred. J. P. Morgan did not comment.
People in the industry familiar with the matter say that the number of forged bars and their high quality means that their production must be well organized. The analysis of the movements of the bars suggests that they were made in Asia, probably in China, they said. But the gold in them could be melted and melted again after being mined everywhere.
J.P. Morgan responded to his discovery by deciding to stop buying gold in Asia, which was not freshly made from a small box of refiners he trusted, said five people familiar with the decision. J. P. Morgan declined to comment.
Other banks have also restricted the purchase of gold in Asia, according to 15 industry members. "Anything that is even likely to be inadvertent will not participate in them," says Alexander, an analyst at GFMS Refinitiv.
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Reuters approached five major banks that trade gold in Asia, several of which have arched facilities. HSBC declined to comment, but a spokesman said it was buying bars directly from a small group of Swiss-accredited refineries from the London Bull Market Association (LBMA). He wrote that he had not found any fakes. UBS did not comment on counterfeit bars, but said it only sells gold processed by LBMA-accredited refiners. Standard Chartered declined comment, saying "this is not a problem that concerns us." ANZ said it was buying pre-broadcast bars from a "select group of counterparties" and its policy, which was not altered by counterfeits, was to melt down again. and process them before you sell them to. None of the ICBC Standard was available for comment.
The number of counterfeit bars found has declined since 2017. But refiners say counterfeits are becoming more complex, so the problem may escalate.
In 2017, Mesaric told Valcombe, hundreds of bars were found stamped with the same identification number. The bar markings also had spelling mistakes, flaws in logo images or a print that was too deep or shallow, other refiners said.
Today, counterfeits are more precisely crafted using what appears to be sophisticated techniques, Mesaric said. There may still be giveaways, such as robotic grip dents or multiple casting imperfections. But it's easy to miss.
The surest way to identify the fakes is to test their purity. Gold is available in global markets of varying degrees of purity: For professional kilobars, the most common standard is 99.99% – commonly known as the "four nine" trade. An analysis of three counterfeit brand bars from one Swiss refinery showed that two were pure 99.98% and the third was 99.90%.
Although not up to legitimate professional standards, even this level of purity is difficult to achieve and requires advanced detection equipment.
Swiss customs say that of the 655 bars reported to local prosecutors in Ticino, purity has dropped slightly below 99.99% in some cases.
"The level of counterfeits is getting really good. Even it's hard for us to say, "said the Swiss refinery's CEO, who spoke on condition of anonymity. "However, they are a little less clean because the people who make counterfeits do not have the equipment at our disposal."
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TAMPER-PROOF INK , MICROSURFACE SCANS
Refineries are responding to a technology problem.
Metalor this year began to place stains of tamper-proof ink on its bars. Like banknote security features, they show different functions when viewed under certain light or through filters. PAMP and Valcambi perform micro-surface scans of their bars and delivery machines or telephone applications that can scan each one and check that their surfaces match the refinery records. Argor said his bars have different security features but declined to design for security reasons.
LBMA, which accredits global refineries to join its product quality, develops standards for security features. He also suggested a global database containing information on each kilobar produced as a way to cross-check products to add an extra layer of security. "Any security element can be duplicated, which is on the tape itself," said LBMA CEO Ruth Crowell.
But most refinery security features have only recently been introduced and no database is planned until 2020.