LONDON (Reuters) – A counterfeiting crisis is whirling around the world's gold industry.
FILE PHOTO: The Sicpa Oasis validation system (Bullion Protect) is shown on a kilogram of gold bars at the Swiss refinery Metalor in Marin near Neuchâtel, Switzerland, on 5 July 201
Over the past three years, at least $ 50 million worth of ingot but not manufactured by Swiss refinery labels has been identified by all four of Switzerland's leading gold refineries and stored in the vaults of JPMorgan Chase & Co, one of the most important banks in the heart of the gold market, said senior executives of gold refineries, banks and other industry sources.
Four of the executives stated that at least 1,000 bars of standard size, known as kilobars of weight, were found. This is a small part of the gold industry's output, producing about 2 to 2.5 million such bars each year. But the counterfeits are sophisticated, so that, according to the head of the largest refinery in Switzerland, thousands more may have gone undetected.
"The latest fake bars … are made highly professional," said Michael Mesaric, managing director of the Valcambi refinery. He said that maybe a few thousand were found, but the likelihood is that there is "much, much, much more in circulation. And it still exists and still works. "
Fake gold ingots – gold plated cheaper metal blocks – are relatively common in the gold industry and often easy to spot.
The counterfeits in these cases are more subtle: the gold is real and of very high purity, only the marks are fake. Fake branded bars are a relatively new way to ignore global measures to block conflict minerals and prevent money laundering. Such counterfeiting is a problem for international refineries, financiers and regulators who are trying to clean up the world of illegal gold bullion trading.
High gold prices have sparked a boom in informal and illegal mining since the mid-2000s. Without the stamp of a prestigious refinery, such gold would be forced into subterranean nets or offered at a discount. Pirated copies of Swiss and other major brands may be used to inject metal that has been mined or processed into places that would otherwise not be legal or acceptable in the West – for example, in parts of Africa, Venezuela or North Korea – and channel funds into criminals or Regimes that are sanctioned.
It is unclear who found the bars so far, but executives and bankers told Reuters that they think they come mostly from China, the world's largest gold producer and importer, and dealers and trading houses in Hong Kong entered the market, Japan and Thailand. Once accepted by an established gold trader in these locations, they can quickly spread to supply chains worldwide.
After the first half of 2017, news of the counterfeit bars spread silently in gold circles when JP Morgan, one of five banks that closed trading on the $ 10 trillion annual gold market in London, noted That the safes were closed contained at least two gold kilobars with the same identification number, 10 persons familiar with the matter told Reuters. Reuters could not pinpoint where the vaults were.
J.P.. Morgan declined to answer questions about the fraudulent precious metal directly or to comment on details in this story. "It is our usual practice to promptly notify the competent authorities and refineries when we discover mislabeled gold kilobars during routine inspections and procedures," the bank said. "Fortunately, we do not have an incident that leads to a loss for the company or a customer." or transported by China. "The Shanghai Gold Exchange has set up a comprehensive delivery and storage system. The process by which gold (material) enters the warehouse is strictly managed and complies with regulations, "they say.
When others who stored and traded such gold, found forged ingots, they returned them to the refiner, some of whom work in Asia. Bars returned to Switzerland were reported by refineries to the Swiss authorities who seized them.
The Swiss customs authorities announced that in 2017 and 2018 655 fake bars were reported to the local public prosecutor's office in Ticino. "In all cases, the labeling of the 1-kg bars was wrong," a customs officer said by e-mail, without commenting.
Ticino prosecutors confirmed that they received three bullet reports with suspected serial numbers, but said they could not disclose any further information. The police in Neuchatel, where Switzerland's other major refinery is located, said neither they nor the local prosecutors received reports of counterfeit bars. The Prosecutor General of Switzerland said that their law firm is not currently dealing with the issue.
Executives of the refinery said that forged bars were also reported in other countries.
Graphics – Gold prices since 2000 – here
Kilobars are small – compared to the 12.5 kilos gold bars normally stored in the safes of the world's central banks. Kilobars are the most widely circulated form of gold in the world, exchanged between banks, refiners, traders and individuals. The identifying features placed on the surface of a tie include the refinery logo, its purity, weight and unique identification number. Everyone is worth about $ 50,000 at current prices.
In parts of Southeast Asia, it is not uncommon for individuals to use gold instead of cash for large purchases such as real estate, bankers and analysts said. "It's the only investment that goes public and back to institutional investors like banks," said a Swiss refinery executive.
In China, almost all gold exports are banned under the country's strict and long-term capital controls. According to market analysts, this has spurred demand from wealthy Chinese people who want to send money abroad to find ways to smuggle it.
It is estimated that between 400 and 600 tons of gold are hauled across the Chinese mainland border into Hong Kong each year in car boots and vans, most of it in Kilobar, said Cameron Alexander, head of precious metal research at GFMS Refinitiv, for detailed studies on global gold flows performs. The Hong Kong customs said they had received no complaints about kilobars with counterfeit trademarks in the past decade.
Japan also has a long-standing problem of gold smuggling, where counterfeit trademarks could be used.
Swiss brands are not the only ones that have been forged, but because of their global reach the most affected brands. Switzerland's four largest refineries – Valcambi, PAMP, Argor-Heraeus and Metalor – process around 2,000-2,500 tonnes of gold worth around $ 100 billion a year. Their brands are among the best known and most trusted in the industry. PAMP and Metalor refused to comment on the album. Argor said there was always a risk of counterfeiting brands and recommended that people buy bars only from trusted retailers.
For the recipients, piracy is a compliance threat: Anyone with such metal – including jewelers, banks, and electronics companies – risks inadvertently violating global rules designed to prevent the discovery of unknown metal or metal criminal origin is withdrawn from circulation. The rules aim to stop gold shipments that finance conflict, terrorism or organized crime, harm the environment or undermine national governments.
Governments in America and Europe are enacting laws to force banks and manufacturers of items such as jewelry and electronics to take more responsibility for their mineral suppliers. For example, a US-mandated Dodd-Frank provision requires US companies to state whether the gold they use comes from Central African countries where it may have been liquidated to fund conflicts.
Richard Hayes, managing director of the Australian Perth Mint, one of the world's largest refineries, said his company had not encountered any fraudulently branded Perth Mint-Kilobars. But given the experience of other refineries, he has no doubt that they are in circulation.
"It's a wonderful way to wash conflict gold," he said. "The gold is real, but it's not made for ethical reasons, they look absolutely real, they test right and they weigh right."
The perfect appearance makes the bars highly effective. "Because gold is completely fungible," Hayes said, "it can be processed into a real production, it's very, very difficult to control."
J.P. Morgan supplies many of the world's largest banks, jewelers and investors with gold from major refineries, and the discovery of the counterfeit bars in its vaults triggered a comprehensive review of gold holdings, market sources said. One said that this sweeping action had brought about 50 fraudulent brand bars to light. Another said he found several hundred. J. P. Morgan did not comment.
Experts said the number of forged bars and their high quality required a good production organization. An analysis of the movements of the bars revealed that they were made in Asia, probably in China. But the gold in them could have been melted and remelted after it had been mined somewhere.
J.P.. Morgan responded to his discovery by deciding not to buy any more gold in Asia that was not freshly made from a small number of refineries he trusted, as five people familiar with the decision said. J. P. Morgan declined to comment.
Other banks have also limited gold purchases in Asia, with 15 people in the industry. "Anything that has the chance to become doubtful will not affect them," said Alexander, the analyst at GFMS Refinitiv.
Reuters turned to five major gold-trading banks in Asia, some of which have jump facilities. HSBC declined to comment in detail, but said that only bars were purchased directly from a small group of refineries, which, like the Swiss, were accredited by the London Bullion Market Association (LBMA). It was said that he had found no fakes. UBS did not comment on fake bars, but only sold gold processed by LBMA accredited refineries. Standard Chartered's declined comment reads, "This is not a problem that concerns us." ANZ claimed to buy previously cast bars from "a select group of counterparties" and redraft their policies that had not been changed by the counterfeits to melt and recast before being resold. No one was available from ICBC Standard to make comments.
The number of counterfeit bars found has fallen since 2017. However, according to refineries, counterfeiting is becoming more and more sophisticated, potentially increasing the problem.
According to Valcambi Mesaric, hundreds of bars with the same identification number were found in 2017. The markings of the bars also showed spelling errors, errors in the logo images or too deep or too shallow impressions, said other refiners.
Today, counterfeits are made more precisely using seemingly sophisticated machinery, Mesaric said. There may still be freebies, such as impressions from a robotic gripper or repeated mistakes in a mold. But these are easy to miss.
The most reliable way to identify counterfeits is to test their purity. Gold is available in different degrees of purity on world markets: for professionally produced kilobars, the most common standard is 99.99% – known in the trade as "Four Nines". An analysis of three fake branded bars by a Swiss refinery revealed that two of them were 99.98% pure and the third 99.90%.
Even when legitimate professional standards are lacking, it is difficult to achieve this level of purity, and detection requires advanced equipment.
Swiss Customs said that of the 655 bars reported to local prosecutors in Ticino, purity had fallen slightly below 99.99% in some cases.
"The level of fakes is getting really good. Even for us it's hard to say, "said a Swiss refinery manager who spoke on condition of anonymity. "But they're a little less pure because the people who make the fakes do not have the equipment we have."
TAMPER-PROOF INK, MICROSURFACE SCANS
The refineries react to the problem with the technology.
Metalor began this year to bring tamper-resistant ink stains to its bars. Like the security features on banknotes, these show different features when viewed under certain lighting conditions or through filters. PAMP and Valcambi scan their bars on a micro-surface and deliver machines or phone apps that can be used to verify that their surfaces match the refinery's records. Argor said his beams had different security features, but refused to explain them for safety reasons.
The LBMA, which accredits global refineries to vouch for the quality of their production, establishes standards for security features. A global database containing information on each Kilobar produced has also been proposed to validate the products and provide an additional layer of security. "Every security feature on the bar can be duplicated," said LBMA executive director Ruth Crowell.
However, most of the refinery's security features have recently been introduced, and a database is planned for 2020 at the earliest.