A forgery crisis is roiling the gold sector of the world silently.
In order to launder smuggled or illegal gold, refining and banking managers inform journalists, gold bars fraudulently stamped with the logos of major refineries are being inserted into the worldwide market. The fakes are difficult to identify, making them an optimal fund runner for warlords or narcotics dealers.
Over the past three years, bars worth at least $50 million stamped with Swiss refinery logos but not actually manufactured by those institutions have been recognized by all four of Switzerland’s leading gold refiners and discovered in the vaults of JPMorgan Chase & Co., one of the main banks at the core of the bullion market, said senior managers at gold refineries, banks, and other sources.
At least 1,000 of the bars, a standard size known as a kilobar for their weight, were found by four of the executives. That’s a tiny share of the gold industry’s production, which annually generates about 2 million to 2.5 million bars like that. But the forgeries are advanced, so thousands more could have gone undetected, according to the head of the largest refinery in Switzerland.
“The latest fake bars … are highly professionally done,” said Michael Mesaric, the chief executive of refinery Valcambi. He said maybe a couple of thousand have been found, but the likelihood is that there are “way, way, way more still in circulation. And it still exists, and it still works.”
Fake gold bars — cheaper gold plated metal blocks — are comparatively prevalent and often simple to identify in the gold sector.
In these cases, the counterfeits are more subtle: the gold is real and very pure, with only the markings being faked. Fake-branded bars are a comparatively new way of blocking worldwide initiatives to block minerals from conflicts and discourage money laundering. Such falsifications present a issue for global refiners, financiers and regulators trying to purge the world of illicit bullion trade.
Since the mid-2000s, high gold prices have caused a boom in casual and illegal mining. Such gold would be compelled into subterranean networks or priced at a discount without the stamp of a renowned refinery. By pirating Swiss and other significant products, metal mined or processed in locations that would otherwise not be legal or acceptable in the West–in areas of Africa, Venezuela or North Korea, for instance–can be injected into the market, channeling funds to criminals or sanctioned regimes.
Who is making the bars that have been discovered so far is not evident, but managers and bankers have told reporters that they believe most are from China, the world’s biggest gold producer and importer, and have entered the market through retailers and trading houses in Hong Kong, Japan and Thailand. Once approved in these locations by a mainstream gold dealer, they can rapidly spread throughout the world to supply chains.
After the first half of 2017, when J.P. started to circulate silently in gold sector circles, Word of forged bars. Morgan, one of five banks finalizing trades on London’s $10 trillion-a-year gold market, discovered that his vaults had at least two gold kilobars stamped with the same identification number, told reporters 10 individuals familiar with the issue. Journalists couldn’t precisely determine where the vaults were.
J.P. Morgan refused to tackle fraudulent bullion questions directly or comment on any of the information in this tale. “It’s our standard practice to immediately alert the appropriate authorities and refineries should we discover mismarked gold kilobars during routine checks and procedures,” the bank said in a statement. “Fortunately, we have yet to have an incident resulting in a loss to the firm or a client.”
The Shanghai Gold Exchange, which controls the gold market in China, said it was unaware in a declaration that counterfeit bars are being produced or transferred through China. “The Shanghai Gold Exchange has established a thorough delivery and storage system. The process for gold (material) to enter the warehouse is strictly managed and in compliance with the regulations,” it said.
When other people who store and trade such gold discovered forged bars, they gave them back to the refiner concerned, some of whom have Asian activities. Refiners reported bars returned to Switzerland to the Swiss authorities that impounded them, refiners said.
In 2017 and 2018, Swiss Customs revealed 655 forged bars to local prosecutors in Ticino, a region bordering Italy that includes three of the four major refineries in Switzerland. “In all cases the marking of the 1 kg bars were fake,” a customs officer said by email without further comment.
The Ticino Public Prosecutor verified that three reports of gold bars with suspected serial numbers had been obtained, but said that it could not reveal more data. The police in Neuchatel, where the other big refinery in Switzerland is situated, said there had received no reports of any forged bars, either it or local prosecutors. Attorney General of Switzerland said his office was not currently concerned with the subject.
Executives of the refinery said forged bars were reported in other nations as well.
Kilobars are small-about a cellphone’s size and thickness-unlike the approximately 12.5-kilo gold ingots typically stored in the vaults of central banks around the world. Kilobars are the world’s most prevalent type of gold circulating between banks, refineries, retailers and people. The identification characteristics stamped on the surface of a bar include the refinery logo which created it, its purity, weight, and a unique identification number. At present rates, each is worth around $50,000.
It is not unusual for people in areas of Southeast Asia to use gold instead of money for large purchases like real estate, said bankers and analysts. “It’s the only investment tool that goes from institutional investors like banks to the public and back again,” a Swiss refinery executive said.
In China, as part of the country’s rigid, long-standing checks on capital movements, almost all gold exports are prohibited. That, say market analysts, has prompted demand among well-to – do Chinese people who want to send cash to discover methods to smuggle it.
An estimated 400 to 600 tons of gold are snuck in car boots and delivery vans every year across the border from mainland China to Hong Kong, mostly in kilobars, according to Cameron Alexander, head of precious metals research at consultants GFMS Refinitiv, who conducts detailed global gold flow studies. Hong Kong Customs said no complaints about kilobars with forged trademarks had been received over the previous century.
Japan also has a long-established gold smuggling issue, said refinery managers, in which the forged products could be used.
Not only are Swiss brands pirated, they are also the most targeted because of their global reach, said managers. The four biggest refineries in Switzerland–Valcambi, PAMP, Argor-Heraeus and Metalor–process approximately 2,000-2,500 tons of gold a year, worth around $100 billion. Their marks are among the industry’s most common and trusted. PAMP and Metalor declined to comment on the record; Argor said risk products would always be counterfeited, and individuals suggested buying bars from trusted retailers only.
For recipients, pirated bars pose a danger of compliance: anyone holding such metal — including jewelers, banks, and electronics firms— risks inadvertently violating worldwide laws intended to maintain out of circulation metal of unknown or criminal origin. The rules are intended to stabilize supplies of gold that finance conflict, terrorism or organized crime, harm the environment or undermine domestic governments.
Governments in America and Europe are legislating to force banks and manufacturers of products like jewelry and electronics to assume greater accountability for their providers of minerals. For instance, a clause in the U.S. Dodd-Frank Act requires U.S. businesses to reveal whether the gold they use comes from Central African nations where it could have been mined to finance conflict.
Richard Hayes, Perth Mint’s Australian chief executive, one of the world’s biggest refiners, said his business had not experienced Perth Mint kilobars that were fraudulently labeled. But, considering other refiners ‘ knowledge, he has no doubt that they are circulating.
“It’s a wonderful way of laundering conflict gold,” he said. “The gold is genuine, but it’s not ethically sourced … They look completely genuine, they assay correctly, and they weigh correctly as well.”
The ideal look makes the bars extremely efficient. “Because gold is completely fungible,” Hayes said, “you can bleed it into genuine production. It’s very, very hard to control.”
J.P. Morgan supplies gold to many of the world’s largest banks, jewelers and investors from significant refiners, and the discovery of the forged bars in its vaults caused a complete evaluation of the gold it held, industry sources said. One said about 50 fraudulently-branded bars unarthed this sweep. Another said it had discovered hundreds of them. J.P. Morgan hasn’t commented.
The amount of forged bars and their high quality meant that their manufacturing had to be well structured, said people in the sector familiar with the issue. An assessment of the movements of the bars proposed that they were produced in Asia, they said, likely China. But after being mined anywhere, the gold in them could have been melted andre-melted.
J.P. Morgan replied to his discovery by choosing to stop purchasing any Asian gold that had not come from a tiny clutch of refineries that he trusted, five individuals familiar with the choice said. J.P. Morgan refused to comment on it.
Other banks have also restricted gold purchases in Asia, 15 people in the industry said. “Anything that has even the chance of being iffy they are not going to be involved in,” said Alexander, the analyst at GFMS Refinitiv.
Reporters have approached five big banks in Asia trading gold, several of which have vaulting facilities. HSBC declined to comment in detail, but a spokesperson said it purchased only bars straight from a tiny group of refiners accredited by the London Bullion Market Association (LBMA) like the Swiss. It said it didn’t find any falsifications. UBS has not commented on counterfeit bars, but has said it only sells gold processed by refiners accredited by LBMA. Standard Chartered refused to comment, stating, “this is not an issue that affects us.” ANZ said it buys previously cast bars from “a select group of counterparties” and its policy, which had not been changed by the counterfeits, was to re-melt and recast them before selling them on. No one from ICBC Standard was available to comment.
The number of fake bars being found has dropped since 2017. But refiners say the forgeries are becoming increasingly sophisticated, so the problem may have grown.
In 2017, Valcambi’s Mesaric said, hundreds of bars were found stamped with the same identification number. The bars’ markings also had spelling errors, flaws in logo images, or print that was too deep or shallow, other refiners said.
Today, the forgeries are more precisely made, using what appears to be sophisticated machinery, Mesaric said. There can still be giveaways, such as indentations from a robotic gripper or repeated imperfections in a cast mould. But these are easy to miss.
The most reliable way to identify the fakes is to test their purity. Gold is available on world markets in varying levels of purity: For professionally produced kilobars, the most common standard is 99.99% – known in the trade as “four nines.” An analysis of three counterfeit-branded bars by one Swiss refinery showed that two of them were 99.98% pure, and the third 99.90%.
Though short of legitimate professional standards, even that level of purity is difficult to achieve, and takes advanced equipment to detect.
Swiss Customs said of the 655 bars reported to local prosecutors in Ticino, the purity fell slightly below 99.99% in some cases.
“The level of counterfeit is becoming really good. Even for us it is hard to tell,” said a Swiss refinery executive who spoke on condition of anonymity. “They are, however, slightly less pure because the people doing the counterfeits don’t have the equipment we have.”
The refineries are responding to the problem with technology.
Metalor this year began to put spots of tamper-proof ink on its bars. Like the security features on banknotes, these display different features when viewed under certain light or through filters. PAMP and Valcambi perform a microsurface scan of their bars and supply machines or phone apps that can scan each one and verify whether their surfaces match the refinery’s records. Argor said its bars had various security features, but declined to elaborate for security reasons.
The LBMA, which accredits global refineries to vouch for the quality of their output, is drawing up standards for security features. It has also proposed a global database containing information about every kilobar produced, as a way of cross-checking the products to add an extra layer of security. “Any security feature can be duplicated that’s on the bar itself,” said the LBMA’s chief executive, Ruth Crowell.
But most of the refiners’ security features have only been introduced recently, and no database is planned until 2020 at the earliest.
