World of fake-branded bars: How forgery crisis is slipping dirty gold into global markets

Gold bars fraudulently stamped with the logos of major refineries are being inserted into the global market to launder smuggled or illegal gold, refining and banking executives tell Reuters.

The fakes are hard to detect, making them an ideal fund-runner for narcotics dealers or warlords.

In the last three years, bars worth at least $50 million stamped with Swiss refinery logos, but not actually produced by those facilities, have been identified by all four of Switzerland's leading gold refiners and found in the vaults of JP Morgan Chase & Co., one of the major banks at the heart of the market in bullion, said senior executives at gold refineries, banks and other industry sources.

Fake gold bars - blocks of cheaper metal plated with gold - are relatively common in the gold industry and often easy to detect.

The counterfeits in these cases are subtler: The gold is real, and very high purity, with only the markings faked. Fake-branded bars are a relatively new way to flout global measures to block conflict minerals and prevent money-laundering. Such forgeries pose a problem for international refiners, financiers and regulators as they attempt to purge the world of illicit trade in bullion.

High gold prices have triggered a boom in informal and illegal mining since the mid-2000s.

Without the stamp of a prestigious refinery, such gold would be forced into underground networks, or priced at a discount. By pirating Swiss and other major brands, metal that has been mined 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, channelling funds to criminals or regimes that are sanctioned.
 

It is not clear who is making the bars found so far, but executives and bankers told Reuters they think most originate in China, the world's largest gold producer and importer, and have entered the market via dealers and trading houses in Hong Kong, Japan and Thailand.

Once accepted by a mainstream gold dealer in these places, they can quickly spread into supply chains worldwide.

Word of the forged bars began to circulate quietly in gold industry circles after the first half of 2017, when JP Morgan, one of five banks which finalise trades in the $10 trillion-a-year London gold market, found that its vaults contained at least two gold kilobars stamped with the same identification number, 10 people familiar with the matter told Reuters.

Reuters couldn't determine exactly where the vaults were.

JP Morgan declined to directly address questions about the fraudulent bullion, or comment on any of the details in this story. "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 regulates China's gold market, said in a statement it was not aware of counterfeit bars being made in or transported 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.

In China, almost all exports of gold are banned as part of the country's strict, longstanding controls on capital movements. That, market analysts say, has spurred demand among well-to-do Chinese who want to send money out of the country to find ways to smuggle it.

An estimated 400 to 600 tonnes of gold are snuck every year across the border from mainland China to Hong Kong in car boots and delivery vans, most of it in kilobars which conducts detailed studies of global gold flows. Hong Kong Customs said it had received no complaints in the past decade about kilobars with forged trademarks.

Refinery executives said forged bars had also been reported in other countries.

Japan also has a long-established problem of gold smuggling in which the forged brands could be put to use, refinery executives said.

Swiss brands are not the only ones to have been pirated, but are the most targeted due to their global reach, executives said.
 

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.

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.