A forgery crisis is quietly roiling the world's gold industry.
Gold bars fraudulently stamped with the logos of major refineries are being inserted into the global market to launder smuggled or illegal gold.
In the past three years, bars worth at least $50 million (Dh183m) 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, one of the major banks at the heart of the bullion market, senior executives at gold refineries, banks and other industry sources told Reuters.
Four of the executives said at least 1,000 of the bars, of a standard size known as a kilobar, have been found. That is a small share of output from the gold industry, which produces approximately 2 million to 2.5 million such bars each year. But the forgeries are sophisticated, so thousands more may have gone undetected, according to the head of Switzerland's biggest refinery.
"The latest fake bars … are highly professionally done," said Michael Mesaric, the chief executive of gold 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 — 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 more subtle: 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" (meaning income derived from these minerals is used to finance armed conflict) and prevent money-laundering.
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 sources told Reuters.
"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. "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 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.
When others who store and trade such gold found forged bars, they returned them to the refiner concerned, some of whom have operations in Asia. Bars returned to Switzerland have been reported by refiners to the Swiss authorities who impounded them, refiners said.
Swiss Customs said 655 forged bars were reported in 2017 and 2018 to local prosecutors in Ticino, a region bordering Italy that contains three of Switzerland's four large refineries. "In all cases the marking of the 1kg bars were fake," a customs official said.
Refinery executives said forged bars had also been reported in other countries.
Kilobars are small — around the size and thickness of a mobile phone — unlike the apporximately 12.5-kilo gold ingots typically stored in the vaults of the world's central banks. Kilobars are the most common form of gold in circulation around the world. The identifying features stamped on to a bar's surface include the logo of the refinery that made it, its purity, weight and a unique identification number. Each one is worth around $50,000 at current prices.
In parts of South East Asia, it's not uncommon for individuals to use gold instead of cash for big purchases such as real estate, bankers and analysts said. "It's the only investment tool that goes from institutional investors like 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 the country's strict, long-standing controls on capital movements. An estimated 400 to 600 tonnes of gold are sneaked every year across the border from mainland China to Hong Kong in car boots and delivery vans, most of it in kilobars, said Cameron Alexander, head of precious metals research at consultants GFMS Refinitiv, 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.
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. Switzerland's four largest refineries — Valcambi, Pamp, Argor-Heraeus and Metalor — process around 2,000 to 2,500 tonnes of gold a year, worth around $100 billion. Pamp and Metalor declined to comment; Argor said there was always a risk brands would be counterfeited and recommended people buy bars only from trusted distributors.
For recipients, the pirated bars pose a compliance threat: anyone who holds such metal — including jewellers, banks and electronics firms — risks inadvertently violating global rules designed to keep metal of unknown or criminal origin out of circulation.
JP Morgan supplies gold from major refiners for many of the world's biggest banks, jewellers and investors, and the discovery of the forged bars in its vaults triggered a full review of the gold it held, market sources said. One said this sweep unearthed around 50 fraudulently-branded bars. Another said it found several hundred.
JP Morgan responded by deciding to stop buying any gold in Asia that had not come freshly made from a small clutch of refineries it trusted, other sources said. The bank did not comment.
Other banks have also restricted gold purchases in Asia, industry sources said. "Anything that has even the chance of being iffy they are not going to be involved in," said Mr Alexander at GFMS Refinitiv.
The refineries are responding to the problem with technology.
Metalor this year began to put spots of tamper-proof ink on its bars. These display different features when viewed under certain light or through filters. Pamp and Valcambi perform a microsurface scan of their bars to verify whether they match the refinery's records.
The London Bullion Market Association, which accredits global refineries, 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.
But most of the refiners' security features have only been introduced recently and no database is planned until 2020 at the earliest.