Copper Caper: Commodities Trader Conned By “Painted Rocks”
Over the years, we have periodically reported the occasional gold bar discovered as counterfeit in Manhattan’s Diamond District. It was only until 2020 when a massive 83 tons of Chinese gold bars used as loan collateral turned out to be nothing but gilded copper. Thieves are becoming more brazen over the years as yet another commodity scam has hit a major Swiss trading firm, according to Bloomberg.
The story unfolded last summer when commodities firm Mercuria Energy Group Ltd bought $36 million of copper from a Turkish supplier. But when the 6,000 tons of copper in more than 300 containers arrived in the Chinese port of Lianyungang in the late summer of 2020, there were only jagged paving stones spray painted to resemble the base metal.
Mercuria has been subjected to fraud before. In 2014 and 2015, the Swiss commodity trading firm took covered losses via insurance claims on the metal stored in a Chinese warehouse when authorities seized it.
The latest fraud has forced Mercuria to seek damages in Turkish courts and a U.K. arbitration case against the copper supplier, Bietsa. So far, 13 people have been arrested in connection with the scam.
“Suspects have been taken under custody who are thought to be involved in the various parts of this organized crime against Mercuria,” Mercuria wrote in a statement. It also acknowledged the Istanbul Financial Crimes Department for its hard work in leading to the arrests.
However, unlike past frauds, where Mercuria could claim a cargo’s insurance policy – this scam has a twist. Only one of the seven contracts used by the Turkish company to insure the cargo was genuine. The rest were fake – which means there’s no way for Mercuria to collect an insurance policy on the other contracts.
Legal documents pieced together from Bloomberg outlined how the thieves swapped out the real copper while sealed in containers with shiny paving stones.
Last June, Mercuria agreed to buy copper from Bietsan, a Turkish supplier it had done business with before, according to Sinan Borovali, the Turkey trading house’s lawyer. It appears that copper was initially loaded into the first shipment of containers, before being surveyed by an inspection company. Seals used to prevent fraud were then affixed to the containers.
But under the cover of darkness, it is alleged the containers were opened and the copper replaced with paving stones, Borovali of Istanbul law firm KYB said in an interview. The fraudsters switched between fake and real container seals in an effort to avoid detection.
As ships left Marport terminal in the port of Ambarli every few days, the same thing happened: the copper was secretly unloaded at night and replaced with painted rocks. “This was how they did it,” Borovali said.
With the vessels at sea, Mercuria paid $36 million in five installments, with the last payment made on Aug. 20, 2020, according to documents provided by the commodity trader to Turkish investigators. The fraud wasn’t discovered until the ships began arriving in the Chinese port of Lianyungang later that month. By then, all eight vessels were en route to China.
“There has been a criminal investigation petition by the buyer against the seller and two intermediaries,” Turkish police said in a statement. “It’s been determined that the incident is the outcome of fraud perpetrated in an organized manner.”
Normally, in such cases of non-delivery a trading house could make a claim against a cargo’s insurance policy. But Mercuria found that just one out of seven contracts used by the Turkish company to insure the cargo was real. The rest had been forged.
It appears someone at Mercuria may have not done proper due diligence into the Bietsa, or at least followed up on the legitimacy of the insurance contracts on the cargo.
Thu, 03/11/2021 – 04:15