Trader buys $36 million of copper and gets painted rocks instead

[Hydrogen]

Thieves in Turkey switched painted paving stones for copper

Commodities trader Mercuria Energy Group Ltd. struck a deal last summer to buy $36 million of copper from a Turkish supplier. But when the cargoes started arriving in China, all it found were containers full of painted rocks.

The saga unfolds like a gangland thriller, with the Swiss trading house saying it’s been the victim of cargo fraud. Before its journey from a port near Istanbul to China even began, about 6,000 tons of blister copper in more than 300 containers were switched with jagged paving stones, spray-painted to resemble the semi-refined metal.

The bizarre case highlights commodity traders’ vulnerability to fraud, even when security and inspection controls are in place. In 2014 and 2015, Mercuria took provisions to cover potential losses after metal contained in a warehouse in the Chinese port of Qingdao was seized by authorities as part of fraud investigation.

Turkish police took 13 people into custody in relation to the faux-copper scheme. Mercuria, one of the five-biggest independent oil traders in the world, is seeking redress in both Turkish courts and a U.K. arbitration case against the copper supplier, Bietsan. It’s also filed a formal criminal complaint with Turkish police and prosecutors alleging cargo substitution and insurance fraud, leaving the authorities to determine who’s responsible.

Several calls to Bietsan’s offices in Tekirdag went unanswered.

“Suspects have been taken under custody who are thought to be involved in the various parts of this organized crime against Mercuria,” the Geneva-based Mercuria said in a written statement in which it thanked the Istanbul Financial Crimes Department.

The story was pieced together from legal documents, interviews and local media reports.

Copper Switched

Last June, Mercuria agreed to buy copper from Bietsan, a Turkish supplier it had done business with before, according to Sinan Borovali, the trading house’s lawyer in Turkey. 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.

Organized Crime

“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.

The 13 suspected fraudsters were taken into custody this month in a series of police raids. Some have since been allowed to leave custody and placed under house arrest, according to local newswire reports. More hearings on the case are expected from this week.

https://www.houstonchronicle.com/business/article/Trader-Buys-36-Million-of-Copper-and-Gets-16011989.php

....


The long history of precious metals markets equate commodities like gold with stability and safety. "Just buy gold, you'll be safe," is consensus accepted advice. But has the time finally come to question those long held views?

In an era where $36 million in copper commodities are hijacked and lost. Reliability of commodity trading/shipping appears on a steep decline.

Could an outlier precedent could be emerging where commodities like gold no longer represent the safe havens they once did? Experts and analysts claim gold and silver are undervalued. But did they remember to price in the cost of counterfeit gold and silver bars flooding markets. Cases like these where even insurance that is supposed to protect commodity shipments from loss turn out to be forged and fraudulent.

If negative trends like these continue, could a case be emerging for bitcoin being a better inflation protected asset than gold. On the basis of commodity trading, shipping and insurance not the reliable and wholesome industries they used to be.

[The Sceptical Chymist]

Interesting story.  Makes me wonder why a Swiss trading firm would want all that physical copper, and the article doesn't say unless I missed it. 

Now as far as your comment, Hydrogen, I'm not sure I'd lose any faith in precious metals as investments because of this.  The prices for gold, silver, and probably all the base metals too, are determined by paper traders and I don't think any of those fake gold/silver coins and bars really matter all that much.  I'm also pretty sure the copper market won't suffer a bit because of this bit of shenanigans, which seems like a completely idiotic crime to commit IMO.  How did the perpetrators not think they weren't going to get caught?  It's almost laughable.

[bitsurfer2014]

That incident was a brazen act of stupidity coming from those criminals who thought they can escape the teeth of law. Meanwhile, I think the buyer company has been complacent enough that they did little to ensure that the copper cargo would be accompanied by their own representative and the insurance papers verified for their veracity considering that the transaction involves a considerable amount of money. Imho.

[franky1]

yep the flaws of commodities trading.

people playing digital markets where digits are backed by physical products. but those physical products dont move or get inspected enough to ensure the backed commodity is still real and valuable

same went for fiat when it was gold backed. no one was allowed to audit the fed reserve

its the downside of 'backed assets' you have to trust the vault/reserve/warehouse isnt fractionally reserving or syphoning off the pile

[franky1]

That incident was a brazen act of stupidity coming from those criminals who thought they can escape the teeth of law. Meanwhile, I think the buyer company has been complacent enough that they did little to ensure that the copper cargo would be accompanied by their own representative and the insurance papers verified for their veracity considering that the transaction involves a considerable amount of money. Imho.

commodity traders.. dont seek to trade to get delivery. they hold 7day contracts where if they dont sell it on day 8 it triggers a delivery to them.
so they play with 7 day contracts and always sell on day 7. meaning the next trader sells on day 7. meaning the next trader sells on day 7.. meaning for 21 days it doesnt move

with fast trading by commodity traders circulating the stocks. the goods can be held up in warehouses for years. if traders never sell on to industry buyers

think about it.
13 people arrested... hmm.. 300 containers containing hundreds of thousands of tiles. all individually handsprayed... that takes a few months.. not a 2 day lay-over

by not triggering a delivery.. no one inspects the containers.. they just sit there doing nothing until a delivery is triggered

[Darker45]

As far as being a long-term store of value is concerned, gold is still dependable. Within such context, I think "Just buy gold, you'll be safe" is still true. If you have an immense amount of wealth and you want to keep it in such a way that its value is well-preserved for your great great grandchildren, I guess gold is the perfect choice. Of course, only if certain conditions are met like it is well-secured, proven to be genuine, and so on.

Anyway, this news reminded me of the gold scandal less than a year ago. $36 million in copper proves too small to the $2 billion loan availed by one of the largest gold jewelry manufacturers in China. Kingold Jewelry Inc. used 83 tons of fake gold as collateral.^[1]

On the basis of Bitcoin being easily verifiable, easily stored, easily transferred, resistant to counterfeiting, and so on, Bitcoin is far better than precious metals. But as a long-term SOV covering generations after generations, I think gold is reliable.

[1] https://news.bitcoin.com/gold-industry-83-tons-fake-gold-bars-secure-2-billion-loans-china/

[Twentyonepaylots]

If the shipper is a trusted partner of the buyer, then there's a higher tendency that the foul move was made by the logistics. Because there's no way you'll cross your long-running partner for $36 million worth of copper when you could get a consistent buyer that will consistently make you money in the long run. If this is not the case, then it's best to interrogate the seller.

[philipma1957]

As far as being a long-term store of value is concerned, gold is still dependable. Within such context, I think "Just buy gold, you'll be safe" is still true. If you have an immense amount of wealth and you want to keep it in such a way that its value is well-preserved for your great great grandchildren, I guess gold is the perfect choice. Of course, only if certain conditions are met like it is well-secured, proven to be genuine, and so on.

Anyway, this news reminded me of the gold scandal less than a year ago. $36 million in copper proves too small to the $2 billion loan availed by one of the largest gold jewelry manufacturers in China. Kingold Jewelry Inc. used 83 tons of fake gold as collateral.^[1]

On the basis of Bitcoin being easily verifiable, easily stored, easily transferred, resistant to counterfeiting, and so on, Bitcoin is far better than precious metals. But as a long-term SOV covering generations after generations, I think gold is reliable.

[1] https://news.bitcoin.com/gold-industry-83-tons-fake-gold-bars-secure-2-billion-loans-china/

Long term this thought process could cost you a fortune.

Golden asteroids are being visited by NASA/Musk and if they figure a way to get it back for use gold will become as common as copper.

I am 64 and I am not rich. But if I had billions invested in gold and was still earning and stacking gold with out stacking BTC I would be gambling that gold stays scarce. For no reason other than its been good for a long time it will stay good.

There was a time seashells had value for trade. Just saying gold could drop a lot in the 10-20 year time slot.

[Sithara007]

The issue for Mercuria Energy Group is that the legal process in Turkey is very slow, as well as corrupt and mired in bureaucracy. I don't think that they are going to get the reimbursement anytime soon (in case they are going to get it). This is the price you pay, when you are dealing with third world nations. I have heard similar stories from countries such as Russia and some of the African nations. Hopefully, next time they will purchase copper from Australia or some other country where the traders are more honest.

[bitsurfer2014]

That incident was a brazen act of stupidity coming from those criminals who thought they can escape the teeth of law. Meanwhile, I think the buyer company has been complacent enough that they did little to ensure that the copper cargo would be accompanied by their own representative and the insurance papers verified for their veracity considering that the transaction involves a considerable amount of money. Imho.

commodity traders.. dont seek to trade to get delivery. they hold 7day contracts where if they dont sell it on day 8 it triggers a delivery to them.
so they play with 7 day contracts and always sell on day 7. meaning the next trader sells on day 7. meaning the next trader sells on day 7.. meaning for 21 days it doesnt move

with fast trading by commodity traders circulating the stocks. the goods can be held up in warehouses for years. if traders never sell on to industry buyers

think about it.
13 people arrested... hmm.. 300 containers containing hundreds of thousands of tiles. all individually handsprayed... that takes a few months.. not a 2 day lay-over

by not triggering a delivery.. no one inspects the containers.. they just sit there doing nothing until a delivery is triggered

Hmmm... I wonder why they haven't used any commercial letters of credit as a way to both secure their transaction. Anyway this could serve as a lesson to all international traders.

On a side note, I think a digital letters of credit could be implemented in a blockchain as a DeFi platform to cater to international trades though I don't know yet a blockchain project that that offers similar services that functions like a traditional letters of credit.

[Kong Hey Pakboy]

That incident was a brazen act of stupidity coming from those criminals who thought they can escape the teeth of law. Meanwhile, I think the buyer company has been complacent enough that they did little to ensure that the copper cargo would be accompanied by their own representative and the insurance papers verified for their veracity considering that the transaction involves a considerable amount of money. Imho.

I am pretty sure that the company don't mind that their precious metals were stolen because as far as I know, those are insured in a way or that they can easily be recovered from the thieves, not to mention that those stolen coppers are going to have a hard time being sold in the market because it is tainted and the only way for it to be sold is when they don't sell it publicly which is the likely thing to happen.

[bitsurfer2014]

That incident was a brazen act of stupidity coming from those criminals who thought they can escape the teeth of law. Meanwhile, I think the buyer company has been complacent enough that they did little to ensure that the copper cargo would be accompanied by their own representative and the insurance papers verified for their veracity considering that the transaction involves a considerable amount of money. Imho.

I am pretty sure that the company don't mind that their precious metals were stolen because as far as I know, those are insured in a way or that they can easily be recovered from the thieves, not to mention that those stolen coppers are going to have a hard time being sold in the market because it is tainted and the only way for it to be sold is when they don't sell it publicly which is the likely thing to happen.

Ideally, the use of any insurance policy is recommended for such transactions but according to the report, the buyer has been duped ...

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.

[Silberman]

The long history of precious metals markets equate commodities like gold with stability and safety. "Just buy gold, you'll be safe," is consensus accepted advice. But has the time finally come to question those long held views?

In an era where $36 million in copper commodities are hijacked and lost. Reliability of commodity trading/shipping appears on a steep decline.

Could an outlier precedent could be emerging where commodities like gold no longer represent the safe havens they once did? Experts and analysts claim gold and silver are undervalued. But did they remember to price in the cost of counterfeit gold and silver bars flooding markets. Cases like these where even insurance that is supposed to protect commodity shipments from loss turn out to be forged and fraudulent.

If negative trends like these continue, could a case be emerging for bitcoin being a better inflation protected asset than gold. On the basis of commodity trading, shipping and insurance not the reliable and wholesome industries they used to be.

You nailed it, the market of precious metals can offer protection against inflation so for those that are not convinced on bitcoin yet it can be a good way to protect themselves, but the issue of the authenticity of precious metals is something that cannot be ignored, in the case you present it was easy to see those rocks were not the copper Mercuria was expecting, but in the case of gold there are falsifications so realistic that it is impossible to tell with the naked eye which gold is real and which is not, while in the case of bitcoin even if there are low quality clones there are not fake bitcoins out there and this is a huge advantage.

[Darker45]

~snip~

Long term this thought process could cost you a fortune.

Golden asteroids are being visited by NASA/Musk and if they figure a way to get it back for use gold will become as common as copper.

I am 64 and I am not rich. But if I had billions invested in gold and was still earning and stacking gold with out stacking BTC I would be gambling that gold stays scarce. For no reason other than its been good for a long time it will stay good.

There was a time seashells had value for trade. Just saying gold could drop a lot in the 10-20 year time slot.

There was what was called Psyche 16, an asteroid believed to contain "enough gold to make everyone on Earth a billionaire." Three things, though:

1. It has already been discovered in the mid 1800's. No mining ever took place since then.
2. Very costly future explorations are planned mainly for scientific research rather than mining or financial exploration.
3. If, after several decades, gold mining will commence far away from earth, the production cost would be very high, which gives us an idea that the venturing company wouldn't be pricing their proceeds very cheap. They'd be extra careful not to cause the gold market to plunge into worthlessness or else...

However, the most important point is that despite the idea of space or asteroid mining becoming a sort of a craze and has even caused a certain race in the field, it is probably mostly just talks, not even cost-benefit or profit-oriented financial talks but ones which involve fundamental mathematical formula on how it is even made possible.

Anyway, just saying asteroid mining is still a remote possibility that won't devalue earth's gold, at least not in the next century.


[1] https://www.thesun.co.uk/tech/9378480/giant-golden-asteroid-psyche-61-billionaire-nasa-2022/
[2] https://en.wikipedia.org/wiki/Asteroid_mining
[3] https://www.bloomberg.com/opinion/articles/2020-12-21/space-mining-on-asteroids-is-never-going-to-happen

[Kong Hey Pakboy]

I am pretty sure that the company don't mind that their precious metals were stolen because as far as I know, those are insured in a way or that they can easily be recovered from the thieves, not to mention that those stolen coppers are going to have a hard time being sold in the market because it is tainted and the only way for it to be sold is when they don't sell it publicly which is the likely thing to happen.

Ideally, the use of any insurance policy is recommended for such transactions but according to the report, the buyer has been duped ...

Too bad that they didn't consider it, I believe that this is a planned heist because 36 million dollars worth of copper is not something that can be stolen in a heartbeat, planning was involved and inside jobs are definitely a possibility.

[bluebit25]

In the country I live in is also starting to add this market to a new investment portfolio, I do not know too much about it, but heard from some friends that this market is guaranteed by the state. it's safe. Through the story of my friends I still cannot understand why it is possible to cheat so explicitly, are they too stupid or not?

[jseverson]

If negative trends like these continue, could a case be emerging for bitcoin being a better inflation protected asset than gold.

I feel like cases like this definitely add to the conversation, especially since counterfeiters are becoming more sophisticated in general, but I'd say it's still way too early to think Bitcoin will pull ahead. Gold literally has millennias of track record (I'm sure it has endured the same problems with counterfeiting and shipping for just as long) over BTC, not to mention it's basically the money of central banks. It's very difficult to imagine that gold will slip in the foreseeable future.

Bitcoin does solve the counterfeiting and shipping problems, but it also comes with issues of its own. One of the biggest I can see that can impact its long-term value is that it's still very vulnerable to legislation -- sure, the network itself cannot be interfered with, but I'm pretty sure most people won't bother once they have to start spoofing their locations, they can't trade conveniently because exchanges are banned, or they're threatened with jail time, etc. Things have definitely been trending for the better as of late though (and a lot better and faster than I would have expected, at that), so I do believe the flippening will eventually happen, but probably not within our lifetime.

[davis196]

In an era where $36 million in copper commodities are hijacked and lost. Reliability of commodity trading/shipping appears on a steep decline.

It seems wrong to make generalized conclusions about the safety of the precious metals markets based on such theft.I still believe that the precious metal markets are safe and secure and such cases are an exception.
I really hope that the buyer will get a refund and the criminals will get caught.
 

[iv4n]

about 6,000 tons of blister copper in more than 300 containers were switched with jagged paving stones, spray-painted to resemble the semi-refined metal

Amazing!

think about it.
13 people arrested... hmm.. 300 containers containing hundreds of thousands of tiles. all individually handsprayed... that takes a few months.. not a 2 day lay-over

I can understand spraying, they were doing that in some warehouse, slowly (if they started on time)... like preparation time!

But can you imagine this entire action? One truck can carry 20-30 tons (some special ones can carry more), so roughly 200-300 trucks, you probably need a few forklifts... they must be doing that for a while, looks to me like impossible to do this switch in just 2-3 days! Or maybe they had containers, so one container with fake copper comes, one container with real copper gets out!?

Those 13 people are probably low ranked workers, and painters!

[so98nn]

Well there is thing like letter of credit, Post Dated Cheques, Bank Bonds and more with which you can always secure your funds. This is the common practice for the international shipping or cargo when its B2B transaction. I am not sure how the hell they made $36 million worth of transaction without such methods?

They could have followed the proper procedure to save those millions of dollars. They can still file the law suit though. However they will have to fight for it in the country of origin! That’s gonna be hard shit. Lolz