WAREHOUSING: The biggest warehouse frauds of recent times

Metal Bulletin reviews key dates and events related to the 2014 Qingdao scandal and the nickel warehouse receipts forgery that was uncovered this year.

The Qingdao scandal in China, which involved the fraudulent use of warehouse receipts multiple times to raise finance, led to significant changes to the way the metals industry operates.

Credit became tighter and several upgrades to security features on warehouse receipts were made.

Even so, another warehouse fraud in Asia has since shaken the metals industry this time involving Access World nickel warehouse receipts.

Metal Bulletin presents a detailed timeline of both events below.

June 2014
Qingdao blocks the shipment of some material while investigating the allegedly fraudulent use of warehouse receipts multiple times to raise finance.

The investigation into allegations of missing material and double- or triple-pledged metal in Qingdao focuses on bonded warehouses in the Dagang port terminal rather than other non-bonded and bonded areas.

Several western banks, including Standard Bank, Standard Chartered and Citi, say they are monitoring or reviewing their financing activities in Qingdao.

July 2014
Chinese state-owned company Citic Resources Holdings files a claim in the Qingdao Maritime Court against the operator of a bonded warehouse at Qingdao port in an attempt to recover its alumina and copper.

In Shanghai, copper premiums and prices firm in response to a tightness that was partly the result of the postponement or rerouting of shipments.

August 2014
Glencore’s warehousing division sues Qingdao Port over undelivered aluminium. The port is also named as a party in a lawsuit brought by ABN Amro.

Shanxi Coal Import & Export, a Shanxi Coal International unit, files a claim against a subsidiary of Citic Resources Holdings for $89.75 million plus interest for undelivered aluminium ingots.

September 2014
Qingdao Port International says about 400,000 tonnes of material, including 300,000 tonnes of alumina, 20,000 tonnes of copper and 80,000 tonnes of aluminium ingots, is involved in the fraud.

December 2014
The arguments from banking firm Citi and trading company Mercuria over who should face the $270 million exposure from financing deals linked to metal held at Qingdao have now been heard.

March 2015
Impala Warehousing & Logistics (Shanghai) Co Ltd and Wanxiang Resources (Singapore) Pte Ltd battle it out in UK courts after Impala Shanghai brings a claim against Wanxiang to have a mandatory anti-suit injunction imposed.

Impala Shanghai is granted in principle the anti-suit injunction to prevent Wanxiang from pursuing proceedings against Impala in Shanghai.

May 2015
UK High Court makes a judgment in in the dispute between Citibank and Mercuria Energy over missing metal in Qingdao.

August 2015
The People’s Bank of China (PBoC) slashes interest rates four times between November 2014 and July 2015, during which time it also lowers the bank deposit reserve ratio requirement, alongside other efforts to inject funds into the banking system to beef up the local economy.

Many Chinese metal companies are struggling to secure credit in the aftermath of the Qingdao scandal.

October 2015
London Metal Exchange offers a new electronic audit system for warehouse receipts called LMEShield that can in due course be used by warehouses that need not be LME-registered.

But access to China is crucial for LMEshield to gain traction.

November 2017
C Steinweg Group launches a new online platform to support the digitization of metal warehouse receipts in Asia aimed at reducing the risk of fraud associated with paper documents.

Glencore-owned warehouse company Access World revealed at the end of January 2017 that forged warehouse receipts bearing its name were in circulation in South Korea and Malaysia.

While there were initial concerns that this could be a widespread fraud, later it became clear that it was relatively contained in Asia, affecting only nickel stocks held by Access World.

No nickel has physically been delivered against the forged receipts, which is a key difference from the Qingdao scandal.

But the banks that agreed to finance the fake copies were again the main financial victims, with known financial losses exceeding $300 million.

The Access World nickel receipt forgery relates to complex transactions including Chinese asset monetization, repurchase agreements (known as repos), receipt endorsement and financing deals.

It also has multiple people involved in numerous locations, with its trail leading from warehouse companies in Malaysia, South Korea and Singapore to trading companies in Hong Kong and California, an asset owner in China, and banks and brokers in London and Australia.

Here is Metal Bulletin’s review of the timeline of key events linked to this fraud:

June 2016
Straits (Singapore) Pte Ltd, the trade facilitation arm of Straits Financial Group, which itself is wholly owned by CWT Group, is issued with the original legitimate nickel warehouse receipts by Access World.

At some stage between 2016 and January 2017, copies of Straits’ nickel warehouse receipts are illegally made by unidentified parties and used to raise finance from banks.

Such fake copies, of which Metal Bulletin obtained samples in March 2017, showed Straits (Singapore) Pte Ltd in the first endorsement box dated early June 2016 and a Hong-Kong based entity in the second endorsement box three days later.

January 2017
A receipt brought in by London-based Marex Spectron failed authentication from Access World, revealing the forgery to the industry and prompting more receipt holders to come forward to check whether their documents were genuine or not.

Access World reveals that forged warehouse receipts bearing its name are in circulation in Asia, with issues reported in Korea and Malaysia.

The London Metal Exchange then calls on warehouse operators not to warrant metal where ownership could be disputed, including any possible links to forged warehouse receipts such as those reported by Access World.

February 2017
Straits Singapore confirms that it held the original Access World nickel warehouse receipts that were copied illegally.

March 2017
Australia’s ANZ and France’s Natixis are identified as being among the banks that agreed to provide cash against the forged warehouse receipts.

Amid the heightened risk awareness, it becomes even harder for metal traders to secure fresh finance.

Brokerage companies Marex Spectron and EDF Man are caught up in the scheme, sounding the alarm for base metal brokers active in brokering repos and other financing deals.

May 2017
Legal proceedings begin, with Natixis filing a lawsuit against Marex Spectron to recover $32 million in losses related to the fraud.

The case pertains to five spot purchase contracts – three of them done in a joint trade – between November 22, 2016 and January 10, 2017, covering a total of 16 receipts for nickel stored in Access World warehouses in Gwangyang, Korea, and Johor, Malaysia, all of which were found to be forgeries, Natixis says

June 2017
Marex Spectron files a defense, claiming no liability in the case filed by Natixis and dragging warehouse operator Access World into the lawsuit for having allegedly incorrectly authenticated forged documents as genuine.

ANZ initiates separate legal proceedings in the United States, Hong Kong and Singapore to try to gather information and find the culprits of the fraud.

The claims pertain to 31 transactions concluded with London-based brokerage EDF Man Capital Markets Ltd between May 5 and October 11, 2016, covering a total of 84 nickel receipts stored in Access World warehouses in Singapore, Johor and Busan, of which 83 are believed to be forgeries.

In turn, EDF Man Capital Markets received those 83 receipts from two Hong Kong companies. The sole genuine receipt had as first order party the US-based consultancy Genesis Resources Inc.

ANZ and EDF Man Capital Markets subsequently reach an out-of-court settlement outside the court. According to ANZ, any forgery would have taken place prior to the receipts being delivered to EDF Man.

July 2017
IHS Markit launches a digital tracking system for physical metals inventory, intended to update the way in which trading companies reconcile their inventories, which is currently a manual process.

October 2017
Access World says in court documents it is not liable for damages in the $32-million nickel fraud lawsuit between Marex Spectron and Natixis.

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