Over the past decade

China has emerged as the world’s biggest counterfeiter of various, mostly industrial metals used to secure bank loans, infamously called “ghost collateral”,
And often several banks would have claims to the same (fake) asset.

In a recent development,

Kingold Jewelry Inc has been accused of depositing fake gold bars as collateral to obtain loan worth 20 billion yuan ($2.8 billion)
From 14 Chinese financial institutions, mostly trust companies (also known as shadow banks), over the past five years.
Considered to be one of the biggest gold counterfeiting scandals in recent history,
The scam not only involves China, but it emerges from Wuhan city, the capital of Hubei Province,
That has become synonymous for all that is scandalous about the country.

KINGOLD JEWELRY

It is one of the world’s largest privately owned gold processor with a current market cap of just $8 million.
The company is led by Chairman Jia Zhihong, an intimidating ex-military man who is the controlling stakeholder in the company.

It is also listed on Nasdaq stock exchange. According to the report, KINGOLD JEWELRY used 83 tonnes of gold bars as collateral and insurance policies to cover any losses
But many of them have turned out to be gilded copper.
This has left creditors holding the collateral for the remaining 16 billion yuan of loans outstanding against the fake gold bars.

HOW THE SCAM WAS DISCOVERED?

The scam came to light in February this year when Kingold defaulted on loans to Dongguan Trust Co. Ltd.
Dongguan Trust said it found that the gold bars that were pledged as collateral turned out to be gilded copper alloy.

The news spooked Kingold’s creditors.
Following Dongguan Trust, China Minsheng Trust, one of Kingold’s biggest creditors, obtained a court order to test collateral before Kingold’s debts came due.

The test result, which came on May 22, said the bars sealed in Minsheng Trust’s coffers were also copper alloy.
Authorities have already begun investigations into securities fraud.
Established in 2002, Kingold was previously a gold factory in Hubei affiliated with the People’s Bank of China that was split off from the central bank.

WHAT THIS SCAM TELLS ABOUT CHINA?

The scam is shocking in exposing just how multi-faceted fraud is in China: capitalizing on pre-existing cronyism and connections with China’s powerful army.

China Biggest Gold Fraud

The founder of Kingold Jewelry (Chairman Jia Zhihong) was allowed to basically do anything he wanted, no questions asked, including counterfeiting over 83 tons of gold bars.
It is would be equivalent to 22% of China’s annual gold production and
4.2 per cent of the state gold reserve as of 2019.

China Biggest Gold Fraud

China Biggest Gold Fraud China Biggest Gold Fraud