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Forged Warehouse Receipts Renew Worries of Commodities Fraud

  • Forgery of Access World’s receipts said to occur in Asia
  • Metals warehouses in Asia have faced fraud problems in past

Forged commodity-storage receipts discovered by a Glencore Plc unit have rekindled concerns over warehousing fraud two years after the Qingdao scandal in China that cost banks hundreds of millions of dollars.

Glencore’s Access World, which stores materials from metals to agricultural products, alerted police after finding counterfeit receipts bearing its name circulating in Asia, two people with knowledge of the matter said last week.

While it’s not clear if any money was lent against the fake documents, it’s a reminder of risks associated with the centuries-old banking mainstay of trade financing. In mid-2014 at Qingdao, metals held in warehouses were believed to have been pledged several times as collateral for loans, leading to hundreds of millions of dollars of bank writedowns. The industry has since started looking to technology to make issuing and tracking documents more secure, rather than relying on manually cross-checking records.

“Issues like this are reflective of the nature of the commodities industry,” said Nikos Nomikos, a professor of shipping risk management at Cass Business School at City University of London. “We may be in the 21st century, but some of the practices in this business go back to the 18th century.”

There isn’t the same concern over London Metal Exchange warehouses, which use a centralized depository to transfer ownership of metal used in financing deals. When dealing with private warehouses, it’s harder for banks to be sure that the metal is either owned by the borrower or used only once as collateral.

Private Storage

The LME has also developed a similar electronic register to track receipts for material held in private storage. The LMEshield system has been “designed to mitigate the risk of counterfeit receipts,” the LME said by e-mail Monday.

While there are now 67 LMEshield approved warehouses, they cover just a fraction of the overall amount of refined metal held privately around the world. Even the 3.6 million metric tons of metal stored across the LME’s whole network is small compared with the 13 million tons of aluminum that consultancy Harbor Intelligence estimates is held privately.

The LME warned warehouses on Tuesday not to issue warrants for metal if ownership was unclear.

Access World on Friday told holders of its receipts to seek authentication from the issuing office for any documents that weren’t directly issued by the company. The firm operates in countries including Singapore, China, India, Malaysia and South Korea. The LME doesn’t have any warehouses in China.

A spokesman for Glencore declined to comment.

Read more: Fighting fraud in the trade-financing industry.

Banks including Standard Chartered Plc, which was ensnared by the Qingdao scandal, and Bank of America Corp. have said they’re looking at blockchain technology to address the risk of multiple-invoice fraud. The LME doesn’t rule out using ledger-based technology within its LMEshield system at some point, it said Monday.

“It’s only a matter of time before technologies like blockchain make their way into commodities, because they offer a secure way to authenticate transactions,” Nomikos said. “It’s very difficult to forge the record.”

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.

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