Physical inspections, counterparty due diligence, and documentary due diligence are among the finest methods for stopping metal fraud.
FREMONT, CA: Over the past few years, fraud has become a major problem in the trade and financing of commodities, most notably in regard to metal cargoes. Due to its high value and the fact that packing nickel briquettes in bags is a standard procedure, nickel has been a frequent target for fraud, unlike other high-priced metals. This consequently implies that it is less probable that anybody engaged in the cargo's transportation or storage will notice anything suspicious, especially when the cargo is delivered or stored in huge quantities. Recently, there have been several well-known and extensively publicized nickel scams. Fortunately, one can take steps to reduce the likelihood of becoming a victim of this type of fraud. Most of these steps are more operational or practical than they are legal.
There is no one-stop shop for preventing fraud, as evidenced by the persistent reliance on easily manipulated or forged documentation. However, combining various preventative measures improves the chances of traders and financiers spotting possible frauds early on or preventing them entirely.
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Below are some of the best recommendations for preventing metal fraud:
Physical examinations: Physical surveys of items should be conducted whenever possible and, if the commodities are not just in storage, at various points in the logistics chain, despite the obvious operational and financial constraints.
Independent verifications of this nature ought to be conducted by the concerned trader or financier or an individual designated by them. A person who is willing to perpetrate fraud is undoubtedly willing to give written confirmations to a dealer or financier in an effort to persuade them that the products are where they are supposed to be, even if that is not true, as we have seen over the past several years.
Due diligence on the counterparty: Due diligence on the counterparty comes first. This should not be seen as just another box to check. It has been claimed in a number of commodities frauds over the past few years that different traders and financiers cut relations with the criminals before due diligence investigations revealed the crimes. Some people had it worse off.
Due diligence on documents: A thorough examination of the document's authenticity is necessary for both originals and copies. Warehouse receipts should also be examined for watermarks, authenticity stickers, and paper type while the goods are being stored.
The storage operator, who will be familiar with the telltale signs of authentic documentation, or agents of the trader or lender should ideally conduct these inspections to reduce the possibility of dishonesty.
