Canada’s Scotiabank has put its gold business up for sale in the aftermath of a multibillion dollar money laundering scandal centred on a US refinery that involved smuggled gold from South America.
The bank’s ScotiaMocatta business is one of London’s main gold trading banks and is being sold by JPMorgan, according to people familiar with the process.
Chinese buyers are rumoured to be the key targets of the Scotiabank sale, according to people in the market. Scotiabank declined to comment on the sale or the refinery scandal.
The “straw that broke the camel’s back” in prompting the sale, according to people in the market, was Scotiabank’s lending to Elemetal, a precious metals refinery in Dallas. Scotiabank was one of their biggest lenders, they said.
In March, US prosecutors accused workers at a subsidiary of Elemetal, NTR Metals in Florida, of a money laundering scheme using “billions of dollars of criminally derived gold” mostly from Peru.
Elemetal did not respond to a request for comment. Scotiabank and ScotiaMocatta were not accused of any wrongdoing.
According to court documents filed in Florida, workers at NTR Metals allegedly “knowingly conspired to purchase gold with the intent to promote the carrying on of organised criminal activity, including illegal gold mining, gold smuggling and the entry of goods into the US by false means and statements to US Customs, and narcotics trafficking”.
NTR imported over $3.6bn of gold from Latin America between 2012 and 2015, the court documents allege. Two of the accused, Samer Barrage and Juan Granda, pleaded guilty last month to a charge of money laundering in plea deals.
After the story came to light in March, Elemetal was kicked off the London Bullion Market Association’s “Good Delivery List,” of gold refiners — buyers will in almost all cases only buy gold from a refiner on the list.
In the same month, New York’s Comex futures exchange also said it was no longer taking gold from Elemetal for delivery against futures contracts in the world’s biggest gold futures market.
The scandal surrounding Elemetal has made it difficult for holders of Elemetal gold to sell the gold bars on, leaving them sitting in bank vaults, according to gold traders. Buyers are reluctant to take the gold, given the investigations.
Scotiabank is one of five bullion banks that settle gold trades in the London market, the world’s largest. It was built on the 1997 purchase by Scotiabank of Mocatta Bullion, which traces its roots back to 1671.
Gold trading has become increasingly costly for banks, because of stricter rules in place since the financial crisis that aim to at reduce market risks.
HSBC and JPMorgan dominate the London market: their large balance sheets enable them to provide credit to clients and refiners around the world. Unlike Scotiabank, they also have vaults in London.
Gold trading in London is estimated to be worth more than $5tn a year, although there are no precise figures on how much gold is traded there every day.
Additional reporting by Gregory Meyer in New York
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