SIMPLE explanation of KITCO SCAM - from Harvey Organ

[HistoryStudent]

The charges against Kitco are quite astonishing. I will try and describe the charges so you can understand what is happening here.

It is alleged that Kitco and other company at the centre of the ring were involved in a tax scam in the conversion of pure gold into scrap gold and back into pure gold.
Pure gold is non taxable in Canada. Gold with copper or other metals in it must be sold or bought with a sales tax. In Quebec, for several years, they have had a harmonized tax called an HST which includes the Federal GST of 5% and the Provincial Sales tax of 8%. Business pays the 13% and use this as an input credit. They charge 13% of all of their sales and remit the difference between the sales tax collected and input tax credits. Gold only in pure form is non taxable.
Ontario until last year had a separate Federal sales tax called a GST of 5% which was added to a provincial tax of 8%. These were merged into an HST last year.


Here is how the scam went.
Kitco supposedly took ounces of pure gold say 1000 oz from their inventory and sold it to a refiner A. Let us say that the sale price was 1500.00 per oz, Canadian.

Thus the sale price will look like this:

1,000 oz of gold x 1500.00 or 1,500,000.00

Kitco would receive a cheque for 1.5 million dollars .

Step no 2:
Refiner A adds 10% copper (6 lbs at a cost of 24.00 dollars) and sells the 1000 oz back to Kitco as scrap gold:

The invoice would look something like this:

Number of oz turned into scrap: 1000 oz

Cost:

1,000 x 1500.00 gold = $ 1,500,000.


Cost of Cu: $ 24.00

Cost of making scrap: $1,000.00

total cost 1,501,024.

HST: 195,133.12

total invoice price: $1,696,157.12

Step no 3:

Kitco writes a cheque for $1,696,157 to the refiner
and then claims the $195,133.12 as an input credit against other sales taxes.

The refiner however does not remit any sales tax on his end.
Why? because all the paperwork was phony. There was no activity.
Why on earth would Kitco turn pure metal into scrap metal?

Net cost back to Kitco: $1,501,024.00 (they now have 1000 oz of scrap gold.)
Their out of pocket cost for far is now 1,024.00 dollars.

Step no 4:

They then send this scrap gold to another refiner B who extracts the copper from the gold.

The invoice from them would look something like this:

1000 oz of gold to be refined; cost 1000.00
HST 13% 130.00 dollars
total cost 1,130.00 dollars.

the total cost to Kitco is now $2,154.00 to get the same gold back.

I would presume that the refiners write cheques back to Kitco for part of the phony sales tax credits received by the refiners who did not submit the dollars to Revenue Canada.

Even though this started as a provincial audit, the Feds will no doubt will be involved as they receive the total dollars to start with and then remit to the provinces their share.

It is also interesting that Kitco immediately filed for an interim receiver Richter Usher Vineberg as this will no doubt turn into an absolute mess.
The gold at Kitco is unallocated and thus can be attacked by Revenue Canada. This would create the biggest run on a "bank" in history for Canada as depositors of gold at Kitco immediately seek redemption. Thus Kitco had to act immediately.
The unallocated gold is surely a mess but when you add in the tax consequences, this will dwarf the Refco fraud.
The investigators noted that almost all of the invoices were made up and totally fake.
I do not believe that Kitco would have any use for scrap gold. Most individuals take their scrap gold and refine it to pure gold. Why would Kitco change their pure gold to scrap gold?





The authorities believe this has been going on for several years. It is believed that the total phony invoices total 2 billion dollars.


The tax remitted to the refiners total around 150 million dollars over these years.


Quite a scam!!!


Bart Kitner is a stand up guy. It is hard to fathom that he could be involved in this.


Let us see how this plays out.







Imagine having paper gold stored at KITCO right now, right?

[GOLDZILLA]

The bad part is this tax remittance stuff. Now as for the refining and impurifying part, that is pretty smart if they actually really did it and have proof, like video and witnesses from the partners and records that show the transfers.

[HistoryStudent]

I think it was all DONE on paper - thereby giving the refiners profit without doing a thing except invoicing to evade KITCO taxes.

However, that also makes them involved in conspiracy against the Canadian govy.


"That AIN"T good - so to speak, right?"

[Goldhedge]

the total cost to Kitco is now $2,154.00 to get the same gold back.


Plus the added write off: "then claim the $195,133.12 as an input credit against other sales taxes."

---

I was trying to understand the benefit to Kitco for doing the switch-o-change-o

[HistoryStudent]

Plus the added write off: "then claim the $195,133.12 as an input credit against other sales taxes."

---

I was trying to understand the benefit to Kitco for doing the switch-o-change-o

Until they got caught trying to work against the Canadian GOVY - that's ten times worse then
INSRANCE fraud (you'll never get any insurance company policy EVER again if convicted);

This should make REFCO and ENRON look like mom and pops failing.


The MOTHER of all GOLD holding companies failing. (ONE might want to have physical IMVHO)

Imagine the claims in the paper gold stored.... I'm sure the govy grabbed the real stuff for they need it to ship to the Asians.

We'd better start looking for another CHART company - maybe?

[Unca Walt]

Holy Smokes, HistoryStudent!!

Thank you so much for your cogent explanation. Even I could follow it.

Those sneeeeeky bastiges.

Like GOLDZILLA pointed out, this scam could have gone

A. Undetected (continuing the scam)
B. Caught, but perfectly legally-defendable PROOFS showing they were doing exactly what the books showed.*****

*****A small series of movies of the operation <--- Heck, it could have been a small documentary to be shown in schools!

Just that little bit of effort, just that little bit of LESS greed (cost of making a movie, etc) -- and KITKO would have taken in billions more.

[HistoryStudent]

Holy Smokes, HistoryStudent!!

Thank you so much for your cogent explanation. Even I could follow it.

Those sneeeeeky bastiges.

Like GOLDZILLA pointed out, this scam could have gone

A. Undetected (continuing the scam)
B. Caught, but perfectly legally-defendable PROOFS showing they were doing exactly what the books showed.*****

*****A small series of movies of the operation <--- Heck, it could have been a small documentary to be shown in schools!

Just that little bit of effort, just that little bit of LESS greed (cost of making a movie, etc) -- and KITKO would have taken in billions more.

****************************

ONE unhappy EMPLOYEE not paid off with a thousand ounces coulda woulda shoulda tipped off the GOVY - IMVHO.

[~BS]

feel sorry for all the poor saps with pool accounts. I remmeber how they used to tout how safe and awesome it was.

if no hold, no own

[Gcubed]

One would be foolish to alloy gold in order to simply refine it again. There are losses involved as refining is not 100% efficient. I smell a paper scam. Time and the judicial system will tell. JMHO.

[Usc96]

I must be slow because I'm having a hard time following. Question: why does the refining process create a taxable event? Is sending pure gold to a refiner to add 10% copper considered a sale?

Likewise, is sending scrap gold to a refiner to have the copper taken out considered a sale?

Where is the taxable event that gives rise to the sales tax?

Is the scam just a fraudulent reporting of a large sales tax that was never paid, but greased as an offset by the company to avoid other due sales taxes?

Thanks. Not trying to be difficult, just trying to sort out the scam.

[Oz Waver]

There is more to it than the article let's on. I did a small bit of explaining but there is a loophole that they were exploiting, unethical yes, illegal well we are about to find out, cause technically they are claiming QST when it was never paid, but they are saying it was and claim it back. The intermediaries play an important role.

How complicated they get and if money changes hands, maybe we will find out.

Here is a translation (direct from the Revenue Quebec):
June 9, 2011
Major investigation by Revenue Quebec on two networks in the gold sector
Montreal, June 9, 2011. - Revenu Québec is currently conducting a major investigation on two networks with companies and individuals who have engaged in tax evasion activities in the gold sector. Transactions generated by these activities would total $ 1.8 billion, which represents tax losses only in sales tax (QST), more than 150 million.
The operation is running more than 70 search warrants in the cities of Montreal, Westmount, Mont-Royal, Laval, Pointe-Claire, Rosemere, Brossard, Dorval and St-Bernard de-Lacolle. More than 175 investigators from Revenue Quebec were deployed to implement these mandates in business locations, residences, offices of accountants and trustees in bankruptcy.
This survey targets the activities of two networks that have participated in a business transaction involving artificial and repetitive use of a system of false invoicing. Revenue Quebec has reasonable grounds to believe that most companies Kitco Metals Inc.. and Carmen International inc. About 125 other companies are complicit in the scheme.
In addition, Revenue Quebec also has reasonable grounds to believe that Drs. Viken Gebenlian, Haroutioun Dakessian, Oskan Hazarabedian and Benjamin Bensimon and Mrs. Shadia Khatib attended the production of false tax returns for certain companies involved in providing false invoices.
Revenue Quebec is also investigating similar crimes on the GST.
Revenu Québec must be uncompromising with those who violate tax laws and in particular may bring criminal prosecutions against them. Thus, companies and their directors who participated in a scheme of tax evasion, or any other person accomplice, if convicted, will pay the amounts evaded plus interest and penalties. In addition, any offender is liable to fines of 125% to 200% of the amount evaded and a maximum sentence of five years.
Revenu Québec's mission is to ensure that each of us pays their fair share of funding for public services. In fact, tax compliance, it is in everyone's interest.
Ploy in the gold sector
What is the ploy found?

There, in the gold industry, various structures involving companies that make artificial transactions for the sole purpose of requesting refunds of input tax.
The scheme is based primarily on the transformation of pure gold scrap gold, which are then sent to a refiner to be reprocessed into pure gold, thus repeating the cycle.
How is it possible to claim tax refunds on inputs using pure gold?

Participants in the scheme using zero-rating provisions contained in the Act on the sales tax (RSQ, c. T-0.1). Indeed, the peculiarity of this scheme is that pure gold, is a financial (eg money), is a zero.
However, transforming scrap into pure gold, it makes its taxable resale, which allows the acquiring company to request refunds of input tax. The vendor does not scrap the QST collected to Revenu Québec, the latter is to pay the taxes he never received.
It is important to note that the scheme based on artificial transactions. There is no real commercial activity, the only purpose of these transactions is to be able to request refunds of input tax.
How does the ploy?


The supplier of gold (A) sells gold pure gold to the processor (B). Because pure gold is zero-rated, there is no fiscal impact at the PST.
The processor of gold (B) transforms into pure gold scrap gold, making gold taxable.
The processor of gold (B) sells scrap gold gold supplier (A). The scrap gold is taxable, the processor receives gold QST.
The processor of gold (B) does not QST perceived gold supplier (A) Revenue Quebec (where tax collected and not remitted).
The supplier of gold to Revenue Quebec for a refund of input tax for the QST paid to the processor of gold (B).
The supplier of gold (A) sends scrap gold to a refiner to turn waste into gold.
The same cycle is repeated transactions, and each time a new cycle begins, the scope of the scheme is increased profits from the fraud or money received from the State.
In addition, there are usually one or more intermediaries that are added between the supplier of gold (A) and the processor of gold (B) to complicate the structure and make detection more difficult trick.

[kingbee]

Hey maybe this will bring down Kitco and that idiot Nadler will go away. I have always wondered why a gold site would support Nadler. He always has snide remarks about gold bulls. (I only read his junk occasionally) He advocates that gold should go back to about $900/oz and stay there, that you should only buy gold as insurance but then believes the senarios where gold would go up are not upon us or will ever happen. So why does Kitco have him. Maybe Kitco was not about making money from gold sales but all about fraud of one type or another. I don't know. Just wondering out loud.
I think any business that would support the likes of Nadler and use unallocated acounts is suspect. I expect that the failure of such a business would be good for the price of real gold. Maybe this is one of the first cogs of the paper gold cartel to fail and that will lead to other failures.

[HistoryStudent]

I would not be surprised to see someone bail him out - after all he's like the best anti-gold preacher TPTB have on the INSIDE!

He could re-name KITCO in a re-do as FEDCO...


Sadly.

[Usc96]

I would not be surprised to see someone bail him out - after all he's like the best anti-gold preacher TPTB have on the INSIDE!

He could re-name KITCO in a re-do as FEDCO...


Sadly.

The "enemy of my enemy is my friend" play? In other words, since neither welcomes the idea of the public accepting gold, they are a match made in heaven. :)

[Apocalypto]

They were very stupid to not think that they would get caught doing this.

[Montecristo]

History Student = Harvey Organ?

If not, do you have a link to the original article?

Same with Oz Waver. A link to that article would be much appreciated!

(Not that I doubt either of you, I would like to print copies of those articles from the original source to hand out to a couple people.)

[jogslvr]

History Student = Harvey Organ?

If not, do you have a link to the original article?

Same with Oz Waver. A link to that article would be much appreciated!

(Not that I doubt either of you, I would like to print copies of those articles from the original source to hand out to a couple people.)

It was part of a very long article in Harvey Organ's blog. Just google "Harvey Organ blog"

[Oz Waver]

You wanted my link, well it's from the original information source as I mentioned and was from here:

http://www.revenuquebec.ca/en/centre-information/communiques/ev-fisc/2011/9juin.aspx

Then I went to google translate and posted the exact information the translation gave me on post #11

Harvey's info was a very simplistic summary, the intricacies of the scam is to mask the whole thing as legitimate. Problem is everyone does it and it is a loophole scam.

[Usc96]

You wanted my link, well it's from the original information source as I mentioned and was from here:

http://www.revenuquebec.ca/en/centre-information/communiques/ev-fisc/2011/9juin.aspx

Then I went to google translate and posted the exact information the translation gave me on post #11

Harvey's info was a very simplistic summary, the intricacies of the scam is to mask the whole thing as legitimate. Problem is everyone does it and it is a loophole scam.

What is sad is that in my country this sort of thing happens too, but nothing is done about it. The nightly news, with the disclaimer that large company X owns the parent company of that network, did not pay any taxes, and in fact got billions back from the government, and guess what, nothing will be done about it. :bird:

Unfortunately, the laws are rigged to favor those who have the power. The age of equality is over. :bandito: anyone who thinks otherwise, is fooling themselves. :banghead: :headsand: