http://harveyorgan.blogspot.com/2011/06/dow-tanksgold-and-silver-raidkitco-and.html

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.