Euro Coin Recycling Scam

This story is just plain weird. Regularly, damaged coins are taken out of circulation. They're destroyed and then sold to scrap metal dealers. That makes sense, but it seems that one- and two-euro coins aren't destroyed very well. They're both bi-metal designs, and they're just separated into an inner core and an outer ring and then sold to Chinese scrap metal dealers. The dealers, being no dummies, put the two parts back together and sold them back to a German bank at face value. The bank was chosen because they accept damaged coins and don't inspect them very carefully.

Is this not entirely predictable? If you're going to take coins out of circulation, you had better use a metal shredder. (Except for pennies, which are worth more in component metals.)

Posted on April 13, 2011 at 6:25 AM • 35 Comments

Comments

RandyApril 13, 2011 7:05 AM

"Is this not entirely predictable?"

Honestly, couldn't we make that comment on 90% of the exploits we find in the real world today?>

JuergenApril 13, 2011 7:08 AM

It all depends... this scheme only makes sense when your costs to buy the coins, ship them to China, reassemble them and ship them back to Germany are considerably lower than the nominal value of the coins.

WooApril 13, 2011 7:17 AM

I just don't get it.. they are already using hydraulic punchers to separate the two parts.. why had nobody thought of splitting the ring into at least two pieces during that process? This would have required minimal changes to the punching tool, but increased the work necessary to rebuild the coins by a huge margin.

buntklicker.deApril 13, 2011 7:21 AM

The bank in question is actually the Deutsche Bundesbank, which is the national bank of Germany (not unlike the Federal Reserve in the US).

AdamApril 13, 2011 7:27 AM

Interesting scam. I expect the machine that does the stamping does mark the bits on their way through but how many tellers are going to inspect the coins when you present them in a bag to be weighed? Seems like they would have to cut the coins up into irregular bits, preferably bent to make it less likely to occur.

Of course if they're sending the metal off to China maybe they should weigh what goes out and what comes back (and its metal purity) and charge the operator the difference in weight / purity in Euros according some scale.

DanielApril 13, 2011 7:35 AM

Actually, most of that cost of a penny is manufacturing cost. The materials in a penny are worth .65 of a cent. The question would be the cost of transporting it back.

A nickel, on the other hand, has worth almost 7 cents worth of metal, according to http://www.coinflation.com/

JeroenApril 13, 2011 7:55 AM

When I worked on optical sorting machines, we once got a request from a scrap metal collector who wanted to know if we could separate coins from the real scrap metal. Apparently, after taking a manual sample, he found out every tonne worth of scrap metal contains hundreds of euro's worth of coins, making the investment worthwhile.

Ok, so not really related, but this post reminded me of that story.

PaeniteoApril 13, 2011 8:01 AM

@Jeroen: "every tonne worth of scrap metal contains hundreds of euro's worth of coins"

It may not be "hundreds of euros" but you'd be surprised how much cash (coins) can be found in scrap paper...

jehApril 13, 2011 8:24 AM

The suspects are charged with fraud and counterfeiting because they took cores and rings from genuine Euro coins and reassembled them. If a junkyard buys cars for scrap metal, but instead reassembles some cars what's the crime?

GreenSquirrelApril 13, 2011 8:32 AM

For this to be cost effective, surely there must have been huge quantities of coins involved and sadly the quoted 6m Euro cost to the German Bank is a made up number.

If the person caught had 2000 coins and each one was a 2 Euro, then their total value to the process is 4000 euros. This has to cover the cost of flying the shrapnel to China, rejoining it and flying it back.

Are flights really that cheap?

Add into this, the approximate weight of a euro (7.5g for 1 and 8.5 for 2) and the person is moving at least 32kg each time in coins alone.

Sort of explains why the rest of us have baggage weight restrictions.....

Dan_LinderApril 13, 2011 8:45 AM

@jeh - "If a junkyard buys cars for scrap metal, but instead reassembles some cars what's the crime?"

In this case the coins (cars) were deemed unsuitable/usable for their intended use. The analogy is good, only if every car was rebuilt and they were then suitable for transportation in the EU.

Since a junkyard would need multiple cars to make one suitable car, they would loose on their investment due to the labor overhead involved.

IronCancellerApril 13, 2011 8:50 AM

There is a crucial piece of information missing that makes the scam feasible: the coins were transported to and from China by stewardesses, who have no weight limits on their luggage.

Another twist is that coins scrapped in Germany are in fact marked in such a way that they cannot be re-assembled. Sadly, that does not seem to be the case in some other countries. It would be interesting to know if the German Federal Bank was aware of this discrepancy...

By the way, the huge number of coins coming from China did not raise any red flags, because - as Jeroen pointed out - there are a lot of coins regularly found in scrap metal, which is often sent to China for processing. These coins are then exchanged in Europe (legitimately).

Clive RobinsonApril 13, 2011 9:01 AM

Perhaps it is the real measure of our inflationary society that a UK penny prior to 1980 has around 3pence recovered value of copper in it...

However this value of metal in coinage in the UK has not always been so. Some number of years ago when the 50pence piece was the largest value coin and as frequent in use as the ten pound note now is. Two metelurgests analysed the coin make up. Being carefull about who they used they got the alloy produced for them, and then stamped out several thousand pounds worth of 50 p pieces. How they were caught does not matter, what does however is their forgeries were so good the Royal Mint experts could not find a way of reliably distinquishing between the fakes and the real coins they made.

The problem we have in the UK is that something like one in five of the One Pound coins in circulation are actually fake. And some like the one a shop tried to pass off on me a couple of days ago are so bad, even half melted chocolate sweet toy money looks more authentic.

The magority of the one pound fakes are not stamped but moulded, and shrink non uniformally as they cool resulting in a dished not flat surface, the milling is also usually pretty ropey as is the encraved writing around the milling. [Historical note Sir Issac Newton amongst discovering gravity was actually the inventor of the cat flap and milled edges on coins. The latter was hardly surprising as Master of the Royal Mint was effectivly an Honoury position which carried some serious downsides. One example being gelding (castration by having them ripped of by hand) if the Royal Gold was shown to be stolen by Mint workers. Such inducments tend to sharpen the mind to the task at hand...]

If you are lucky enough to own an original UK 2 Pound coin hang onto it as they are quite sort after by collectors. Like the much later bi-metal Euro coins they had a silver ceter piece inside a gold rim. Only they got the design wrong and just dropping one could cause the middle to drop out. The mark two version did not suffer from this problem.

The Royal Mint used to have a policy of only using certain foundries for producing the aloys for their coins as well as re-cycling old coinage through (it was untill fairly recently a no no to deface coins of the realm.

What I don't get with these Euro coins is why they don't sell the recovered scrap metal back to the foundry that makes the sheet alloy these coins are stamped from in the first place. It's not as though it's of much use for anything else and it would be a reasonable example of "re-cycling" in acordance of EU Policy.

jehApril 13, 2011 9:36 AM

@Dan_Linder

Perhaps it's not a worthwhile investment for a junkyard to reassemble cars from parts bought for scrap metal, but I don't believe it's a crime.

Is it a crime to tape together two parts of a ripped dollar bill? What did they counterfeit since the parts were genuine?

Steve GeistApril 13, 2011 10:02 AM

And nobody at the Bundesbank thought it was odd that civillians are showing up with hundreds of pounds of damaged coins?

No OneApril 13, 2011 10:17 AM

@jeh: Cars reassembled from junkers would have, at best (legally) a salvage title, which makes it ineligible for many things and harder to get reasonable insurance rates for. If the junkyard were to try to sell them on a non-salvage title that would be outright fraud. Also, the cost of assembling a car is pretty high and probably outweighs the "free" parts, especially since junkyards pay for those cars anyway. (A nominal fee, but a cost nonetheless.)

Jordan BrownApril 13, 2011 10:26 AM

The difference between cars and coins is that cars have intrinsic value. If the junk yard can reconstruct one, more power to them (give or take the salvage title question). Coins, on the other hand, have value mostly because we say they do. If a coin is deliberately taken out of circulation, that artificial value is (roughly) transferred into a newly minted coin. A scammer who reassembles the coin and passes it off as genuine is gaining that artificial value without paying for it - it's a form of counterfeiting. If somebody reassembles your shredded credit card, are they allowed to use it?

jeh :-)April 13, 2011 11:24 AM

@No One

The suspects reassembled coins from cores and rings of genuine Euro coins. We aren't talking about Lacoste or Rolex knockoffs.

Let's say the suspects didn't bring large bags of the coins to the Bundesbank, but instead used the coins in retail shops throughout Europe. Could they be charged, say in Greece, with passing counterfeit coins? Maybe the Chinese scrap metal dealers commited fraud if they had a contractual obligation to melt or shred the metal they said they were buying for scrap. But I think the counterfeiting charges are a stretch.

http://www.nytimes.com/2011/04/06/business/...

@Jordan Brown

No, but that would be credit card fraud not counterfeiting. I'm just being picky about the specific counterfeiting charges. The discarded coins should have been melted or shredded.

BF SkinnerApril 13, 2011 11:26 AM

@jeh "Is it a crime to tape together two parts of a ripped dollar bill? What did they counterfeit since the parts were genuine?"

NOT AN ECONOMIST. Macro was a bore and Magrathea is all out at the moment. Willing to be corrected.

Not sure I buy this just following a logical notion. . .

All currency is, is merely a shared agreement of value.
Money are pieces of paper and bits of metal blessed by the money gods.
There are details, comparisons to other economies and currencies but
mostly it's 'Because we say so' and We accept their blessings.

Value is a virtual property.

But it seems to me that, no, as long as they haven't been removed from circulation the aggreement holds and they are of value (hence I tear a bill in half it's still acceptable currency when taped back together). Once they have been removed from circulation the value
has been revoked by the money gods. (kinda like having your ATO revoked after a breach)

and presumedly deducted from the Treasury's ledger. If the rule of supply and demand
is true the less of a thing there is the greater it's value. This is why counterfeit
is bad--it increases the quantity of currency and decreases the value of it at the
same time.

This is the counterfeit aspect to the reassembly. Once the value is revoked by the
Treasury or central bank it doesn't exist in the money supply anymore. Total dollar
supply is X. Put the reassembled currency (Y) back into circulation and the value of
all currency decreases (X-Y).

Captain ObviousApril 13, 2011 12:00 PM

@Dan_Linder

Whether you are reassembling cars or coins makes no difference. The crime is in passing it off as the original. A car that is sold as scrap or salvage should have a title noting such. Once a car has a salvage title, it is fine to sell/use the car, but it is illegal to change the title.

Same would go for coins. You can buy/sell scrap coins as toys, decorations, etc, but to reassemble them for use as legal tender would be counterfeit, same as unauthorized assembly if you're stamping your own.

JonApril 13, 2011 4:31 PM

Funny detail about cars and coins - As was mentioned briefly, in scrap metal there's a lot of spare change.

Saw once a report (I believe it was in Car and Driver, although I couldn't cite it) that said that junkyard workers regularly rake through to-be-scrapped cars for spare change - and take out something like $US 1.50 (on average) each...

Dunno if it's worth their time, but it's money.

J.

No OneApril 13, 2011 5:30 PM

@jeh: The pieces-of-coins were sent to recycling as non-coins and paid for as non-coins. Constructing coins from non-coins is counterfeiting as sure as unauthorized printing of dollar bills with a proper printing machine and plate set on the right paper with the real ink is counterfeiting.

Also, I was merely answering your question about the legality of junkyards constructing cars from scrap, not commenting on the analogy between that and this coin-stuff.

RobertTApril 13, 2011 9:19 PM

You guys have no idea!

Next time you are in China, or India, try taking a trip to somewhere other than the big cities. Go to somewhere like Changdu China. and than hop on a local bus or get a driver to take you over the mountains, say to a medium size town 70 miles in any direction.

Now get out and look around, see what passes for employment. look at exactly what locals are doing to make a little extra money.

You'll notice some of the following:

- Nothing with ANY residual value is EVER tossed away (the recycling efficiency is phenomenal). Sometimes this is good and sometimes it is bad. you see a container with a large TOXIC stamp on it being used to hold vegetables.

- You'll see some guys riding tricycles with an enormous quantity of packaging Styrofoam, I have absolutely no idea where they take it too, BUT it is not unusual to see two guys riding in opposite directions with the same contents.

- If you look closely you will often see that most of the shop keepers are doing something while they wait for customers, needle point, cross stitch is very common (not sure if they ever sell these) making slippers is also very common.

So when you suggest that gluing back together 2 part coins seems like a waste of time, you need to see it in the context of other low value tasks that they are doing. I know that I could easily go to one of these villages and find someone willing to do this job for 5 to 10Euro per day.

So this is where your destruction threshold needs to be set.


Clive RobinsonApril 14, 2011 3:02 AM

@ tudza,

"I'm not sure I understand the comment about the metal shredder?"

In the process of "recycling" metals you have to seperate different meterials / alloys etc that are mechanicaly bonded together.

The bonding could be a screw, pop rivet, thread or press fit as in the coins. Unless you know that everything you deal with is going to be the same the easiest way is to mechanicaly disrupt things on a finer and finer basis. You would then use another mechanical process to grade the size and do some types of seperation

That is you break it mechanicaly into steadily smaller and smaller parts usually by roller crushing and/or shearing in some form of cross cutting method. It effectivly shreds the materials appart.

However in the process it would so damage the component parts it would not be possible to re assemble them.

The joke of this is the machine they currently use that punches the inner out, is almost certainly custom made, where metal shredders are often general purpose. So the engineers desire to do something as efficiently as possible, ends up opening an unrealised security hole...

I cann't honestly remember how many times I've seen "efficiency in design" open up security vulnerabilities, but it's why I have a mantra of "Efficiency-v-Security"...

Doug CoulterApril 14, 2011 4:34 PM

Well, I can't tell about y'all, but around here in redneck land (Appalachia), cars are put together from junkers all the time, and most people who call a junkyard to take a car hand them the title -- the original one, legal and correct. The junkyard might give 50 or 100 bucks per car for the scrap value (they give less than half the value to the person, of course, so they make money on the hauling no matter what).

When you make a car from 2-3 other cars, you just use the title from the one you kept the frame of, so all the numbers match. The people selling the junkers to junkyards neither know or care of the existence of any such thing as a "scrap title" and I myself have never heard of such a silly thing.
Is there paperwork for even the trash now? Have we finally reached a place where everything not forbidden is mandatory? Not in my world.
You must be kidding! Has the government really gotten that far out of control? Glad that my county has only about 6 of them total, and we can just beat them up if they ever get that stupid and silly.

With good old boys who will work for beer, changing at most a $300 investment into a running, transferable, legal car -- which would bring maybe up to 10 times that, is a high profit business -- and these savvy old boys can often do it in less than a day, much less. Many less well off people around here get their cars this way, often supplying some of the labor themselves.

Y'all city-boys have no clue on how the rest of the world lives. And I wasn't using redneck as a pejorative, someday maybe they'll let me be an honorary member of the clan.

I myself have done just this a couple of times.
(some junk cars don't even cost $100 -- sometimes you can get them free)

Later, hard work made me rich -- once I could drive to work; and I don't do it anymore, but I could list at least three acquaintances that have done it this year so far. In a county that has 10k total population. I'm sure I only know of a few percent of them.

The trouble with the newer cars is they are much more difficult to recycle this way, and if you give a flying anything about the environment, that's a bad thing.

Clive RobinsonApril 15, 2011 5:48 AM

@ Doug,

"The trouble with the newer cars is they are much more difficult to recycle this way, and if you give a flying anything about the environment, that's a bad thing."

I hate to say it but it is going to get worse, and the reason is the Goverment etc focusing on the wrong thing and thus not only mucking it up from the recycling point worse they have created a "faux market".

The cause of this is "reducing the carbon footprint" which has caused numerous problems.

1, In big industry it's created a faux futures market trading carbon emmision certificates. Due to the way it was set up it gave way to big an alowance to Power Producers who have subsiquently switched from high emmission fuels to low emmision fuels, not actually improving their efficiency as was hoped. They then sell their spare certificates on to big Industry at a very nice profit so big industry does not get more efficient either. Then to cap it all the "trading system" behind it got hacked and 267,991 allowence certificates were stolen ( http://m.guardian.co.uk/ms/p/gnm/op/... ).

2, It has encoraged "bio-fuels" which instead of being based on new technology such as algae etc, it uses cereal crops and oil producing plants, which means that the land is not available for food production and is creating significant ecological problems as well as badly skewing food production.

3, It has given rise to "efficiency ratings" for consumer equipment such as gas boilers, fridges freezers, washing machines and all sorts of other home appliances. The problem being they have become "Marketing Points" so instead of creating more efficient technology they take existing technology and apply "tuning techniques" to "meet the test". The result is equipment that is overly sensitive to it's environment and breaks down frequently. Thus any potential "carbon saving" gets chewed up by the engine in the service teches car and the consumer effectivly gets defrauded as instead of la



Clive RobinsonApril 15, 2011 9:32 AM

A thousand curses on the engineers at LG who did not know how to design the hardware and drivers for an Android phone...

@ Doug,

To continue...

... the customer effectivly gets defrauded as instead of the 10+year life time of "less efficient" household items they get just a little over the warranty period before they scrap it. Because the out of warranty cost of repairing the frequent break downs is greater than buying a new household item.

Worse the items are designed using "proprietary" items such as the code on a micro chip, thus it is very difficult for other people to repair or even service such household items.

Thus instead of being recycled, a new item has to be manufactured and the old one hits the scrap heap.

The problem is the carbon foot print on manufacture is usually way way greater than the carbon footprint of ten years of usage so like all of these carbon foot print measures they actually end up having the opposit effect of the one the Politicos claim...

It's a clasic example of "looking after the pennies but ignoring the pounds" The actuall fractional percentage carbon footprint saving on these "efficiencies" are compleatly swamped by the way they are obtained.

As a general rule of engineering thumb, anything that is more than 50% efficient (by whatever measure you use) is brittle due to complexity. That is you have to know how to make the complexity more reliable than the simple system for any saving to be made.

I could go on to say how we see the same issues in the design of computer hardware and software and what is involved with turning COTS components into High-Rel High Availibility systems. Or again explaining why it's usually "Efficiency-v-Security" in the expected field of endeavor of this blogs readers but for once I shall desist 8)

samyApril 15, 2011 11:23 PM

Interesting side note from Mexico. Mexican 10 pesos coins from before 1997 have a silver center. Some cities you see advertisment that they buy these 10 peso coins for 20 pesos. Well the real story is that the silver in the coins is now worth like 80 pesos and unfortunately there are very few of these coins in circulation, most 10 pesos are new edition with no silver :-o.

Roger WolffApril 16, 2011 1:36 PM

Taking the coins apart, and/or reassembling them is not that hard. You can do that at home. Find a ring (e.g. a nut (as in bolt and nut) will do) whose inside diameter is just larger than the inner coin.
Next find a ring whose outside diameter is just smaller than the inner coin (again a nut will do). Stack them. (big nut, coin, small nut). Hit with a hammer.

To reassemble, (flip the inner coin at your own risk...) put them on a hard surface and hit with hammer.

PeteApril 19, 2011 6:18 AM

In the UK, most cars that are scrapped have either corrosion problems or crash damage. Enterprising people developed the technique of welding two good halves of cars together to make a whole. This technique was also used on stolen cars. The problem is that the reassembled car is weak around the middle and may have serious safety problems, so this practice is banned.

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