The historic Perth Mint is facing a potential $9 billion recall of gold bars after selling diluted or "doped" bullion to China and then covering it up, according to a leaked internal report.
Four Corners has uncovered documents charting the WA government-owned mint's decision to begin "doping" its gold in 2018, and then how it withheld evidence from its largest client in an effort to protect its reputation.
While the gold remained above broader industry standards, the report estimated up to 100 tonnes of gold sent to Shanghai Gold Exchange (SGE) potentially did not comply with Shanghai's strict purity standards for silver content.
One Perth Mint insider, who asked not to be named as they could face five years' jail if their identity is revealed, says it is a "scandal of the highest level".
"I don't know if I've ever seen one this big," they say.
The mint is the largest processor of newly mined gold in the world, one of Perth's top tourist attractions and well known for producing commemorative coins to mark everything from royal weddings to a new James Bond film.
Last year alone it sold $20.3 billion in gold. It is the only mint in the world that has a government guarantee.
But in recent years the 124-year-old institution, officially known as Gold Corporation, has been plagued by a series of scandals.
WA Premier Mark McGowan had ministerial responsibility for the mint for four years until March 2021.
Doping the gold
Gold doping is a somewhat accepted practice in the industry and is not illegal, but is high risk for refiners, as it lowers the quality of bullion by adding impurities like silver or copper.
Trace amounts of these metals are permitted, but Perth Mint's plan – to keep just within industry standard of 99.99 per cent purity – only left a miniscule margin of error.
The mint began doping its gold as a cost-saving measure in 2018, expecting to save up to $620,000 a year — a tiny fraction of its annual sales.
Within two years this desire to save money would put the mint at the centre of what may be one of the biggest gold scandals in Australian history.
From the outset there were signs of trouble. Just months after the doping began, the report says refinery staff identified concerns that silver and copper levels may have exceeded those allowed by the SGE.
Despite this, refinery staff continued doping the gold.
Damage control
The doping program began to unravel in September 2021. Shanghai Gold Exchange alleged two bars contained too much silver and were non-compliant with its specifications.
Fearing a major blow to its reputation, an internal investigation was ordered on the same day the complaint was received.
The investigation made clear just how much was on the line if the SGE went public.
"If SGE – Gold Corporation's pre-eminent exchange client – had made public that they had issues with Gold Corporation bars … the impact of negative public statements on the business could be very significant," the internal report said.
It then laid out just how large the problem was.
"Based on average understandings of volumes … it was possible for up to 100 tonnes of stock to be recalled from the Shanghai Gold Exchange for replacement," the report said.
At today's gold prices, buying back that amount of bullion would cost $8.7 billion. This would then need to be transported back to Perth and recast before it could be sold again.
Financing a recall of this scale would also be difficult for the mint and would likely require support from WA taxpayers.
Shanghai exchange 'misled'
When Perth Mint went back and checked the two gold bars at the centre of the customer complaint it found one had been "red flagged" by its refinery.
The bar's purity test, known as an "assay", had failed to meet SGE's strict standards for silver, but was still above the crucial 99.99 per cent purity.
But it wasn't just one bad batch, it meant most of the gold bars during the three-year doping program were potentially non-compliant with Shanghai standards.
Crucially, the mint did not share this information with its largest client.
The report claims that during a meeting on September 30, 2021, advice was sought from then-CEO, Richard Hayes, as to whether both the failed and compliant assays should be sent to Shanghai.
"CEO confirmed only the compliant assay would be provided to the customer, with the broader burden of proof to be left with the SGE to prove non-compliance," the report alleges.
On the day the failed assay was discovered, the mint immediately ceased its gold doping program.
Governance and transparency advocate, Serena Lillywhite says all the test results should have been sent to the SGE.
"I think it can be described as a cover-up, because [the mint] had a choice to disclose all the information, and in fact chose not to," she says.
"They chose a selected amount of information that was perhaps less damning to their reputation and their business practices."
The mint insider agrees.
"If they've … traded bars through the SGE that are non-compliant, they'd lose their accreditation."
In the same week as this crisis was unfolding behind closed doors at the Perth Mint, it was announced that Mr Hayes would be retiring early due to illness. He did not respond to Four Corners' questions or a request for an interview.
Perth Mint confirmed it did receive a customer complaint about a small number of 1kg gold bars but that, "due to Chinese government restrictions on exporting gold from China, the customer did not return the bars … and therefore the customer's concerns could not be verified".
It said its refining methods had been enhanced since late 2021 and it was now committed to higher purity standards than the industry average.
Reputation and trust
In the end the SGE chose not to make its complaint public and accepted assurances around quality from the mint. The mint agreed certificates of assay would accompany all bars sent to the SGE in the future.
The longer-term damage to the mint's reputation stands to be far greater.
"Potentially you'll get gold buyers in the market going, 'Can we trust anything coming out of the Perth Mint? Including coins, bullion, anything?'," the insider says.
"It happened in the first place because of poor systems management and incompetence on the refining side. But once they found it, they knew what they were doing. They took deliberate actions to ensure this didn't get out."
This is the latest scandal to hit the mint, after it was investigated by the London Bullion Market Association (LBMA) in 2020 over gold purchased from a convicted killer in Papua New Guinea.
The mint was forced to adopt a "corrective action plan" after the PNG gold was revealed to have been cut with mercury and mined with the help of child labour.
The mint kept its accreditation, but the LBMA says it "reserves the right to re-visit" the issue "if new information … becomes available".
The other headache for the mint is an ongoing investigation by financial crime regulator, AUSTRAC, into its compliance with Australia's anti-money-laundering laws.
It could be facing a hefty fine, potentially running into the hundreds of millions of dollars, like those levied on Australian banks and casinos in recent years.
Watch the full Four Corners investigation on ABC iview.
