11/20/09
By Jim Sarmiento--former Internal Auditor Pacific Stock Exchange--CFP and RIA retired
Editor's note: The following is a primer of common types of monetary fraud--largely originating in the Philippines. In coming articles VIB will outline specific details of similar fraud activities that have been and are currently being carried out in Vallejo. Lives are being ruined by financial tricksters and perpetrators of affinity fraud as we speak. Perhaps by learning how these criminals operate we can protect ourselves. Stay tuned for future articles that will cover financial fraud here in Vallejo. We will present documentation and victim interview testimony.
Scams of Legendary Magnitude
Is the “lost treasure” scam making a comeback? Apparently so, but this time with a new twist. For as long as I can remember, I’ve been hearing stories of hidden gold and jewels that were left behind by the retreating Japanese Imperial Forces during World War II. Popularly known as Yamashita’s Gold, it is treasure allegedly looted from temples, sultanates and central banks throughout Southeast Asia by Japanese occupation forces. It is named after General Yomoyuki Yamashita, a.k.a. “The Tiger of Malaya”, who was the Japanese commanding general who eventually surrendered to Allied forces in Baguio in 1945. According to folklore, his troops hauled tons of loot to the Philippines, in hopes of bringing them home to Japan. But when the war went really bad for them, they left these treasures behind, burying them wherever they could, or storing them in tunnels and old mines along the way. Most of the Japanese soldiers died in combat or were executed for war crimes, General Yamashita among them. The whereabouts of these treasures supposedly died with them, thus fueling the widespread search that has spanned over 60 years.
Perhaps the best known story revolves around the Golden Buddha and former president Ferdinand Marcos. It actually culminated in a lawsuit filed in Hawaii against the Marcoses. To some, this is living proof that a portion of the treasure has been found. The existence of these treasures has been burnt into the Philippine psyche, and has long attained the status of urban legend. Few openly question the veracity of these stories.
As a side bar, in the late 1990’s the government decided to move the Bacolod City airport to Silay City, incidentally my hometown, at a cost of PHP5.6 Billion. Why Silay, which is some 15 kilometers away, while there is lots of suitable land in Bacolod itself? Financed mainly by the Japan International Cooperation Agency, it was rumored that “Silay or bust” was a financing condition imposed by the Japanese. Silay is where the Imperial Japanese Army made its final stand in the Island of Negros at the end of World War II, and people are convinced that therein lies some of the buried treasure. The airport construction was supposedly just a ruse to bring in heavy equipment and personnel from Japan for a massive treasure hunt. There was tight security around the construction site until the airport was completed. Whether or not they found treasure is subject to speculation. I’m just bringing this up to illustrate how pervasive this belief of lost treasures is among the general public.
Millions have been spent through the years in legitimate treasure hunting expeditions. Stories abound as to how many a tycoons’ fortunes started with a lucky strike of a spade. On the other hand, con games of varying degrees of sophistication, all revolving around the belief in lost treasures, have been an ongoing fixture in the Philippine scene. The crudest and perhaps the oldest involves the outright sale of “gold bars”, in fact gold plated or painted bars made of iron or lead alloy. It usually involves a middleman who introduces a person of means to an “ignorant peasant” who just dug up these gold bars but isn’t aware of their real value. Through the power of persuasion on the part of the con artists, and the victims’ desire to get something for nothing, the victims end up parting with lots of cash for chunks of metal of virtually no value.
Another scam is the advance-fee fraud, similar to the Nigerian letter confidence game. The trickster shows pictures and/or “samples” of gold or precious stones to a prospective victim, and convinces him or her that there’s more where they came from. There’s just a slight hitch, though. They first need a modest sum of money in advance to bribe a ______________ (insert government official, New Peoples Army commander, etc.) Then something unforeseen supposedly happens, and more money is needed to remedy the situation. This is repeated a few times, is milked for as long as the victim can be squeezed for more, whetting his/her appetite just enough with more pictures or “first hand” tales of freshly dug up gold. A client of mine, after being strung along and milked for money for several months, finally agreed to go to a remote area to finally fetch the gold. While waiting, his hosts showed him a text message that the jeep carrying the gold was so heavy, it got stuck in the mud, and they needed a few thousand more to hire a tractor to pull the jeep through the muddy road. After giving the cash, they waited until nightfall, still no gold. That’s when he realized that he was being played for a fool, and fearing for his safety, left in a hurry, never to see the scammers again.
The New Twist: Bonds & Gold Bullion Certificates
In August, 2009, phony United States Treasury Bonds with a face value of $116 Billion were seized in Italy, and according to prosecutors handling the case, these were destined for US investors. These counterfeit bonds came from the Philippines, and according to a Bloomberg News report, two individuals were arrested, a woman who lived in Genoa, and her husband who traveled to Italy from the Philippines. These Philippine nationals allegedly claimed to be from a religious organization and wanted to sell their bonds to finance their religious missions. According to Reuters, “ The Filipinos arrested on Thursday were wiretapped while talking to Asian members of a religious community about how to "manage" the bonds once they arrived at the Malpensa airport.” Furthermore, "The two certainly have a well defined role as part of a transnational organisation with connections in the United States," according to Emilio Flora, head of the tax police at Malpensa, as told to Reuters in a telephone interview. All the bonds seized belonged to a non-existent 1934 issue from the U.S. government.
In June, 2009, Italian police seized from two Japanese nationals similar fake U.S. government bonds, totaling $134.5 billion, at the Chiasso rail station near the Italian-Swiss border. They consisted of 249 US Federal Reserve bonds worth US$ 500 million each, plus ten Kennedy bonds and other US government securities worth a billion dollars each. The bogus bearer bonds were also of 1934 issue. "They’re obvious fakes," said Steve Meyerhardt, a spokesman for the Treasury's Bureau of Public Debt in Washington. “There’s no such thing as a Kennedy bond”. There was no mention of the bonds’ origin, but North Korea and the Philippines are bloggers’ favorite suspects.
Now let’s move back to March 21, 2006. Incheon, Korea airport customs authorities arrested a Mr. Jeon for allegedly smuggling 11 trillion won worth of Japanese bonds. According to articles in the Incheon News and Korean Tax Times, other suspects, a Mr. Hong and 3 others, were being sought by authorities. They were accused of allegedly smuggling fake Taiwanese and US bearer bonds issued in the 1930’s. The articles mentioned the establishment in Korea of a “ghost” charitable organization with Philippine leadership which recruited a group of people from Korea, Japan, USA, China and Taiwan to smuggle counterfeit bonds. This charitable organization is supposed to be a worldwide humanitarian foundation which is to aid the world’s poor children. The same suspects also stand accused of scamming a Korean businessman over the purchase of a golf course. They claimed they would invest the necessary funds to purchase the golf course, but first bilked the victim of over $200,000 for certain “expenses”.
Dateline October 5, 2003, Yonhap News Agency of Korea reported that a 62 year old woman, last name Kim, “carried US $238.98 billion worth of counterfeit US bonds and gold coins in her luggage when she arrived in Incheon International Airport from Manila”. They said Lee ran away leaving her luggage at a customs checkpoint when its contents were detected by authorities.
A Cottage Industry
These are just a few instances where counterfeit bonds were apprehended. How about those that got through? There still appears to be an active counterfeiting ring operating in the Philippines, and these bonds are being smuggled to other countries. This, in spite of sensational arrests in the past. In a February 26, 2001 Time article by Tim McGirk, he described how the “Trillion Dollar Gang” was busted in Cagayan de Oro City with counterfeit US treasury bonds, all dated 1934, along with German and Argentine bonds, a total counterfeit haul of $2.157 Trillion. Actually this counterfeiting operation was first discovered when a Catholic priest from the Philippines was arrested in Los Angeles by customs officials in 1998 with fake bonds hidden in his suitcase. The investigation eventually led to Cagayan de Oro and culminated in the capture of the gang members.
The break-up of the Trillion Dollar Gang obviously did not end the fake bond printing “cottage industry”. In an October 17, 2007 Manila Bulletin article, Mars W. Mosqueda reported the discovery of an abandoned chest in Argao, Cebu, which contained a small brass cylinder with a document purporting to be a copy of the Treaty of Versailles. Also in other compartments of the chest were 12 bank certificates, 12 gold reserve act certificates, 11 insurance certificates, and 11 gold bullion certificates. Also found were 200 US Federal bond interest coupons. Total face value, $3 trillion. The publication Sun Star Cebu describes the find: “The front part of the chest was marked Federal Reserve Bank, Cleveland, Ohio, series 1934. Total Face Value: three trillion USA. On top was an engraved seal of the United States.” A “shirtless caucasian man” and some Taiwanese individuals were involved in the abandonment and attempted recovery of this chest, but they drove off before they could be identified by approaching local residents.
In a subsequent article dated December 6, 2007, the Sun Star Cebu reported that the bonds were indeed fake, per the US Department of Homeland Security and the US Embassy in Manila. “They have been confirmed to be counterfeit and are of no monetary value” according to the United States Secret Service, Resident Agent in Charge, Guam.
How to Avoid Being Swindled
One way to avoid being victimized by these con artists and their shills is to know their storyline. In many of these fake US Treasury bond cases, affluent individuals are approached by “businessmen” who show off a rusty, banged up box containing bundles of bonds worth trillions. He and his friends have supposedly acquired these boxes for pittance from ignorant tribesmen who stumbled upon the wreckage of a WW II US aircraft that crashed in the jungle. (The bonds, so the story goes, were issued in exchange for gold given by Generalissimo Chiang Kai Shek’s government to the Americans.) There’s just a small hitch. These bonds have matured and will be demonetized in a matter of weeks, and these men need money to finance the repatriation of these bonds to the US before they become worthless. So, for a small “investment” , they’re willing to pay up to $25 million or 5% for every $500 million bond that they redeem. Preying upon the greed and naivety of the victims, millions of real money have been scammed through the years from countless individuals using this storyline.
Another storyline involves bonds ”issued” by the US government also in the 1930’s in exchange for gold from ancient Indonesian sultanates. These sultanates purportedly amassed huge fortunes through centuries of trading, and have converted this wealth into gold and have deposited them in banks throughout the world. When the US economy was in trouble during the great depression, these wealthy Indonesians bailed out the USA with their gold in exchange for US treasury bearer bonds. Perpetrators of this scam will also have gold bullion certificates from banks around the world, including Argentina and Germany.
Remember the “Kennedy Bonds” confiscated in Cebu? These bonds were supposed to have been issued in exchange for “collateral” from ancient Indonesian royalty. The US needed money to compete with the Soviets during the space race and cold war. President Soekarno , who had custody of the ancient wealth, gladly loaned money to the USA in exchange for these Kennedy Bonds. When the Soekarno dictatorship fell, these bonds fell into the hands of his successor’s relatives and were assimilated with the ancient Indonesian sultanates’ collateral. For a small “down payment” to facilitate their redemption, victims are promised a huge percentage when these bonds are cashed.
A more complicated storyline revolves around the granting of huge sums of money to bona fide charitable organizations. These organizations become signatories to a contract among the financier who holds the bonds and gold bullion certificates (which are actually fake) and a third party victim who advances some funds and processing fees to the financier at contract signing. The victim will supposedly be the one holding the collateral which will be disbursed over a period of 10 years to the charitable organizations. Prior to full disbursement, the victim will be entitled to a percentage of the investment gains of the trillion dollar collateral. The project naturally fizzles out because the bonds are fake in the first place, but the money advanced by the victim to the financier is long gone.
What happens to these fake bonds when they are successfully smuggled out of the Philippines? In a strange case back in 2001, the honorary Philippine consul to Montreal, Canada, Erlinda Quintos-Brewster, was arrested with her sister in London for attempting to cash fake US Federal Bonds amounting to $25 Billion, incidentally dated 1934, to Financial Trading Consultancy in London. They pleaded guilty and were each sentenced to 8 months’ jail suspended for two years.
In 2003, two men, including a Scotland Yard forensic document expert and a former Yugoslav detective were found guilty by a London court of conspiracy to defraud in a case involving fake US bonds with a face value of $2.5 trillion. These fake bonds also came from the Philippines. According to the Yugoslav, he obtained the bonds in a trip to Mindanao from Filipino tribesmen and smuggled then to the UK. He got the forensic document expert to authenticate them. Police were tipped when two Australians were arrested in Hong Kong with fake bonds and a certificate of authenticity signed by the Scotland Yard forensic expert.
In May, 2008, an Australian financial expert, William David Wallader, 62, was tried for allegedly trying to sell a box of US bonds worth US$900 billion to the Turkish government back in 2005. He was caught in possession of 9 bonds, 8 with a face value of $100 million, and 1 with a face value of $500 million. Wallader pleaded not guilty in the Brisbane District Court. He told the court that he received the nine bonds from a couple in the Philippines, who told him they were from a priest who asked them to sell the bonds in order to help mountain tribes. Wallader allegedly signed a number of contracts with the couple to split the profits from the sale of the bonds. These bonds were purportedly issued in 1934 and are knows as Morganthaus, named after the US Secretary of the Treasury for that year, Morgan Morganthau, Jr.
The US Federal Reserve Bank has issued the following public warning: ” The Federal Reserve is aware of several scams involving high denomination Federal Reserve notes and bonds, often in denominations of 100 million or 500 million dollars, dating back to the 1930s, usually 1934. In each of these schemes, fraudulent instruments are claimed to be part of a long-lost supply of recently discovered Federal Reserve notes or bonds.” Furthermore, “The Federal Reserve has never issued any bonds or notes with coupons attached. The Federal Reserve Bank of New York is not aware of any currency or debt stockpile of large denomination Federal Reserve notes from the 1930s and warns that any institution that pays out on such a claim does so at its own risk.”
Bottom line, the best defense against being victimized by scammers is to have the attitude “if it’s too good to be true, it probably is”. Man is easily fascinated by conspiracy theories, and these treasury bond scams are usually weaved around the US Federal Reserve’s ownership conspiracies. Do an internet search, and familiarize yourself with these conspiracy theories. Who knows, one day you might be asked to buy into them, and will be required to sign a non disclosure agreement to keep this hush-hush deal a secret. Chances are, the invitation will come from a person you already know, or from someone who belongs to the same church, civic organization, or ethnic group as you. Commonly knows as affinity fraud, it is perpetrated by folks who may or may not truly believe in the authenticity of their storyline. They just want to “share the wealth” with kindred, invoking the good that this enormous wealth will do for the betterment of the less fortunate around us. Finally, just be very cautious when outrageous claims are being freely thrown around like grains of sand, but empirical evidence given are as scarce as hen’s teeth.
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