Huge Smuggling Operation, Minimal News Coverage

So this was a rather odd story that saw almost no play in English language media. I have no idea what the outcome of the story has been, what the final verdict on the securities was, or anything. I post because I don't think this should have been forgotten. An overview:

Italy’s financial police (Guardia italiana di Finanza) has seized US bonds worth US 134.5 billion from two Japanese nationals at Chiasso (40 km from Milan) on the border between Italy and Switzerland. They include 249 US Federal Reserve bonds worth US$ 500 million each, plus ten Kennedy bonds and other US government securities worth a billion dollar each.

Italian authorities have not yet determined whether they are real or fake, but if they are real the attempt to take them into Switzerland would be the largest financial smuggling operation in history; if they are fake, the matter would be even more mind-boggling because the quality of the counterfeit work is such that the fake bonds are undistinguishable from the real ones.

What caught the policemen’s attention were the billion dollar securities. Such a large denomination is not available in regular financial and banking markets. Only states handle such amounts of money.

The question now is who could or would counterfeit or smuggle these non-negotiable bonds.

In order to stop money laundering Italian law sets a ceiling of 10,000 euros per person for importing or exporting money without declaring it. The penalty for violating the law is 40 per cent of the money seized.

If the certificates were real, for Italy it would be like hitting the jackpot. The fine alone would amount to € (euro) 38 billion, five times the estimated cost of rebuilding quake-devastated Abruzzi region. It would help Italy’s eliminate its public deficit.

If the certificates are fakes the two Japanese nationals could get a very lengthy jail sentence for fraud.

As soon as the seizure was made the US Embassy in Rome was informed. Italian and US secret services were called in to assist the Italian financial police.

Some important international financial newspapers had already reported on the existence of ‘funny money’ circulating on parallel, i.e. unofficial, financial markets.

Further developments:

On that date the US Treasury Department announced that it had about US$ 134.5 billion left in its financial-rescue fund, the Troubled Asset Relief Program (TARP), whose purpose is to purchase assets and equity to buttress companies in trouble. The existence of such means that the Obama administration may not have to go to Congress for additional funds, something which is especially important since many lawmakers have vowed to oppose any requests for more money.

At the same time, Japan’s Kyodo news agency has reported that the resignation of Japan’s Interior Minister Kunio Hatoyama might also be related to the Ponte Chiasso affair. Officially the minister quit as a result of a row over who should head the state-owned Japan Post, but some sources have suggested that such a scenario is not very plausible since Mr Hatoyama was Prime Minister Taro Aso’s main ally in his rise to the prime minister’s office, and is especially unconvincing since the ruling coalition government has to face elections in just two weeks time. Indeed there are many reasons to connect the Ponte Chiasso incident to the minister’s resignation.

First of all, the men carrying the bonds had a Japanese passport. Secondly, they were not arrested. Under Italian law anyone in possession of counterfeit cash or bonds worth more than a few tens of thousands of euros must be arrested. By comparison the value of the seized counterfeit bonds is equal to 1 per cent of the US Gross Domestic Product (GDP). Thirdly, how the seizure took place is worthy of a Monty Python movie—two well-dressed Japanese men carrying a briefcase travelling in a local train usually used by Italian manual labourers who commute to Switzerland for work had as much chance to go unobserved as two European businessmen travelling in the Congo.

A US spokesman speaks:

US government bonds seized by Italy’s financial police (Guardia di Finanza) at Ponte Chiasso, an the Italian town on the border with Switzerland, are “clearly fakes,” Stephen Meyerhardt, spokesman for the US Bureau of the Public Debt, is quoted as saying in a news report by the Bloomberg agency. AsiaNews contacted the divisional headquarters of Italy’s financial police in Como, which is responsible for Ponte Chiasso, asking for an explanation but none has come forth yet.

For some days the affair has been in the limelight [1]. Importantly, at the time of the bonds were seized it was not possible to determine whether the US government bonds and US Federal Reserve certificates were real of fakes.

Right after the seizure Colonel Mecarelli, Guardia di Finanza commander in Como, said that for at least some of the securities, especially the ‘Kennedy Bonds’, there were doubts about their authenticity. As for the others, some were so well made that it was hard to tell them apart from real ones...

If the [securities and bank documentation] were real the two Asian men had in their possession (although not necessarily in their ownership) a big chunk of the US debt which would have made them the fourth largest creditors of the United States...

It is not clear how statements by US Treasury spokesman Meyerhardt and Italian financial police can be reconciled. For the former the bonds “are clearly fakes”; for the latter, speaking at the start of this whole affair, some bonds were indistinguishable from the real ones when it comes to quality and detail.

Italy’s Guardia di Finanza has a reputation for being a highly specialised and expert financial police agency. How could it be so easily duped! And if the bonds are “clearly fakes” why did it take US authorities two weeks to find out.

Another discrepancy is the fact that, along with the securities, original and recent bank documents were seized as proof of their authenticity.

If what Meyerhardt says is true, some major financial institutions have been deceived by the securities carried by the two Asian men. This would be a bombshell and raise serious questions as to how many bank assets are actually made up of securities that for Meyerhardt are “clearly fakes.”

If counterfeit securities of such high quality are in circulation the world’s monetary system, let alone that of the United States, is in danger. International trade and exchanges could come to a halt.

Whether it is counterfeit money or money laundering, what happened is potentially more dangerous for the stability of the international system than the results of Iran’s elections.

If the bonds are real it means someone with a lot of cash no longer trusts the US dollar as a reserve currency. If this is the case then it would spell the end of the Bretton Woods system and most likely negatively impact world trade.

Unfortunately the international press and main TV networks, with some exceptions, have ignored the whole affair. These days this is actually the real news.

And the last word on the affair:

AsiaNews is a missionary news agency, not an economic agency and began reporting the story a few days later (8 June) noting how foreign media were ignoring news of such importance which could have major social and economic implications for Asia (and the rest of the world) and this irrespective of whether the bills were real or not.

Despite the many uncertain explanations, one thing is certain, namely that the major print and electronic media and the authorities have said almost nothing about it.

So far the only official statement made by any government authority is that by the Italian financial police, on 4 June, right after the money was seized. The only new piece to this big puzzle is information from Japanese agencies which cite Japanese consular sources.

According to them, the two Asian men stopped at Ponte Chiasso (Italy) on their way to Chiasso (Switzerland) were indeed Japanese nationals, one from Kanagawa Prefecture (central Japan) and the other from Fukuoka Prefecture (western Japan).

The only other certainty is that both men were released after their identity was established.

If police had enough elements to conclude that the securities were fakes (and this is true even for lower denominations or net worth), it had to arrest the two men. Failure to do so would have meant charges for the police officers involved.

If this was not the case, then the two men were released because police authorities were convinced that the securities were real. In fact under Italian law, the authorities could not arrest the two Japanese nationals but could only impose a fine worth 40 per cent of the value of anything above 10,000 €.

If this did not happen, there is only one other possible explanation, namely that an order from higher up the chain of command in the government came on national interest grounds...

Confidential sources, whose reliability AsiaNews could not confirm, claim that one of the two Japanese stopped and then released in Ponte Chiasso was Tuneo Yamauchi, brother-in-la of Toshiro Muto, who was until recently Deputy Governor of the Bank of Japan, which of course does not automatically mean that the securities are real.

However, other sources are saying that for Italian authorities they are real and that Rome is unwilling to play along with the US Federal Reserve, which described them as fakes without taking a peak at them, except via the internet.