Coin recyclers are grappling with the U.S. Mint’s extended suspension of its mutilated coin redemption program, saying the continued hiatus will have serious repercussions for the industry.
Coin sellers will now have to wait an additional six months to capitalize on the lucrative revenue stream at a time when some metal recyclers are struggling to stay afloat amid the worst market cycle since the 2008 crash.
The U.S. Treasury Department said the program—which was suspended for an initial six months, effective Nov. 2 of last year, under suspicion that Chinese counterfeiters were using the guise of mutilation to siphon millions of dollars in coins back into the United States through the Mint—will not start back up for another six months, until at least Nov. 2 of this year, according to a notice in the Federal Registry.
“The United States Mint has made significant progress in assessing the current state of the program, evaluating risks and identifying potential remedial measures,” according to the Federal Register notice. “Due to recent litigation involving the exchange program and more time needed to complete our work, the United States Mint is extending the suspension.”
U.S. and Chinese recyclers had literally been banking on the program's resumption, with the value of U.S. coins accumulating in China estimated to easily exceed $50 million (amm.com, March 22).
U.S. waste incinerators, auto shredders and heavy media plants have told AMM that the suspension of the buyback program has negatively affected their business, with the future suspension expected to deepen the impact.
“The idea that the U.S. Mint might not stand behind the currency is concerning,” according to Luke Palen, president of Rosemount, Minn.-based Spectro Alloys Corp.
“From an industry standpoint, it is a big issue,” he said, noting that the inability to liquidate currency collected in the recycling process has the potential to hurt many people in the industry. “We are still paying good prices for zorba, but if the ability to capture coin value disappears it will hurt everyone in the value chain.”
“The U.S. Mint has got to understand that these coins are coming from zorba representing millions of cars shredded in the U.S., and the zorba is exported to China. Right now in the nonferrous scrap industry, times are tough, and any revenue stream is important to us,” a nonferrous scrap processor told AMM. “The redemption program is good for the Mint and for scrap processors. It was a win-win situation. The Mint had a means of recovering all of these coins. It seems now that they’re cutting off their nose to spite their face."
An investigation by AMM in February revealed that America could be discarding up to $61.75 million in coins in any given year through waste incineration—a figure that doesn't take into account the value of money that may be found within cars during the automotive recycling and shredding process.
Through these two waste streams, coins end up buried in processed piles of mixed metal called zorba, a shredded nonferrous scrap consisting predominately of aluminum, as defined by the Washington-based Institute of Scrap Recycling Industries.
Shredders, heavy media plants and waste incinerators are well aware of the presence of coinage in the recycling chain, with some companies taking special measures to capture part of this revenue stream.
“We appreciate the need to develop additional safeguards, but it is disappointing to see organizations that are deploying technology and capital investments to recover these coins properly continue to be negatively impacted by the suspension of the program. Well-established suppliers of recovered coins should not be penalized due to the actions of others,” according to Steve Bossotti, senior vice president of Morristown, N.J.-based Covanta Holding Corp.’s metals management division.
The robustness of the program was called into question in 2010 after a report issued by the Office of the Inspector General's Office of Investigations, part of the Treasury Department, suggested that the buyback program “could be exploited to facilitate illegal activity ... based upon the value and frequency of mutilated coin redemptions by a relatively small number of individuals and corporations.”
The U.S. government took action, and in 2014 seized for laboratory testing millions of dollars in coin shipments from Hong Kong-based coin recycler and exporter Wealthy Max Ltd. as well as two other recyclers sourcing coins from China.
Wealthy Max and Washington-based law firm GeyerGorey LLP, which is representing the company, maintain that it was wrongly accused by federal prosecutors. In a bid to prove its innocence, the company unsealed and sampled 13 tonnes of damaged U.S. coins for testing in order to prove to government agencies that the coins are authentic—an event attended by AMM (amm.com, Feb. 23).
“We are gratified and relieved that the Mint has not rushed to judgment regarding an important government program that contributes significantly to the Mint's ability to procure raw materials for coin replenishment and secures full faith and credit in our nation's currency,” Bradford L. Geyer, a partner at GeyerGorey, told AMM.
The law firm commissioned a white paper on the mutilated coin redemption program, calling for the U.S. Mint to step up its inspecting process on large-scale coin recyclers, along with other policy recommendations for restrictions on the program.
The findings were presented Feb. 25 by Washington-based FormerFedsGroup LLC, which includes a conglomerate of researchers, analysts and retired Federal Bureau of Investigation agents.
“We stress at this time that our extensive internal international investigation has been unable to confirm any material breaches to the program caused by counterfeiting,” Geyer said.