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High Profile Gold Dealer Probed In Rare Coin Tax Scam Allegations

Nicolas Van Praet Jun 10, 2011 – 6:40 PM ET | Last Updated: Jun 10, 2011 6:46 PM ET

Montreal — One of Canada’s largest gold traders has become ensnared in allegations of tax fraud after Revenue Québec swooped on a web of people and companies it claims may have bilked taxpayers of at least $150-million.

Kitco Metals Inc., a well-known buyer and reseller of precious metals including gold, is among those under investigation after the Quebec tax department alleged that it is part of an intricate scheme designed to avoid paying provincial sales taxes. The company denies the claims.

In what Revenue Québec calls one of its biggest probes in recent years, more than 175 provincial investigators with search warrants this week raided several businesses, private residences and offices of accounting firms and bankruptcy trustees in the Montreal area. The revenue department alleges that some 125 companies in the gold refining and trading industry engaged in a tax fraud scam on sales transactions worth $1.8-billion. It claims the firms also avoided paying the federal goods and services tax.

No arrests have been announced.

The tax agency named two companies as being the subject of investigations — Kitco and Carmen International Inc. Revenue Quebec employees visited Kitco’s Montreal offices on Tuesday to gather information, said company spokesperson Sharlene Dozois.

“I’m quite surprised by these allegations,” said James Turk, founder and chairman of Goldmoney.com, one of the world’s largest providers of physical bullion for retail and institutional investors. “It’s a company with a good reputation.”

Founded in 1977 by current president Bart Kitner, privately held Kitco is one of the most popular coin dealers in North America and also has offices in Hong Kong and Shanghai. The company’s website, which carries live spot prices and expert market commentary, claims to attract nearly one million visits daily.

Revenue Québec alleges it has identified various networks within the gold industry where businesses make bogus transactions in order to claim input tax refunds. It claims the six-step scheme is essentially based on a repetitive cycle of processing pure gold into scrap gold, which is, in turn, sent to a refiner to be transformed once again into pure gold.

“Note that the scheme is based on bogus transactions made in order to claim input tax refunds,” the ministry said in a statement. “No actual commercial activity ever takes place…. With each [cycle], fraudulent gains grow and the scheme expands using the amounts received from the government.”

Kitco defended itself, saying it has “never participated in any tax fraud, nor has it ever carried out any fictitious transactions. In all respects Kitco vigorously contests all aspects of Revenue Québec’s investigation.”

The company won court approval to appoint an interim receiver, RSM Richter, to help it deal with the allegations and negotiate a tax assessment amount that is outstanding. “Revenue Québec would like to have that amount due,” Ms. Dozois said. [We’ve appointed the receiver] to make sure that we continue our normal operations while we’re negotiating that amount.”

Addressing the allegations, Kitco suggested it is being held “unjustly” responsible for the actions of its suppliers.

The company said in a statement that it buys precious metals scrap and pays its suppliers sales taxes on these purchases for which it receives a tax credit. It said: “It is the responsibility of these suppliers to pay back the sales taxes to Revenue Québec. [The ministry] alleges that some of these suppliers have not remitted the taxes paid to them. Revenue Quebec is unjustly holding Kitco responsible for the unremitted taxes, which led to the issuance of the tax assessments.”

In addition to the two companies named, the department named five individuals it believes were involved in producing fake bills related to false tax declaration. They are Viken Gebenlian, Haroutioun Dakessian, Oskan Hazarabedian, Benjamin Bensimon and Shadia Khatib. No further information was given about the individuals.

The revenue department regularly conducts investigations into alleged fraud and tax evasion. But rarely do the results of the investigations result in sweeps of this size. If found guilty, any persons complicit in tax fraud are required to pay an amount equal to the tax evaded, as well as the applicable interest and penalties.

They also face fines and a maximum prison term of five years.

Contact: [email protected]
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