Seized U.S. Bonds for $116 Billion Are Fake, Prosecutor Says
By Sonia Sirletti and Elisa Martinuzzi
Sept. 24 (Bloomberg) -- U.S. Treasury bonds with a face value of $116 billion seized in Italy in August are fake and were destined for U.S. investors, according to the prosecutor running the probe.
The phony U.S. securities were sent to Italy from the Philippines and confiscated on Aug. 19 at Milan’s Malpensa airport, prosecutor Francesco Dettori said in an interview today. In June, police seized $134 billion of fake U.S. securities at the border with Switzerland. Prosecutors don’t have evidence to link the two batches of bonds, both dated from 1934 and of $500 million denominations, he said.
A woman from the Philippines, who was to receive the bonds taken in August, and the sender, her brother, who later traveled to Italy, were arrested by local police, the prosecutor said. The man remains in custody, he added. The U.S. Secret Service assisted in analyzing the bonds to determine whether they are counterfeit. Had the notes been genuine, the pair would have been the U.S. government’s sixth-biggest creditor, behind Russia, which is owed $118 billion.
“Whatever way you cut it, $116 billion is a big chunk of change,” said Christopher Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “It may not have any major effect on interest rates over the long-haul, but it could certainly have a short-term impact on trading.”
The Treasury is selling $112 billion of coupon debt this week, he said.
“This is a typical scam,” Ed Donovan, a Secret Service spokesman in Washington, said before today’s announcement. In the past, such fake notes have been used as “collateral to secure a loan,” he said.
The Philippine nationals claimed to be Jehovah’s Witnesses and wanted to sell the bonds to finance their religious missions, the prosecutor said. The individuals had contacted the Bank of Italy for advice on how to deposit the bonds and some were due to be sold into the U.S., Dettori said.
The U.S. Treasuries seized on June 4 were taken from two Japanese travelers attempting to cross into Switzerland. The two men, who weren’t detained, have since disappeared. The U.S. government bonds found in the false bottom of a suitcase carried by the men were fake, a U.S. Treasury spokesman said June 18.
“Computerization in the financial industry has improved considerably in the last 20 years and the ability to detect fraudulent and counterfeit securities has been greatly enhanced,” said Richard Yamarone , director of economic research at Argus Research Corp. in New York. “Securities like these -- with extremely large denominations -- would be nearly impossible to pass through rigorous bank fraud detection systems.”
U.S. Treasury bonds were sold with a maximum denomination of $100,000 in 1934, Antonino Maggiore of Italy’s Finance Police said today. He said border controls had intensified before Italy’s latest tax amnesty program started Sept. 15.
To contact the reporters on this story: Elisa Martinuzzi in Milan at [email protected] ; Sonia Sirletti in Milan at [email protected]
Last Updated: September 24, 2009 06:24 EDT http://www.bloomberg.com/apps/news?pid=20601085&sid=axQHQfCUfOcM N.