LME reaches deal to reduce risk of fraud

LME will increase transparency and reduce the risk of fraud after the industry was rocked by an alleged multi-billion dollar scam in 2014.

London - The world’s largest metals bourse reached an agreement with warehouse operators on supply routes to China to increase transparency and reduce the risk of fraud after the industry was rocked by an alleged multibillion-dollar scam in the country in 2014.

The London Metal Exchange (LME) will deploy an electronic system for handling warehousing receipts for metals stored outside the bourse’s storage network in the next few weeks, according to Matt Chamberlain, the head of the LME’s business development. Known as LMEshield, the system would cover facilities that store metals, ores and bulk commodities from Chile to South Africa, he said on Tuesday.

The LMEshield system aims to enhance confidence, reduce the risk of fraud and cut costs for warehouses operators. Banks and traders were snared in 2014 by an alleged fraud at the port of Qingdao in China where metals stored in warehouses were believed to have been pledged several times as collateral for loans.

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“We know the market has a strong confidence in the LME, because we apply strong criteria,” Chamberlain said. “The system is not limited to metals, so it could also store agricultural commodities as well as ferrous.”

China, the biggest buyer of metals, is building roads, railways and ports across Asia and beyond to bind its economy more tightly to the rest of the world. The LME system may also boost confidence in China’s Belt and Road routes, a system of trade corridors connecting Europe and Asia.

The LME signed a deal with Mercuria Energy Trading, Henry Bath & Son, China National Materials Storage and Transportation Corporation to list warehouses along China’s Belt and Road routes as part of LMEshield.

BLOOMBERG