EDITORIAL & OPINION — FBI unlikely to fare better than Mounties — The unpunishable crime

The Royal Canadian Mounted Police are famous for getting their man, but not this time. They didn’t get John Felderhof, the multi-award-winning senior geologist at the Busang property in the jungles of Kalimantan, or anyone else potentially involved in the Mother of all Salting Swindles.

After almost two years of investigation, Canada’s finest gave up the dream of snapping cuffs on the wayward rogues who took the mining and investment world for a wild, pocket-emptying rollercoaster ride at the Busang ounce factory. And so the Bre-X Minerals story ended, as all salting scams do, out of sight and under the carpet.

The howls of outrage are understandable, but the howlers are naive. Tampering with a mineral sample is a fraud under Section 396 of Canada’s Criminal Code, but the only hope of obtaining a conviction in a salting fraud would be to prove that an accused did the salting personally, or to prove he entered into a conspiracy to defraud. None of the surviving conspirators are talking, and they can’t be compelled to come to Canada to testify.

All the Mountie-bashing in the world won’t change it: salting, when committed offshore by dead or dumb geologists, is an unpunishable crime. The harsh reality is that Parliament will probably have to modify the Criminal Code before anyone is ever convicted of salting or tampering with samples from a mineral property outside Canada.

And the whines from certain editorialists and class-action lawyers, that we will now have to “pin our hopes on the F.B.I.”, are ludicrously misinformed. Many U.S. states do not even define tampering with a mineral sample as fraud.

We have a long and still-growing list to prove these horrible points. In the past few decades alone, we’ve chronicled the Tapin Copper salting scam in Oregon, the Dessir placer-gold salting swindle in California, the audacious Delgratia crock-pot scam in Nevada, the Golden Rule tampering boondoggle in Ghana, and the infamous New Cinch salting scandal in New Mexico.

We’ve witnessed a raft of “desert-dirt” swindles, a growth industry in the southwestern United States that American regulators and law enforcement officials have chosen to ignore. The modus operandi here is not to salt the samples directly, but to claim they need to be “pre-treated” with special chemicals that hold gold in solution. It’s masterful: regulators come snooping around and suddenly the promoter is the victim, with a fly-by-night assay lab playing the convenient and long-gone culprit.

One of the more egregious of the cooked assay scams was an Oregon property that went ’round the rotten mulberry bush three — count ’em, three — times. In the early 1980s, it was debunked as a substantial gold deposit. The owners barely waited for the dust to settle before they flogged the property to another junior, which had its own assay labs producing marvelous values in gold and platinum group elements. The results of this “metallurgical research” were so impressive that a British insurance firm “invested” about $16 million in an absolutely worthless property based on the phony assays. However, after the Brits lost faith, the owners flogged the property to “Runaway Ron” Markham, a playboy swindler and self-professed discoverer of King Solomon’s Mines. In those pre-Busang times, Markham raised millions touting the property as “the world’s largest platinum deposit.” When that story got too old, the property became “the world’s largest gold deposit.”

The British Columbia Securities Commission banned Markham from acting as a director of a public company, but, last time we checked, he was flogging a gold property that is being touted by its new owner, Intergold, as having potential for “Carlin-type,” but still unassayable, gold.

Then there was the International Precious Metals pump-and-dump, which was finally delisted after regulators began to realize that the company’s press releases touting a potentially vast gold and platinum resource were “misleading.” A state mining official tried to warn investors after he took samples from the property and found them devoid of gold, only to be muzzled by an Arizona judge at the request of the company.

On the matter of spine, the Alberta Securities Commission showed little backbone in its pursuit of Naxos Resources, whose gold and platinum group metals appeared and disappeared, depending on who did the assaying.

There are many more salting and tampering swindles, but none of the perpetrators was ever successfully prosecuted (in fact, only one company — New Cinch — ever went to civil trial). Unless something is done to strengthen the Criminal Code, none ever will. Most will fall through jurisdictional cracks, just as Busang did, leaving burned investors at the mercy of weak laws and an unregulated global economy.

Changes that would allow the fraud provisions of the Code to apply outside Canada could help the police enforce the law; so could specific application of other sections of the criminal code to force persons charged under provincial Securities Acts to answer charges personally.

And if the misleading-disclosure provisions of the Securities Act were changed to specify that disclosing results from salted samples was an offence under the Act, while preserving the “reasonable diligence” defence now available to officers and directors, market regulators might have a clear statute as a weapon in their battle against exploration fraud.