Gold

There is nothing like a financial crisis for getting the return from the summer holiday season off to a flying start. And this year, with the collapse of Amber Gold, Poland has its very own financial crisis to grapple with albeit on a modest scale (unless, of course, you are an affected investor).

As I have written before (please see The Paper Chase) one of the frustrations of doing business in Poland is that simple tasks require inordinate amounts of time paper none of which paper is any help when something goes wrong whereas, as this case shows, fairly elaborate “schemes” to relieve investors of their money seem to have an easier passage. Of course, we will have to wait to see whether the president of the company has technically been fraudulent but his nine earlier convictions, most of which were for fraud, would certainly point in that direction. At present he is facing six charges including operating without a banking licence and falsifying bank transfer records which carry up to fuve years in prison and fines of up to PLN 5 million.

What Amber Gold actually did was to take investors’ money and promise suspiciously high returns from investing in gold. The company was not obliged to hold investors’ gold in segregated accounts and, in fact, it appears that very little gold was actually bought by the company with most of the money having been lent out at high interest rates to generate the returns to pay savers keeping any capital appreciation for itself. The final twist for investors is that because the company does not hold a banking licence there is no protection under the guarantee fund which underpins normal bank deposits so the investors have no recourse beyond the limited fractional gold pool.

Interestingly, the authorities were not completely asleep and started asking questions shortly after the company opened in 2009. The Polish Financial Supervision Authority (KNF) had asked the local prosecutor in Gdansk to investigate Amber Gold for potentially being in violation for offering banking services without holding a banking licence but these proceedings were suspended after the prosecutor apparently relied on information supplied by the president of the company without interviewing any investors. Similarly no action was taken when the company failed to file accounting records.

What is odd is that Amber Gold was a high profile company with branches across Poland including several here in Warsaw and a high profile advertising campaign. Ironically it was the suspension of flights by an associated airline OLT that firs raised alarm bells. And, quite by chance, when I was advising another airline last year, the client cast doubt on the financial health of both OLT and Amber Gold.

There is now an effort to change the regulations to allow the Polish companies register to access the database of criminal records (which would, had the law been applied, have prevented him from being the president of the company) as well as consideration on tightening up the law governing para-banks.

Too little too late you might think – and the justice minister (please see Tea and Sympathy) has conceded that the Polish state did not do a satisfactory job with regards to Amber Gold – but there is a limit to how much any state in a free society can (or should) protect folk from their own greed and stupidity. Rates of return much higher than those offered by banks should have been a warning and, as Shakespeare demonstrated in the Merchant of Venice, “all that glitters is not gold; often have you heard that told…”

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