Mint adopts Mutilated Coin Redemption Program changes

Officials respond to potential threat from improper use of program
Published : 09/16/11
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The United States Mint has adopted changes to its Mutilated Coin Redemption Program after officials expressed concerns about practices that they said would leave the coin redemption program open to exploitation and illegal activity, if left unchecked.

The concerns, first expressed by Mint officials to the Treasury Department’s Office of Inspector General in May 2008, “were based upon the value and frequency of mutilated coin redemptions by a relatively small number of individuals and corporations,” according to the investigative findings included in the Treasury Office of Inspector General’s March 31 semi-annual report to Congress.

The concerns include possible exploitation of the program to avoid significant bank charges associated with coin deposits, including charges for counting.

The program is designed to handle and redeem mutilated coinage. Mutilated coins are those that are bent, broken, corroded, not whole, melted together and not machine countable. These differ from “Uncurrent” coins, classified as “U.S. coins which are merely worn or reduced in weight by natural abrasion, yet are readily and clearly recognizable and machine countable.”

The U.S. Mint offers to reimburse the customer for redeemed coins by weight. The value, according to U.S. Mint spokesman Michael White, is determined by alloy and by weight. A pound will contain differing numbers of coins, depending on denomination and composition. Cents must be separated, by the submitter, from other denominations, but a submission of cents can combine both 95 percent copper and copper-plated zinc coins. Copper-nickel 5-cent coins must also be kept separate from other denominations, while manganese-brass clad Sacagawea and Presidential dollars may be combined with copper-nickel clad Anthony dollars. Copper-nickel clad dimes, quarter dollars, and half dollars may be combined and shipped together for redemption.

The U.S. Mint redeems mutilated coins at the rate of $3.21 per kilogram, or $1.46 per pound for cents; $9.99 per kilogram, or $4.54 per pound, for 5-cent coins; $44.09 per kilogram or $20 per pound, for copper-nickel clad coins (dimes, quarter dollars and half dollars); and $123.46 per kilogram, or $56 per pound, for dollar coins.

The Philadelphia Mint processes some of the mutilated coinage for redemption, with the remainder processed by a private contractor.

“The Mutilated Coin Redemption Program’s basis is to back and promote confidence in U.S. coinage by ensuring that even mutilated U.S. coins (which financial institutions are unlikely to accept because bent, deformed, or partial coins generally cannot be counted by machine) are ultimately redeemable for their face value,” according to White. “As such, it is essentially a cash-for-cash redemption program that, if abused, could potentially be used as a mechanism for money laundering, fraud, tax evasion, and Bank Secrecy Act violations.”

The Treasury Office of Inspector General report does not identify any alleged criminal activity by any one entity, just the potential for such activity.

The concerns involved truckloads of U.S. coins, primarily copper-nickel clad dimes and quarter dollars, shipped to the one of the Mint’s contractors, PMX Industries in Cedar Rapids, Iowa. The coins, many of which were determined not to have been mutilated, were shipped to PMX from companies in Hong Kong and China, according to the Mint.

PMX — a U.S. subsidiary of Poongsan Corp., the world’s largest supplier of coinage blanks, based in Seoul, South Korea — is one of the U.S. Mint’s two suppliers of coiled coinage strip from which blanks are punched for 5-cent coins, dimes, quarter dollars, half dollars and dollars. The other strip supplier is Olin Brass in East Alton, Ill. (Jarden Zinc Products in Greeneville, Tenn., supplies the U.S. Mint with ready-to-strike copper-plated zinc planchets.)

PMX handles large shipments of coins shipped directly for redemption that represent overflow from the Philadelphia Mint because of storage limitations. The Philadelphia Mint handles small quantities of mutilated or damaged coins for redemption, by the pound, separated by denomination or composition.

White said Aug. 24 that large quantities of redeemed coins are shipped to PMX, Olin and Jarden where Mint employees now witness the weighing and inspection process prior to melting and metal reclamation. Before the implementation of the new procedures as recommended by Treasury, Mint employees did not observe the reclamation process at the private firms.

FOIA request

Soon after the Treasury Office of Inspector General semi-annual report to Congress was posted online over a link from the main Treasury Department website at, Coin World submitted a Freedom of Information Act request to the office seeking release of the investigation report concerning the Mutilated Coin Redemption Program.

In mid-July, Coin World received the inspector general’s investigative report, with the names and contact information for investigators redacted.

Additional questions were posed directly to the Mint concerning the Treasury Office of Inspector General report, with the responses provided Aug. 24.

Mint concerns

The Treasury Office of Inspector General initiated its investigation of the Mint’s Mutilated Coin Redemption Program in May 2008 after United States Mint officials observed a significant increase in the quantity of coins being submitted for redemption, according to the Feb. 16, 2010, final inspector general investigative report concluding a 21-month investigation.

The increase in submissions caused concern to Mint employees, resulting in a number of inquiries made to the entities redeeming coins concerning the coins’ source, according to the Feb. 16, 2010, final Treasury Office of Inspector General investigative report.

“However, none of the entities that have been contacted provided a plausible and verifiable explanation for the origin of the coins submitted for redemption,” according to the report.

The foreign companies identified Aug. 24, 2011, by U.S. Mint spokesman Michael White as having shipped massive numbers of mutilated coins are: Glory Smart (Hk) Ltd.; Sino-West Co.; Shen Po Co.; FL B&L LLC; Guang Han Trading LLC; Environmental Protection Group Inc.; and Xracer Sports Co. Ltd.

Mutilated coin inspection

Agents from the Treasury Office of Inspector General, U.S. Secret Service, and Immigration and Customs Enforcement, along with Mint representatives, on July 15, 2008, inspected the delivery from three foreign companies of suspected mutilated coins contained in 37 crates on three tractor-trailer trucks.

The Treasury Office of Inspector General’s Feb. 16, 2010, report did not identify the three companies nor the number of coins in the crates.

Of the 37 crates, 11 were randomly selected, and the contents dumped onto a vibratory conveyor belt for coin inspection.

Very few cents and 5-cent coins were found, while approximately 99 percent were dimes and quarter dollars. Two-thirds of the total coins submitted did not appear to be mutilated or damaged.

A Mint metallurgist examined 50 samples from each of the 11 crates inspected and confirmed the contents were genuine U.S. Mint coins.

According to the Feb. 16, 2010, report, prior to the July 15, 2008, inspection of the coin shipment to PMX, “Mint staff had not previously conducted any inspections or samplings to verify the authenticity and condition of mutilated coins submitted for redemption.”

The Treasury Office of Inspector General found that the Mint’s existing procedures hindered “the Mint’s ability to ensure that shipments do not contain unacceptable items such as foreign coins, counterfeit coins, slugs and altered coins.” The office recommended, and the Mint implemented, procedures to sample all incoming shipments and have them assayed by a Mint metallurgist. The Treasury Office of Inspector General also recommended, and the Mint implemented, that the coins for redemption be submitted in smaller containers, which had been the practice until the entities submitting mutilated coins for redemption gradually began packaging coins in a manner most advantageous to them, according to the Treasury Office of Inspector General.

Based on inspector general’s recommendations, the Mint developed procedures to ensure that shipments of mutilated coins submitted for redemption include no more than a minimal amount of coins that are not mutilated and are still machine-countable for use in commerce.

The Treasury Office of Inspector General recommended that the Mint, since it is functioning as a “currency exchange,” should require those entities redeeming large quantities of mutilated coins, especially those from overseas, to provide substantial documentation identifying themselves. The inspector general recommended that the Mint either require overseas vendors to supply the Mint with a copy of a completed Report of International Transportation of Currency or Monetary Instruments, FinCEN Form 105, or that the Mint develop its own form requiring the same information from foreign and domestic vendors prior to authorizing payments.

The forms, according to the OIG, should require the vendors to explain an identifiable source of the mutilated coins, why the vendor is the legal owner entitled to payment for the redeemed coins, and whether the compensation is being shared with a third party.

“Not identifying the source would not be illegal unless the United States Mint’s regulations were changed to require such information,” White said. “However, asking for such information may deter the use of the Mutilated Coin Redemption program for improper purposes.

“Submitting unmutilated coins would not, by itself, be illegal; however, the United States Mint has no authority to redeem unmutilated coins and, therefore, would reject such a submission.” ■

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