Lost Coins Help Prop Up the Multibillion-Dollar Car Recycling Industry

The US Mint recently began accepting mutilated coins from scrap recyclers after a 2 year hiatus while it investigated an alleged massive Chinese coin fraud operation.

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Feb 1 2018, 2:00pm

Image: Shutterstock


Your car isn’t a piggy bank, but it’s hard to tell from all the coins spilling over the edge of the cup holder. Don’t worry though, you’re not alone in your reckless abandonment of these annoying pieces of legal tender: There’s so much loose change hiding in American cars that, cumulatively, our abandoned coins are a multimillion dollar revenue stream that helps prop up an entire industry.

Each year, millions of American cars, washing machines, vending machines, and other coin-operated devices are torn to bits and recycled, mostly in China and India. This process also results in the recovery of millions of dollars in coins that were hidden in these machines and mutilated during the recycling process.

Until 2015, recyclers could collect these mutilated coins and sell them back to the US Mint at a rate that equals their unmutilated value ($20 per pound for quarters and dimes, $1.81 for a pound of pennies, $4.53 for a pound of nickels). This redemption program provided an important source of income for the scrap-metal recycling industry, which was suddenly cut off in 2015 when the Mint abruptly halted the program. At the time, the Mint said it noticed a significant uptick in the number of coins being processed by its Mutilated Coin Redemption Program that had been sent from abroad, stoking fears that foreign recycling programs were defrauding the US Mint with counterfeit coins.

“Much of the volume in coins was coming from China as a result of the natural global trade of scrap materials,” Billy Johnson, the chief lobbyist for the Institute of Scrap Recycling Industries, told me in an email. “However, for those not as familiar with the workings of the recycling industry this created questions. The U.S. government sought to do their due diligence in making sure the coins recovered were legitimate.”

After a two-year hiatus, the US Mint’s mutilated coin program resumed its activities in late December 2017, a move that the ISRI heralded as a “major victory for the recycling industry.”

Although the number of recovered coins from cars and coin operated machines seems like it would be insignificant, according to Johnson, it’s a multimillion dollar source of revenue for scrap metal recycling operations. But what had assuaged the Mint’s fear that more counterfeit coins were flooding in from abroad?

Johnson said the answer has to do with clearing up confusion around the way coins are recovered from the international scrap recycling industry. Coins being turned in to the program from China were from American cars, vending machines, and washing machines that were ultimately processed overseas.

Take cars, for instance: Each year, roughly 12 million American cars are recycled (car scrapping is a roughly $20-billion industry annually), a process that involves feeding the vehicle into a machine appropriately known as a “shredder.” This machine uses a rotor and hammers to tear the car into small pieces called shred and the coins leftover in the vehicle inevitably get shredded, too.

After the shred is sorted by an automated assembly line that uses magnets, vibrations, and machine optics to tease apart the different materials, the coins that have been separated are cleaned and sent to the US mint to be redeemed. The coins are usually in pretty rough shape after being shredded, which can make telling counterfeits from real coins a difficult process. When I contacted the US Mint, it declined to comment on how it identifies counterfeit mutilated coins.

In 2008, the US Mint noted an increase in the number of mutilated coins being shipped to it from China and other foreign countries and expressed concern that they may be counterfeit. An investigation later that year at a contracted processing facility revealed that none of the coins at the facility appeared to be counterfeit, but doubts at the Mint lingered.

Things came to a head in 2014, when a US recycling company called Wealthy Max, whose recycling operation has an affiliate in China, was accused of passing off counterfeit coins to the US Mint. Indeed, one judge claimed that the prosecutors laid out “convincing evidence that rationally leads to the conclusion that most, if not all, mutilated coin imports from China were counterfeit for the past 15 years.”

This was no small accusation. Over the past two decades, Wealthy Max has redeemed nearly $40 million worth of mutilated coins from the US Mint. In 2014 and 2015, Wealthy Max shipped a total of $3.2 million worth of mutilated coins that were seized by the Department of Homeland Security on suspicion of being counterfeit, and the Mutilated Coin Redemption Plan was indefinitely suspended shortly thereafter.

Much of the “convincing evidence” put forth by the government was contested by Wealthy Max as being unfounded. For instance, the government claimed that Chinese companies have redeemed more half dollars in the last decade than have ever been produced, and a 2009 report found that every scrap car sent to China for processing in 2007 would have had to have contained $900 worth of coins to account for all the mutilated coins the Mint received from the country that year. Wealthy Max’s lawyers did not respond to a request for comment for this article.

Moreover, the government noted that it had found coins redeemed by Wealthy Max that contained silicon and aluminum, two elements that aren’t found in any US coins, and low levels of nickel and copper, which are found in genuine coins. Authorities took this as an indication that the coins being imported from China were counterfeit.

As it turned out, however, the government just didn’t understand how the global scrap recycling industry worked. As part of its lawsuit to recover the $3.2 million it was owed for its seized mutilated coins, Wealthy Max flew two executives from China to the US to explain how the Chinese recycling industry worked and to demonstrate its massive scope (China is the number one importer of US scrap metals). It even went so far as to open up 13 tons of mutilated coins for inspection by the public, but no government officials bothered to attend the event. Neither Wealthy Max, nor its legal representation, could be reached for comment.

The problem with the claim that more half dollars were redeemed than ever produced is that the government had no record of the number of half dollars redeemed through the coin mutilation program, making this allegation impossible to prove. Moreover, the reason why more coins were redeemed in 2007 than could possibly have been shipped in scrapped cars was that many of those coins were from previous scrap that had been stored in China for years before being shipped and were also recovered from other scrap sources (such as washing and vending machines), not just cars.

As for the discrepancies about the metals found in the coins, this had to do with improper cleaning by Chinese recycling plants. In the complaint against Wealthy Max, the government had misrepresented the findings of the lab analysis of the seized coins, which hadn’t been able to reach a conclusion about whether they were counterfeit.

So barring any evidence that Chinese recyclers were engaged in a massive scam to counterfeit mutilated US coins, the government quietly resumed its coin redemption plan in December. It made a few changes to its mutilated coin redemption process, including a certification process for recyclers depending on how many coins the recycler submits per year.

“The U.S. Mint gets a lot of value from the redemption of damaged coins,” Johnson, said referring to the Mint’s decision to reinstate the program. “It gets precious metals back so they may be used in new coins and protects the integrity of the U.S. coinage system by taking older coins out of circulation. Once the U.S. Mint had a better understanding of the process in which the coins are recovered, it was really a no-brainer.”