A (very) expensive lesson in leaky processes

Dieter Adam, 8 September 2023

Aurubis is one of the world’s largest recyclers and processors of non-ferrous metals, headquarted in Hamburg (Germany). Now the company is in the headlines for all the wrong reasons: “During a scheduled review of metal inventories, Aurubis has identified considerable discrepancies in target inventory … The exact amount of the damages incurred by Aurubis cannot yet be accurately assessed. … It cannot currently be ruled out that the damages might be in the low, three-digit-million-euro range.” https://www.aurubis.com/en/media/press-releases/press-releases-2023/ad-hoc-release-aurubis-identifies-serious-indications-of-shortfall-in-metals – thus reads a rather laconic account of one of the more serious recent cases of corporate theft globally. Not that it will break the company’s back – but it will make a serious dent in their € 450-550 million EBT forecast for the current financial year. Not bad for a company with fewer than 7,000 employees … As an aside, that’s about NZD 123,000 of EBT per employee and goes to show that one can earn good money with what a lot of people would regard as ‘simple manufacturing’ they couldn’t get excited about.

In a recent interview Aurubis CEO, Roland Harings, provided an insight into how the theft, or, rather, fraud, was conducted, apparently over many years: The company purchases recycled non-ferrous metals, including copper, silver, gold, as well as palladium, platinum and rhodium from hundreds of recyclers, some of the ‘scrap’ already partially processed. The picture above shows piles of granulated copper, for example. Samples are taken from all purchased materials and analysed for metallurgical composition. However, samples are taken after deliveries from multiple suppliers have been pooled, meaning there is no trace-back to the composition of deliveries from individual suppliers. The company is still trying to find out how exactly the fraud was conducted over many years despite “highest security standards”, but somewhere in the process chain between sampling and analysis a higher content of precious metals was recorded than was the case, and suppliers received higher payments than they were due. This will have required collaboration between suppliers and employees of Aurubis. An aggravating factor is that the recovery of precious metals from scrap involves a multi-stage process that can take weeks, and any discrepancies can only be identified at the end of the process chain. Moreover, some variations in the composition of recycling materials is normal, so only more significant deviations would trigger an alarm.

The point here is that in spite of Aurubis claiming to have applied “highest security standards”, the fraud obviously didn’t require a breach of / deviation from standard processes but could be conducted as part of these standard processes – which is why it could continue undetected “apparently over many years”, as the company stated.

Beyond financial losses, cases of corporate theft like this one, where gaps in processes made it relatively easy for the fraud to be committed, often also result in reputational damage to the company and its management. And to add insult to injury, the absence of adequate security is sometimes considered as a mitigating factor when courts are setting the punishment for convicted offenders.