ax probe in gold sector

Claiming widespread tax fraud in the gold refining and trading sector, Revenue Quebec and police investigators this week conducted searches and seizures at 70 locations in and around Montreal Island and as far as St. Bernard de Lacolle.

No arrests were announced, but the tax department said Thursday it had reason to believe several individuals were involved in producing false invoices for a number of companies.

One of the targeted sites was the downtown Montreal location of Kitco, a major buyer and seller of gold.

A note on the floor of its ninth-floor office on Cathcart St. on Thursday said that "operational constraints" had forced the service counter to close this week.

A company spokesperson said it was before the courts Thursday seeking clarification of its rights and probably would issue a statement Friday.

Revenue Quebec said two networks of companies and individuals were at the heart of a false-billing scheme that had cost the province more than $150 million in tax on almost $2 billion in transactions. In addition to Kitco and Carmen International Inc., it said almost 125 other companies had been complicit in the scheme.

In a communiqué, Revenue Quebec said that by converting pure gold into a gold object and then refining it back into a pure state, some in the gold industry had used "artificial transactions" to obtain refunds of taxes that were never actually paid.

Kitco's alleged connection to the scheme stunned many.

The Montreal company has a high international profile in the precious metals sector.

Its website, Kitco.com, offers an array of commodity prices and commentary and has garnered a wide following.

It regularly hosts industry events and earlier this spring expanded its Hong Kong office, burnishing the image of an international player that straddles North America and Asia. It also has offices in Canada, the U.S. and Shanghai.

Kitco buys and sells a host of precious metal products, ranging from scrap gold to palladium and rhodium. It has a metal refining business and provides secure storage of precious metals for individuals and corporations.

In an interview in 2004, company president Bart Kitner told The Gazette that Kitco was founded in 1977 with a $700 loan from his father while he was an undergraduate business student at McGill University. In 1995, he started Kitco.com, developing in-house technology that provided real-time quotes. Kitner said then that two-thirds of company's business came from its website.

pdelean@ montrealgazette.com