News Service from House Harris

NSW: Damaged $2 coins due for melting appear in Sydney scam

SYDNEY, May 29 AAP - Thousands of damaged Australian two-dollar coins seized during an alleged money laundering scam in Sydney were supposed to have been melted down in Korea.

Instead, police say the coins reached China and were sold on the black market before being sent back Down Under.

Police arrested a 26-year-old man on Tuesday after he allegedly fed dodgy coins into vending machines at a shopping centre in Chatswood, in Sydney's north.

Police said the Rydalmere man, who allegedly had 9,000 of the coins in his possession, was swapping them for legitimate coins from refund slots.

Officers allegedly found more than 1,600 of the damaged coins on the man at the time of his arrest and discovered a further 7,500 coins during a subsequent raid of his home.

"Investigations into the matter found the man had recently brought the money back from China where he had purchased them," police said in a statement.

The man is charged with obtaining a benefit by deception and goods in custody and is due to face Hornsby Local Court on June 17.

The coins are not counterfeit, but are believed to have been taken out of circulation due to the damage, Detective Inspector Peter Yeomans said.

"The coins all have some level of damage," Insp Yeomans said in a statement.

"Some are chipped, gouged or scarred, while others look very old and tarnished. Generally speaking, they are not bent or flattened."

Police have contacted the Royal Australian Mint in Canberra to assist with investigations.

A mint spokeswoman declined to comment on the batch of $2 coins in the alleged laundering scheme, but she told AAP a coin was taken out of circulation when its weight was diminished.

"Banks return worn, damaged and mutilated coins to the Royal Australian Mint," the spokeswoman said.

"These coins are melted down by the mint's blank supplier in Korea and recycled into new coins."

The blank coins are returned to the mint in Canberra where they are "head and tailed" before re-entering circulation.

The mint and police refused to comment on how the coins ended up in China.