According to court documents obtained by the Financial Times on Friday, Trafigura did not require confirmation of analysis, ignored incorrect customs codes and missed other “red flags” that alerted its bankers to nickel shipments they later found to be fraudulent.
The alleged nickel fraud that caused Trafigura take $577 million write-off, is poised to be one of the biggest commodity fraud lawsuits ever heard in the London courts.
Singapore-based Trafigura claims that companies linked to Prateek Gupta sold it more than 1,100 containers that were supposed to contain high-grade nickel but did not.
But affidavits released late on Friday reveal that Trafigura itself made several mistakes in risk management, including dropping contractual requirements for cargo analysis certificates and ignoring incorrect customs codes.
At the heart of the scheme were dozens of “buy-back transactions” in which Trafigura bought “nickel” shipments from the defendants, owned the cargo in transit and then sold it in deals also arranged by Gupta’s companies. The content of these costs was largely unchecked.
It was one of Trafigura’s bankers, Citi, who first noticed “red flags” in these transactions and was concerned about how long the buybacks were taking.
In October, Citi canceled its $850 million credit line used to finance nickel shipments. After that, Trafigura continued the deals using its own cash.
“Citi said it saw enough ‘red flags’ to terminate the arrangement immediately,” Sokratis Oikonomou, formerly Trafigura’s chief nickel trader, wrote in the affidavit.
Trafigura lacked several regular compliance steps, such as requiring nickel analysis certificates in the shipment, which are documents generated at the time the metal is produced, and a standard payment requirement in metal shops.
Mirza Reza Ispahani, Trafigura’s in-house counsel, wrote in his witness statement that Trafigura failed to pick up that “many” waybills had incorrect HS codes, which are used to identify the goods inside the container.
“It is not clear to me at this time why Trafigura did not pick it up then and why Trafigura paid based on bills of lading that contained HS codes that did not match the contractual description of the material,” he wrote.
He added that there was a similar problem with Trafigura not insisting that certificates of analysis be provided for every nickel deal with the Gupta companies “even though the contracts required it”.
In addition, Trafigura’s operations team noticed that voyages were much longer than needed, allegedly to maximize funding.
The client is booking the cargo “so that the cargo has the longest possible journey to get the maximum benefit of the financing,” according to an email exchange between members of Trafigura’s operations team on Nov. 1, 2022, according to the affidavit.
Trafigura is portrayed in the documents as both a victim of deliberate fraud and an unwitting middleman facilitating deals between a network of firms that were allegedly in cahoots with each other.
Trafigura said “any fraud is an opportunity to review and tighten systems and procedures and a thorough review is underway”.
Trafigura has so far checked around 156 of the 1,104 containers linked to the alleged fraud. They claim that none of them contain material that complies with the treaties.
Citi declined to comment. Representatives for Prateek Gupta did not immediately respond to a request for comment.
More coverage for Robert Smith and Joshua Franklin