Trafigura missed pink flags in alleged nickel fraud, court docket papers present

Trafigura didn’t require evaluation certificates, ignored incorrect customs codes and missed different “pink flags” that alarmed its bankers on nickel shipments it later found to be fraudulent, in keeping with court docket paperwork obtained by the Monetary Instances on Friday.

The alleged nickel fraud, which has brought on Trafigura to take a $577mn writedown, is poised to be one of many largest commodity fraud lawsuits ever pursued in London courts.

Singapore-based Trafigura alleges that corporations linked to Prateek Gupta offered it greater than 1,100 containers that had been speculated to comprise high-grade nickel however didn’t.

Nevertheless, affidavits launched late on Friday night reveal that Trafigura itself made a number of risk-management errors, together with waiving contractual necessities for certificates of study for the cargoes and ignoring incorrect customs codes.

On the coronary heart of the scheme had been dozens of “buyback transactions” during which Trafigura bought “nickel” shipments from the defendants, owned the cargo whereas in transit, then offered the cargo onwards in offers that had been additionally organized by Gupta’s corporations. For essentially the most half, the contents of those cargoes weren’t inspected.

It was one in every of Trafigura’s bankers, Citi, that first observed the “pink flags” in these transactions and grew involved over the size of time the buybacks had been taking.

In October, Citi cancelled its $850mn credit score line that was getting used to finance the nickel shipments. After that time, Trafigura continued the trades utilizing its personal money.

“Citi acknowledged that they had seen enough ‘pink flags’ to terminate the preparations instantly,” wrote Sokratis Oikonomou, previously Trafigura’s head nickel dealer, in an affidavit.

Inside Trafigura, a number of common compliance steps had been missed, equivalent to requiring certificates of study for the nickel within the cargo, that are paperwork generated on the time of the metallic’s manufacturing and an ordinary requirement for cost in metals trades.

Mirza Reza Ispahani, Trafigura’s in-house counsel, wrote in his witness assertion that Trafigura didn’t decide up that “many” of the payments of lading had the inaccurate HS codes, that are used to establish the products inside a container.

“It isn’t presently clear to me why this was not picked up by Trafigura on the time and why Trafigura paid out in opposition to payments of lading that contained the HS codes which didn’t match the contractual description of the fabric,” he wrote.

He added that there was the same subject with Trafigura’s failing to insist on certificates of study being supplied for every commerce of nickel with Gupta’s corporations, “though this was required underneath the contracts”. 

As well as, Trafigura’s operations staff observed that the voyages had been for much longer than they wanted to be, allegedly with a view to maximise financing.

The consumer books cargoes “in a means that the cargo has the longest voyage attainable to get the utmost advantage of financing”, states an e mail trade between members of Trafigura’s operations staff on November 1 2022, in keeping with the affidavit.

Within the paperwork, Trafigura portrays itself because the sufferer of an intentional fraud and because the inadvertent intermediary facilitating trades between a community of corporations that had been allegedly in cahoots.

Trafigura stated that “any fraud is a chance to overview and tighten methods and procedures and an intensive overview is underneath means”.

To this point, Trafigura has inspected round 156 out of 1,104 containers associated to the alleged fraud. It alleges that none of them incorporates materials that’s compliant with the contracts.

Citi declined to remark. Representatives for Prateek Gupta didn’t instantly reply to request for remark.

Further reporting for Robert Smith and Joshua Franklin