Trafigura has missed red flags in alleged nickel fraud, court filings show

Trafigura has failed to require certificates of analysis, ignored false customs codes and overlooked other “red flags” that have alerted its bankers about nickel shipments that were later discovered to be fraudulent, according to court documents seen by the Financial Times on Friday.

The alleged nickel fraud that caused Trafigura to write off $577 million is poised to become one of the largest goods fraud lawsuits ever tried in London courts.

Singapore-based Trafigura alleges that Prateek Gupta-affiliated companies sold it more than 1,100 containers that were supposed to contain high-grade nickel, but didn’t.

However, affidavits released late Friday night show that Trafigura itself made several risk management mistakes, including waiving contractual requirements for certificates of analysis for the cargoes and ignoring false customs codes.

At the heart of the scheme were dozens of “buyback transactions,” in which Trafigura bought “nickel” shipments from the defendants, owned the cargo in transit, and then resold the cargo in deals also arranged by Gupta’s company. The contents of these cargoes were largely uncontrolled.

It was one of Trafigura’s bankers, Citi, who first noticed the “red flags” in these transactions and was concerned about the length of time the buybacks were taking.

In October, Citi canceled its $850 million line of credit used to fund nickel shipments. After that, Trafigura continued trading with his own cash.

“Citi said it saw enough ‘red flags’ to end the agreements immediately,” Sokratis Oikonomou, former head of Trafigura’s nickel trader, wrote in a affidavit.

Several regular compliance steps were missed within Trafigura, such as: B. Requiring Certificates of Analysis for the nickel in the shipment, which are documents drawn up at the time of metal production and are a standard requirement for payment in the metal trade.

Mirza Reza Ispahani, Trafigura’s in-house lawyer, wrote in his testimony that Trafigura failed to notice that “many” of the bills of lading contained the wrong HS codes used to identify the goods in a container.

“It is currently not clear to me why this was not collected by Trafigura at the time and why Trafigura paid against 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 issue, as Trafigura had not insisted that certificates of analysis be provided for any nickel trades with Gupta’s companies, “although this was contractually required”.

Additionally, Trafigura’s operations team noticed that the trips were much longer than necessary, ostensibly to maximize funding.

The customer books freights “so that the freight has the longest possible journey to achieve the maximum financing benefit,” according to an email exchange between members of Trafigura’s operations team dated Nov. 1, 2022, according to the affidavit.

In the documents, Trafigura portrays himself as a victim of premeditated fraud and an unintended middleman facilitating trade between a network of allegedly colluding companies.

Trafigura said that “every fraud is an opportunity to review and streamline systems and procedures and a thorough review is underway”.

So far, Trafigura has inspected around 156 out of 1,104 containers in connection with the alleged fraud. She claims none of them contain material compliant with the Treaties.

Citi declined to comment. Prateek Gupta officials did not immediately respond to a request for comment.

Additional coverage for Robert Smith and Joshua Franklin