Active in 48 countries and six continents, Trafigura, whose reputation has been tainted in the past by corruption cases, was the victim of "systematic" fraud after it purchased nickel from an Indian businessman. This is the story of a high-profile scam.
Even though Trafigura is well known on the continent where it is active in trading raw materials and oil products, it still managed to get screwed. The global trading behemoth ($318.5bn in turnover and $7bn in net profit in 2022), has taken legal action against Prateek Gupta, an Indian metals tycoon and the “head” of a group of companies (including TMT Metals and UIL Malaysia), whom he accuses of having sold him shipments of fake nickel.
The affair, which was reported by the Financial Times after a group press release was published on the subject at the beginning of February, is a stain on Trafigura, whose losses are estimated to be more than half a billion dollars.
The business relationship between the giant and Gupta-led entities began in 2014 with domestic zinc transactions in India and then evolved into ‘buyback transactions’. In a nutshell, Trafigura would acquire cargo from Gupta’s companies, then resell it to another entity in the Gupta galaxy or to third-party companies linked to Gupta, at a higher rate because it included interest.
In the spring of 2022, as nickel prices soared and these transactions became increasingly large, Citibank terminated the $850m line of credit provided to the trading company to finance these transactions. This forced Trafigura to finance the shipments from its own funds.
A ship inspection was then scheduled for 9 November 2022 in Rotterdam. On 7 November, Gupta told his Trafigura counterpart in a WhatsApp message that he had suffered from a heart attack and asked to postpone the inspection. The date was not postponed, however, and checks revealed that the containers were either empty or filled with poor-quality nickel.
After leaving the hospital, the Indian tycoon admitted that the shipments were not as expected and tried to strike a deal with Trafigura by offering to buy the shipments back. In detail, and according to information reported by the Financial Times, the Indian boss offered to pay $200m by the end of March – including $5m financed by the Mauritian bank Silver Bank, which has been placed under scrutiny for its links to the accused fraudster – and to pay the rest over the following two years.
The commodities trader rejected the offer, partly because the customers to whom it had sold some of the alleged nickel shipments eventually discovered the truth.
On 17 November, Chinese customer Xiamen C&D Aluminum Co alerted Trafigura to discrepancies between the customs codes and the certificates of analysis of the 286-tonne shipment it had received. Two weeks later, Xiamen threatened to take legal action. Another customer, the US company Argentem, then raised similar concerns. By early January 2023, a third customer, Geneva-based Mind ID, had opened containers of suspected nickel and found no trace of the metal inside. A fourth customer, Hong Kong-based Axiom, organised an inspection in Rotterdam on 9 January, which revealed the same thing.
Following an outcry from customers, Trafigura’s management team met on 10 January and decided to file a complaint for “fraud and to request a worldwide freeze of the defendants’ assets”.
Although Trafigura is continuing to pursue legal action, it has suffered a significant financial setback. The commodities trader has announced a loss of $577m (equivalent to more than 7% of its record $7bn profit in 2022) and is currently negotiating with the customers who received the alleged nickel shipments to find a solution.
To date, it is unclear to what extent Trafigura was aware of Gupta’s activities, but the company said it had “seen no evidence to suggest that any of its employees were involved or complicit in this illegal activity”.
Even the actual value of the material in the containers remains a mystery. In all, more than 156 containers had been inspected by 6 February, out of a total of 1,100 containers involved. Some were loaded with carbon steel, others with various types of steel and iron products – but none so far contained nickel or a nickel alloy.
While any legal settlement could take months or even years, some of the pieces of cargo are still at sea, with the last one due to arrive this May.