When commodity traders get caught
CloseTrafigura and the King of Scrap
Companies and/or individuals involved: Prateek Gupta, UIL (Singapore) Pte. Ltd. (Singapore), UIL Malaysia Ltd. (Malaysia), TMT Metals A.G. (Switzerland), TMT Metals (UK) Ltd. (United Kingdom), Spring Metal Ltd. (Malaysia), Mine Craft Ltd. (Hong Kong), New Alloys Trading Pte. Ltd. (Singapore); Trafigura Pte. Ltd. (United Kingdom), Trafigura India Pvt. Ltd. (India)
Charges: The allegations brought forward in the civil proceeding are fraud and forgery of documents.
Swiss lawyers used: None
Countries affected: Switzerland, India
Proceedings: United Kingdom (High Court of Justice - Business and Property Courts of England and Wales – Commercial Court (KBD))
Outcome: Civil lawsuit pending, no criminal proceedings known
Asset recovery: None
The case
Commodity trading is built on trust. This can also go wrong, as highlighted by the legal dispute between companies in the Trafigura Group, on the one hand, and the Indian businessman Prateek Gupta and his group, on the other.
From 2019 to 2022, the Gupta Group sold nickel to Trafigura. It subsequently bought back the majority of it with an interest surcharge of 4 to 6% plus transport costs. Trafigura financed the transactions with a credit line of USD 850 million from Citibank.
Everything went well for years. However, Russia’s invasion of Ukraine triggered massive turbulence in the nickel market. Shortly after, Citibank demanded an inspection of containers, but then terminated the credit line before the first inspection. Trafigura went ahead with it anyway. By now, it seems that around 1,000 containers of nickel worth USD 590 million actually contained scrap metal.
Trafigura is now suing Gupta.
Prateek Gupta admits that he did not supply any nickel. But he claims that this is not the whole truth. He states that two Trafigura employees were behind the whole setup: the head of nickel in Geneva at the time and a senior trader in Mumbai. They allegedly approached him in 2019. They wanted to dupe Citibank into believing that they were buying nickel from the Gupta Group. Ultimately, they didn’t care what he actually delivered, especially since he usually bought his deliveries back from them in the end.
To prove his claims, Gupta provided messages from Trafigura employees. They asked to maintain “a minimum of credibility” when it came to the (always very long) transport times: “Luckily Citi accepted this one, with little suspicion, but we might not get as lucky in the future”. This actually sounds circumspect.
According to Trafigura, however, these messages were taken out of context.
Trafigura describes Gupta’s claims as pure mudslinging, claiming that Trafigura had no reason to buy scrap metal from Gupta for USD 590 million.
It is actually remarkable that Trafigura did not inspect the contents of the containers and did not complain about inconsistent transport documents, nor did it complain about the certificates of analysis that were frequently missing. However, this only had consequences if Trafigura sold “nickel” to a third-party buyer.
One such third-party buyer, Hyphen Trading Ltd. of Reuben Brothers SA, sued Trafigura after the purchased goods arrived in Jeddah, Saudi Arabia, instead of Rotterdam, in July 2022, and Trafigura did not enable them to inspect the goods. This was exactly the period when Citibank was also calling for inspections to be carried out. The parties reached an agreement in early June 2024. Another civil lawsuit by Reuben Brothers SA is pending in Singapore.
On the other hand, the question arises as to why Gupta should have incurred the costs for the bogus sales for years.
The court will have to clarify what really went on here.
Documents related to this affair
- High Court of Justice - Business and Property Courts of England and Wales – Commercial Court (KBD): Approved Judgment (15th December 2023)
- Financial Times: «Trafigura: the 10-day unravelling of an alleged $500mn fraud» (27.02.2023)
Timeline
Date | Event | Source |
| From 2014 or 2015 | Trafigura and the Prateek Gupta group of companies establish a business relationship. Prateek Gupta owns several companies, including a stake in TMT Metals AG in Zug, Switzerland. | Watson |
| From 2019 | Trafigura is increasingly buying nickel from Gupta and his companies. Later on, Trafigura usually sells the metal back to the Gupta Group, with a premium of 4 to 6% interest plus transport costs (known as “buyback” deals). Gupta thus obtains financial resources. Trafigura receives the interest. | Insurancejournal2 |
| From 2019 | Citibank finances Trafigura’s nickel business. | Watson |
| 4th-8th March 2022 | The price of nickel on the London Metal Exchange rises by 270% in the wake of Russia’s invasion of Ukraine. | LME Report |
| 8th March 2022 | The London Metal Exchange suspends nickel trading after massive turbulence in the market. | Capital |
| Summer 2022 | The Gupta Group buys back nickel increasingly less often and increasingly later. | FT |
| July 2022 | Hyphen Trading, a Reuben Brothers company, buys nickel from Trafigura. The delivery ends up in Jeddah instead of Rotterdam and Trafigura does not accommodate an inspection to be carried out. | Reuters |
| July 2022 | India’s Central Bureau of Investigation investigates Gupta and others for fraud against the State Bank of India and four other banks. The charges range from manipulation of accounts to fake business transactions and from business operations involving shell companies to directly siphoning off funds. | Economic Times of India |
| October 2022 | Citibank requires the delivery of pending orders to warehouses to allow inspections to be carried out. | Insurancejournal2; UK High Court |
| October 2022 | Citibank stops funding new trades. | Insurancejournal; UK High Court |
| 7th November 2022 | Gupta tells Trafigura that he has suffered a heart attack. He asks for the upcoming first inspection to be stopped. | FT |
| 9th November 2022 | Trafigura inspects some containers in Rotterdam. Instead of nickel, they contain worthless carbon steel. None of the containers controlled later in time contained nickel, either. A total of more than 1,000 containers are involved. | Insurancejournal |
| November 2022 | Gupta admits to Trafigura that certain containers do not contain nickel. He offers collateral until he can pay. He also attempts to sell TMT bonds. | FT |
| 17th November 2022 | Trafigura’s Chinese customer Xiamen C&D Aluminium Co complains that a shipment of 286 tonnes of nickel does not contain any nickel. Trafigura buys back the delivery. Other customers complain. | FT |
| 11th January 2023 | According to Trafigura’s submission, Gupta offered letters of credit from Silver Bank in Mauritius as collateral. It is unclear whether Gupta directly or indirectly controls Silver Bank. | Financial Review |
| February 2023 | Trafigura Pte., Singapore and Trafigura India Pvt. sue Prateek Gupta and seven of his companies in London. | Insurancejournal |
| 28th June 2023 | Hyphen Trading files a civil lawsuit against Trafigura in London for non-delivery of nickel in July 2022. | Reuters |
| 7th December 2023 | A London court shuts down Gupta’s company TMT Metals Holdings Ltd. because the company cannot pay a debt of USD 3 million. | Bloomberg |
| 19th March 2024 | Gupta’s representatives tell the London court that he has no more funds to pay his lawyers. He wants to negotiate a settlement. | Marketscreener |
| 4th June 2024 | Reuben Brothers announces the amicable settlement of Hyphen Trading’s civil lawsuit against Trafigura without disclosing any further details. | Reuben |
Legislative loopholes
- Ability to manipulate commodity trade data through bogus sales
- No specific supervisory authority in the commodities sector and no appropriate due diligence obligations for traders