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Trafigura failed to require analysis certificates, ignored incorrect customs codes and missed other “red flags” that alarmed its bankers on nickel shipments it later discovered to be fraudulent, according to court documents obtained by the Financial Times on Friday.

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

Singapore-based Trafigura alleges that companies linked to Prateek Gupta sold it more than 1,100 containers that were supposed to contain high-grade nickel but did not.

However, affidavits released late on Friday evening reveal that Trafigura itself made several risk-management errors, including waiving contractual requirements for certificates of analysis for the cargoes and ignoring incorrect customs codes.

At the heart of the scheme were dozens of “buyback transactions” in which Trafigura purchased “nickel” shipments from the defendants, owned the cargo while in transit, then sold the cargo onwards in deals that were also arranged by Gupta’s companies. For the most part, the contents of these cargoes were not inspected.

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

In October, Citi cancelled its $850mn credit line that was being used to finance the nickel shipments. After that point, Trafigura continued the trades using its own cash.

“Citi stated they had seen sufficient ‘red flags’ to terminate the arrangements immediately,” wrote Sokratis Oikonomou, formerly Trafigura’s head nickel trader, in an affidavit.

Within Trafigura, several regular compliance steps were missed, such as requiring certificates of analysis for the nickel in the shipment, which are documents generated at the time of the metal’s production and a standard requirement for payment in metals trades.

Mirza Reza Ispahani, Trafigura’s in-house counsel, wrote in his witness statement that Trafigura did not pick up that “many” of the bills of lading had the incorrect HS codes, which are used to identify the goods inside a container.

“It is not presently clear to me why this was not picked up by Trafigura at the time and why Trafigura paid out against bills of lading that contained the HS codes which did not match the contractual description of the material,” he wrote.

He added that there was a similar issue with Trafigura’s failing to insist on certificates of analysis being provided for each trade of nickel with Gupta’s companies, “even though this was required under the contracts”. 

In addition, Trafigura’s operations team noticed that the voyages were much longer than they needed to be, allegedly in order to maximise financing.

The client books cargoes “in a way that the cargo has the longest voyage possible to get the maximum benefit of financing”, states an email exchange between members of Trafigura’s operations team on November 1 2022, according to the affidavit.

In the documents, Trafigura portrays itself as the victim of an intentional fraud and as the inadvertent middleman facilitating trades between a network of companies that were allegedly in cahoots.

Trafigura said that “any fraud is an opportunity to review and tighten systems and procedures and a thorough review is under way”.

So far, Trafigura has inspected around 156 out of 1,104 containers related to the alleged fraud. It alleges that none of them contains material that is compliant with the contracts.

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

Additional reporting for Robert Smith and Joshua Franklin

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