Will Trafigura claims pave the way for fraud cases against other multinationals?
Robert Newcombe discusses in Thomson Reuters Regulatory Intelligence how the outcomes of the accumulating number of cases against Trafigura may encourage victims of fraud to take on other companies, and further encourage prosecutors such as the SFO to achieve more convictions.
It may not be a household name, but Trafigura is very familiar to commercial lawyers. Operating primarily from Singapore, Geneva and London, the international commodities trader of oil products, metals and minerals has engaged in several high-profile disputes – most recently, two separate maritime disputes in London’s Commercial Court.
Last December, Trafigura made international headlines for its anticipated appearance in the Swiss criminal court. The company featured in a criminal indictment when Switzerland’s Office of the Attorney General (OAG) charged Trafigura and its former COO, Mike Wainwright, with arranging €5m in bribes to a former employee of Angola’s state oil company Sonangol between 2009 and 2011. Trafigura also faces investigations by the U.S. Department of Justice (DoJ) and the Brazilian regulator concerning similar allegations.
In response to these developments, the company stated on 6th December 2023 that “Trafigura has been seeking to resolve investigations by regulatory authorities in the United States, Brazil and Switzerland into payments made by former employees via third parties, approximately 10 or more years ago. The company understands that the investigations stem in part from statements made by Mariano Marcondes Ferraz, a former Trafigura employee, as part of a plea agreement following his conviction in Brazil.”
Trafigura anticipates that it will resolve the DoJ investigation into improper payments made in Brazil by making a provision of $127m in its 2023 accounts to cover a possible fine. In relation to the Swiss prosecution, the statement notes that Trafigura will “defend itself at court, including in view of the compliance and anti-bribery and corruption controls in place at the relevant time.”
By way of explanation, Trafigura’s Chairman and CEO Jeremy Weir added: “We sincerely regret these incidents which breached our code of conduct and are contrary to our values…Since the period in question, we have significantly enhanced our compliance programme and controls. These historical incidents in no way represent the company we are today.”
Simultaneous with these events, but not referred to in Trafigura’s statement, the High Court in London has been hearing evidence from an Indian businessman Prateek Gupta in a case brought by Trafigura against him and seven companies of which he was deemed to be the legal controller.
Trafigura alleges that they carried out a “systematic fraud”. Meanwhile Gupta counter claims that it was Trafigura which “devised and proposed” the fraudulent scheme relating to a $590m write-down of 1,000 containers containing nickel, which were found to contain far less valuable material.
According to the Financial Times, Gupta has disclosed evidence in the form of WhatsApp and email exchanges which may amount to a criminal conspiracy by Gupta and Trafigura employees to defraud Citibank. Gupta has further accused Trafigura employees of seeking his collaboration in covering up the alleged nickel fraud, between 2019 and 2022.
Although the dispute between the parties is a civil matter, the allegations of fraud manifestly amount to very serious criminal activity, varying accounts of which have been disclosed and disputed in open court without reporting restrictions in place. Victims of the alleged fraud will have been paying close attention to proceedings – as, no doubt, has the UK’s Serious Fraud Office (SFO).
Notwithstanding Trafigura’s December statement, the implications of the alleged nickel fraud in the London commercial hearing, combined with the bribery charge in Switzerland, are undoubtedly very serious for the company. Regardless of its size or global reach, there will be reputational damage that may negatively impact its operations, potentially to a significant extent.
For victims of the alleged fraud, the remedy for restitution of their loss can only be made through civil proceedings. Among those to have already taken that step in London is Hyphen Trading Ltd, owned by the Reuben brothers, who were named as the UK’s fourth richest family by the Sunday Times Rich List 2023 with a combined net worth of £24.4bn. They have demanded $8.4m in damages from Trafigura for their loss relating to the alleged nickel fraud. Emboldened by their action, others may well follow.
In terms of a potential criminal investigation of Trafigura, there has not yet been any announcement by the SFO that it intends to investigate either suspected fraud or fraudulent trading. Of course, such announcements are invariably made when an investigation is launched, not in advance of it. Any decision to do so would not be made lightly, particularly when the average length of such an investigation is four years and seven months, according to the SFO’s data.
A complex and distinctly opaque company, Trafigura describes itself as follows: “With over 1,000 shareholders, Trafigura is owned by its employees and employs over 12,000 people working in 61 countries.” Although legally domiciled in Singapore, Trafigura is owned by Farringford NV, which is registered in Curacao. According to Trafigura’s latest accounts, its 2021-22 revenues were $318.5bn producing a net profit of $7bn.
Notwithstanding the dramatic evidence that has emerged in the civil dispute between Trafigura and Gupta, the barriers to the SFO ultimately achieving a successful prosecution are nevertheless significant. In passing the evidential test, there must be sufficient evidence to secure a conviction by convincing a jury or a judge. Even where there is evidence of fraud, some cases do not proceed because they fail to meet this test.
And judging by its history, even when the test is met, SFO prosecutions do not always result in convictions. Indeed, the catalogue of failed prosecutions brought by the SFO over the past 20 years outweighs their successes. A notable exception to this somewhat dismal record is deferred prosecution agreements (DPAs), which are court-approved agreements between a company, partnership or unincorporated association and a prosecuting agency – the SFO or the National Crime Agency (NCA). According to the SFO, a DPA is an appropriate alternative to prosecuting a company where it would be in the public interest.
Since they were first introduced in 2015, a dozen or so DPAs have been reached by the SFO, including several household names: Rolls-Royce, Tesco, Serco, Airbus, and G4S. Critically, these agreements tend to raise significant revenues, running into the tens or hundreds of millions. Under its DPA, Airbus had to pay €1bn to the SFO, for onward payment to the Treasury.
Given that Trafigura has already announced that it will set aside $127m in its forthcoming accounts to pay a possible U.S. DoJ fine, the potential for a comparable arrangement being reached with the SFO might appear to be reasonably good – should the SFO decide to prosecute. Nick Ephgrave, who succeeded Lisa Osofsky in October 2023 as the SFO’s new director, is thought to be a fan of DPAs.
As corporate bankruptcies are predicted to increase further – at double-digit rates in most advanced economies – banks are inevitably becoming ever more vigilant and auditors more meticulous. More fraud is therefore likely to emerge as a result.
Meanwhile, as the number of cases brought against Trafigura accumulate, their outcomes may encourage victims of fraud to take on other companies, and also encourage prosecutors such as the SFO to achieve more convictions – or perhaps just as likely, deferred prosecution agreements.
Robert’s article was published on 04 January 2024.