STAFF at Trafigura Group worked with alleged fraudster Prateek Gupta to ensure that their dealings would not raise the suspicion of key lender Citigroup, according to messages made public in the court battle between the two sides.

The revelation is the latest twist in a case that has shocked the commodity trading world, after Trafigura in February accused Gupta of perpetrating a massive fraud against it. The Singapore-based company said that it had paid more than US$500 million for nickel, only to discover that the cargoes actually contained worthless rubble.

On one occasion in January 2022, a Trafigura employee instructed one of Gupta’s executives to “please maintain a minimum of credibility” regarding the journey times for cargoes of nickel the two companies were trading with each other.

“Luckily Citi accepted this one, with little suspicion, but we might not get as lucky in the future,” he wrote. In another message in June 2021, a different Trafigura trader congratulated Gupta on a “great year” and said the “team” had been doing “good response work to avoid any red flags”.

Gupta claims the messages, which were made public in a court hearing on Tuesday (Dec 5), show that Trafigura was aware that the cargoes of “nickel” it was buying from him in fact contained other goods. He is seeking to have a worldwide freezing order against him lifted.

Lawyers for Trafigura said in response that Gupta’s defence was “flawed and frankly desperate”, arguing that it would have made no sense for Trafigura to pay hundreds of millions of dollars for material it knew was worthless. They said the messages disclosed by Gupta do not contain any statement “clearly indicating complicity in the fraud on the part of any Trafigura employee”, and disputed the interpretation and context of the messages suggested by Gupta.

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“Mr Gupta’s claims appear to be nothing more than mudslinging to deflect attention from the fraud he admits to committing against Trafigura,” a spokesperson for the company said.

Nonetheless, the numerous WhatsApp and e-mail exchanges produced by Gupta raise uncomfortable questions for Trafigura, showing staff at the commodity trading giant sought to arrange potentially suspicious trading activity in a way that would avoid any further scrutiny from Citi.

The US bank, which continues to finance Trafigura, was a key player in the saga, extending a credit line of US$850 million that the company used to finance its trades with Gupta. Citi pulled the plug on the arrangement in October 2022, triggering the series of events that ended with Trafigura suing Gupta.

Although Trafigura had traded with Gupta for years, their relationship expanded dramatically starting in around 2019. Under an arrangement that Trafigura describes as “transit financing”, the trading house would buy cargoes of nickel from companies connected to Gupta as they were loaded on to a vessel, with the understanding that once they reached their destination 90-180 days later, another Gupta-linked company would buy the cargo back for the same price. Trafigura would pocket a fee equivalent to an interest rate of about 4 per cent to 6 per cent.

In the e-mail dated Jan 26, 2022, Dayansh Jain, an operations analyst at Trafigura in Mumbai, wrote to Girdhar Rathi, Gupta’s head of trading, to point out that one of Trafigura’s trades with Gupta was showing a transit time of 95 days to travel the short distance from Taiwan to China.

“Banks do not find it logical to accept a Taiwan to China BL (bill of lading) with 95 days transit (instead of a few days),” he wrote. “Luckily Citi accepted this one, with little suspicion, but we might not get as lucky in the future.”

Trafigura has acknowledged that the shipments involved in its dealings with Gupta took an unusually long time, with former head of nickel Socrates Economou saying in an earlier affidavit that such an arrangement allowed Gupta’s companies to secure financing for the longest period possible.

Trafigura has said it does not believe that any of its employees were complicit in the alleged nickel fraud, though the company has acknowledged shortcomings in its processes and has pledged to learn from the experience.

Red flags

In an affidavit, Gupta claimed that any cargo held by Trafigura for more than 180 days would raise a red flag with Citi. As a result, Trafigura would juggle its trades with him to ensure that he could repurchase each cargo within that timeframe.

“Team has been doing good response work to avoid any red flags,” Harshdeep Bhatia, a Trafigura trader in Mumbai who was Gupta’s main point of contact and left the company earlier this year, wrote in a WhatsApp message on Jun 6, 2021.

Gupta also claims that it was Trafigura that asked to bring several new companies into their dealings, in order to disguise the trading house’s true exposure to his group.

“We need to split co… trade finance raising questions,” Bhatia wrote on Sep 2, 2020. As a result, according to Gupta, several new entities were introduced to the arrangement, which involved Trafigura buying cargoes from one Gupta-linked company and then later selling them back to a different Gupta-linked company.

In a separate court document, Bhatia said that the “red flags” message was written in the context of Gupta’s operational delays and the impact of the Covid-19 pandemic, and asserted that it was in fact Gupta who brought the additional companies into the trade.

When Citi was raising concerns about the nickel deals in 2022, Gupta claims Trafigura pressed him to identify containers that could be offered up for inspection to placate the US bank. He alleges this shows that Trafigura understood that the containers did not all hold nickel and so “between March and October 2022, it did all that it could to relieve pressure from Citi and to avoid moving cargoes into warehouse”.

‘Greater comfort’

He cites an October 2022 e-mail from Thibaut Barthelme, head of trade finance for refined metals at Trafigura, to Economou and trader Mehdi Wetterwald, which appears to acknowledge the possibility that an inspection of the cargoes may find something other than nickel:

“We had Citi on a call again on Friday… They are insisting on inspections, which we will have to do on the containers that are arriving at port. This is key for them and we can’t avoid it this time…

Then the question is do we want to get them involved in the inspection process. It will give them greater comfort if they are (ie if they still finance the containers which are checked) but if we find no materials or if there is an issue, they will know immediately and who knows how they will react.”

In another court filing made public on Tuesday, Economou said that Trafigura only asked Gupta to select cargoes for inspection because it was trying to avoid disrupting its client’s business, rather than because it knew some of the containers did not hold LME nickel in them.

Trafigura finally did carry out an inspection of containers in early November, discovering that they did not contain nickel as they should have.

As the relationship unravelled in the final months of 2022, the communications between Trafigura and Gupta became more frantic.

In one of the last messages cited in the filings, on Dec 1, 2022, Trafigura trader Bhatia writes to Gupta: “We all need to get out of it ASAP as consequences are beyond words.” BLOOMBERG