Trafigura’s trade finance team raised concerns about the trader’s relationship with Prateek Gupta more than two years before the company discovered what it alleged was a massive fraud by the Indian businessman, a London court has heard.
In February 2023, Trafigura accused Gupta of selling containers of what it thought was high-grade nickel, but which were later found to contain largely worthless goods, leading to losses of at least US$600mn.
Gupta has not denied that the cargoes were not nickel, but alleged in response that Trafigura devised the scheme and was a knowing participant.
As the case entered its second week, the court was today shown a September 2020 email from Trafigura’s then-head of trade finance for refined metals, Thibaut Barthelme, describing the nickel trading relationship with Gupta’s companies as a “strange business”.
“We have become the bank of this company,” Barthelme said in the email, presented by the barrister representing Gupta and his company UIL (Singapore) Ltd.
The email was sent to bring the relationship to the attention of global trade finance head, Camille Trejou, and then-global head of structured and trade finance, Stephen Jansma, now Trafigura’s chief financial officer.
Barthelme said he wanted to flag the dealings with Gupta’s companies – collectively known as UIL – to his superiors because it was not getting enough internal scrutiny within the Singapore-headquartered trader.
He also highlighted “the potential reputational risk if it goes sour”.
“The voyage time is extremely long (min 3-4 months, up to 6 months(!) as the material gets discharged and picked up again in ports along the way”, Barthelme wrote, arguing it was odd that UIL were not trying to get the goods to their end customer more quickly.
He also said in his email that it seemed that the end buyers, New Alloys and Minecraft, were related to UIL.
Barthelme added that UIL were willing to accept high interest costs and irregular sales. The email noted that UIL owed money to both Credit Suisse and Deutsche Bank, and that both lenders had “refused any payments” from Trafigura to UIL.
Another member of the trade finance team followed up Barthelme’s concerns with an email suggesting UIL “is doing this business in order to use the BLs [bills of lading]” to obtain further financing.
At the time of the email, around half of the refined metals desk’s trade finance business was taken up by the Gupta trades, the businessman’s barrister Louise Hutton told the court.
Trafigura’s former nickel trading head and the first witness to give evidence in the trial, Socrates Economou, said he could not recall whether Jansma discussed the email or the Gupta business with him.
Economou also said he did not know why Barthelme’s email erroneously said that the trader’s operations team were inspecting the cargoes to see if they contained LME-grade nickel. No inspections took place until late 2022, the court has previously heard.
But Gupta’s lawyers allege Economou was aware of the real situation and proposed the “arrangement” to boost nickel trading volumes and profit from the difference in interest charged to UIL, compared with the smaller amount it paid to Citi for the same funds.
Former nickel head denies “arrangement” existed
Economou repeatedly denied during the hearing that he knew of such an arrangement. He also denied Gupta’s allegations that he was the one to propose it at a June 2019 meeting at a luxury Dubai hotel.
Hutton pressed Economou on whether he knew in 2019 that at least one of Gupta’s businesses had recently fallen into insolvency.
It “seems particularly surprising that you didn’t know his businesses had gone into insolvency proceedings” around the time that Economou and another Trafigura trader, Harshdeep Bhatia, were in talks with Gupta over expanding the volume of their business, she said.
Economou said: “By that time we were already doing business for two years… I was happy with the business because the performance up to that point was very good.”
Hutton showed the court a document prepared by Gupta for Trafigura which showed volumes of goods trade soaring from 17,500 metric tonnes in 2017 to a peak of almost 70,000 metric tonnes in 2021.
“That’s fairly surprising that dealings with a metal trading business with a chequered financial past produced that scale of business in two to three years,” Hutton said.
“It was a very good and welcome increase considering it was LME-grade nickel, as we thought at the time,” Economou responded.
Hutton continued: “You wanted to finance [the trades] because you thought you could make money even if it could not provide LME-grade nickel… at the [June 2019] meeting you proposed that deal and the details were put in place afterwards.”
“That’s absolutely not true,” Economou responded.
The former nickel trading head departed Trafigura in February 2023 in the aftermath of the fraud allegations.
‘This is getting out of control’
Hutton showed the court further emails and WhatsApp messages highlighting how concerns over the trading with Gupta – which ultimately totalled US$3.3bn – began rippling through Trafigura throughout 2022.
In mid-September, trader Mehdi Wetterwald sent an email expressing alarm that Trafigura had not demanded certificates of analysis (COAs) for the goods the company was buying from UIL.
And a September 28 email from Bartheleme said: “Looking at the various discussions we had on this flow, it seems we let the issues grow and grow and only discuss and tackle them when they have become too big. It also seems that TF [trade finance] always has to flag the issue to trigger discussion.”
“Having close to 40% of the position aging more than 5 months is too late to start handling the problem. Especially when we know how long it takes to find an arrangement with them,” Barthelme continued.
Economou responded: “This is out control – I’ll call tomorrow”. He told the court on Monday he meant that the amount of financing was getting too large.
Hutton accused Economou of lying about not knowing that there were no COAs for the cargoes being purchased from Gupta’s companies at that point, which Economou denied.
The barrister pointed to another email from Barthelme that raised the possibility of inspections revealing that the traded cargoes did not contain nickel. She said it was unusual that Economou would not react to the statement.
“I did not understand why Mr Barthelme was saying that,” Economou responded. “In my knowledge all the cargoes had nickel.”
He said he was in discussions with Gupta and was “increasingly worried about the commercial exposure” but had no suspicion that the containers would not contain nickel.
Gupta is expected to give evidence on November 26.
The trial continues.
