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The Export-Import Bank of the United States (US Exim) provided up to US$360mn in cover for commodities giant Trafigura despite warnings over potential fraud risks, the US agency’s inspector general has found.

Last year, US Exim agreed to backstop revolving credit facilities (RCFs) extended to the commodity trader by Citibank and Crédit Agricole, worth US$400mn. The funding was intended to help grow US LNG exports to European buyers that had lost supplies of Russian gas following the outbreak of war in Ukraine.

But in a report issued this week, US Exim’s Office of Inspector General (OIG) says the export credit agency (ECA) appeared to “not act on fraud-related information” when it signed the deals. The watchdog suggested it will enhance scrutiny of US Exim’s due diligence processes following the agency’s apparent decision not to heed the warnings.

The OIG is an independent body, led by an presidential appointee, tasked with preventing and detecting fraud, waste and abuse by US Exim. Part of its role is sharing information on fraud risks with US Exim staff.

In the report, the OIG says it emailed an “enhanced due diligence” notice to US Exim’s general counsel warning of law enforcement investigations into potential Trafigura corruption in Brazil.

“Despite this referral, Exim’s Board of Directors approved two insurance policies involving Trafigura… which created up to US$360mn in exposure,” the inspector general’s report reads.

The OIG’s reprimand of US Exim’s due diligence processes comes after Trafigura in March this year pleaded guilty to violations of the country’s Foreign Corrupt Practices Act, as part of a settlement deal.

The trader admitted its part in a bribery scheme, which ran from 2003 to 2014, and involved the payment of fees to Brazilian officials in exchange for lucrative contracts with state oil company Petrobras.

Trafigura paid a criminal fine of US$80mn and a forfeiture worth over $46mn to resolve the US Department of Justice probe.

At the time of the OIG’s warning, Trafigura was under investigation by authorities in the US and Brazil. The watchdog said in the report that it “was unable to provide law enforcement sensitive information regarding the investigation”, but instead “provided open-source information concerning the investigations” to US Exim.

US Exim did not respond to questions from GTR about the status of the transactions or its due diligence processes.

In a letter to the OIG published alongside the report, US Exim’s general counsel James Coughlan refuted the inspector general’s characterisation of a “lack of agency action” and urged it to “retract” or at least heavily amend the alert before going public.

“Based on our review of this matter, we understand that the corruption related information identified in the OIG referral on November 1, 2022 was considered and acted on by US Exim staff,” Coughlan wrote.

The report indicates Trafigura is still a “current” recipient of cover and the policies will be valid for one year, up to July 2024, at which point US Exim’s board will be required to authorise any renewal.

A Trafigura spokesperson tells GTR that the concerns raised in the inspector general’s report refer to a now-settled US Department of Justice (DOJ) investigation which “concerns the conduct of former employees or agents in Brazil that took place approximately 10 or more years ago”.

 

Increased oversight?

The OIG and US Exim are also locked in a disagreement over the public dissemination of the report. Much of the document and the letter are heavily redacted as US Exim cited exemptions under the Freedom of Information Act.

In a “management alert” published on May 10, the OIG says it is “concerned” about the extent of the redactions made by US Exim, but decided to publish the report because “it would be imprudent to further delay publication of this report given its important subject matter related to fraud referrals.”

Going forward, the inspector general’s office says it will increase its oversight of US Exim’s due diligence measures.

“The facts may indicate that OIG referrals are not being used to address fraud risks related to agency programs and operations” and the inspector general’s office will “initiate further work in the area of participant due diligence and risk management in FY 2025”, the  report says.

The inspector general’s intervention will likely intensify scrutiny of US Exim’s due diligence measures, with NGOs having previously urged the export credit provider to terminate cover for Trafigura, citing corruption risks.

In January, Friends of the Earth, Oil Change International and Public Citizen wrote to US Exim’s chair Reta Jo Lewis to highlight bribery charges brought against Trafigura in the US and Switzerland.

In the letter, the groups said US Exim should strengthen anti-corruption protections to require applicants to disclose “all allegations of fraud and bribery” by national law enforcement authorities.

“Exim’s due diligence should have revealed these serious allegations and prevented approval of support for Trafigura.”

In a statement this week, Kate DeAngelis, senior program manager for international finance at Friends of the Earth, says the inspector general has “confirmed our suspicions”.

“[The agency] knowingly ignored the fraud-related allegations against Trafigura. Exim must not be allowed to reward companies accused of fraud and bribery with handouts from taxpayer dollars.”

The OIG is headed by US Exim’s inspector general Parisa Salehi, who leads a team of attorneys, auditors, evaluators and criminal investigators to detect fraud, waste, abuse and mismanagement.

Citi and Crédit Agricole declined to comment.