French banking giant Crédit Agricole has lost an attempt to claw back US$23.6mn it lost as part of a fraud perpetrated by collapsed Singapore commodities trader ZenRock.

In a judgement handed down in the Singapore International Commercial Court last week, Judge Jeremy Cooke denied the lender’s attempt to force Japanese energy trader PPT Energy to return US$23.6mn paid to it under a letter of credit applied for by ZenRock.

The judgement sheds new light on how commodities and energy traders in Asia and elsewhere engaged in convoluted chain transactions and attempts to secure financing twice for the same cargoes, a pattern of behaviour that both accelerated and came unstuck as the coronavirus pandemic took hold in early 2020.

In this case, the letter of credit was extended by Crédit Agricole to finance PPT’s sale to ZenRock of just under 1 million barrels of oil from the Republic of Congo. But unknown to the bank, the transaction was in fact part of a much longer circular trade and a scheme by ZenRock to obtain financing for the oil at a significantly higher price than it had contracted to sell it for.

Crédit Agricole argued that PPT was a knowing participant in the scheme but Justice Cooke concluded that while PPT must have been aware of the circular nature of the trade and was not an “innocent bystander”, he accepted PPT traders’ evidence that they were not active participants in the fraud and did not have “blind eye” knowledge of ZenRock’s fraud against the bank.

PPT also did not break any warranties contained in the letter of credit and did not have to indemnify the bank, the judge ruled.

Crédit Agricole did not respond to a request for comment from GTR. Through one of the lawyers representing it in the case, PPT declined to comment.

ZenRock, upon a request by HSBC, was placed into judicial management in May 2020 with debts of more than US$600mn. It was one of many high-profile traders to collapse in 2020, alongside Agritrade, Hin Leong and Hontop Energy, as the spreading Covid-19 pandemic upended commodities markets and worsened an already painful liquidity crunch.


No ‘innocent bystander’

When ZenRock applied for the letter of credit from Crédit Agricole – with which it had a US$100mn credit facility – the company said would buy the Congolese oil from PPT for market price plus a premium of US$3.24 per barrel.

ZenRock told Crédit Agricole it would then sell the oil for market price plus a premium of US$3.60 per barrel to French energy giant Total, and furnished the lender with a purported sale contract to prove it.

But the contract was fabricated by ZenRock, according to the judgement. The real agreement was for ZenRock to sell Total the shipment for market prices minus US$3.60 per barrel instead of plus US$3.60 per barrel, which would cause the Singapore trader to lose almost US$7mn on the deal, instead of a profit of US$331,000 if it were issued with a letter of credit based on the phony contract.

The bank was also in the dark about the number of transactions involved in the trade and did not know that ZenRock was going to buy and sell the cargo to and from different traders before re-purchasing it from PPT.

The eventual trade began with Azerbaijan state oil company Socar, and ownership then transferred to Zenrock, then to Shandong Energy International, then to PPT, then back to Zenrock, which finally sold it to Total.

But the true chain was even longer, the judgement suggests. Total, despite being the end buyer from ZenRock, had sold the oil to Socar in the first place, meaning the French company was at the beginning and end of the chain. Justice Cooke commented that the company’s trading arm “appears to have sold the Cargo to Socar and repurchased it from ZenRock for no good reason”.

Total is the only known recipient of the original bills of lading and later offloaded the cargo to a refinery in China. It did not respond to a request for comment from GTR.

Under the letter of credit, PPT was allowed to present invoices and a letter of indemnity instead of the original shipping documents, which it never received.

But as Crédit Agricole was considering the documents presented to it by PPT – through its lender, Bank of China – it received an email from Total which revealed that it was not the only financial institution from which ZenRock was trying to raise financing for the trade. The trader had also received a letter of credit from ING for a purchase further up the transaction chain, Total disclosed.

Crédit Agricole quickly suspected it was the victim of fraud but PPT, on the advice of Bank of China, ignored the French lender’s queries, according to the judgement. When it finally did so, the company insisted it was still entitled to the amount specified in the letter of credit.

Crédit Agricole later won a court order preventing it from having to pay PPT the amount. But under an agreement made in November 2020, the lender agreed to pay the sum into a locked account “against PPT’s provision of a bank guarantee” from Bank of China, “which would operate to pay should the court eventually decide that CACIB’s refusal to pay was justified”.


‘We can do something for you’ 

The judgement details how PPT’s main business in the oil sector was to act as a go-between for two parties that did not want to transact directly, did not have access to banking facilities, or required longer payment terms.

In late March 2020, ZenRock’s Jason Lai sent a PPT trader, Naoki Uehara, a WhatsApp message inviting him to join the trade chain, which then involved Socar selling the oil to ZenRock. The cargo would then be sold onto PPT, then to trading giant Trafigura, then back to ZenRock, and finally to Total.

PPT’s traders told the court that despite becoming aware of ZenRock’s double involvement in the trade during the course of negotiations, it did not ask any questions about its structure. They said the company was almost never told, or asked, why it was being invited to participate in pre-structured trades.

PPT Energy Trading had just three traders working its crude oil desk in Singapore when it was approached by ZenRock to join the trade, the judgement details.  The deal generated “excitement” inside the trading house, which had “very little business” in oil trading and was eager to take part.

In a message, Uehara – who had only been trading since 2019 – thanked Lai for “giving us this chance” and added: “You always help us, we can do something for you.”

In a later message to Uehara, Lai urged PPT not to use Crédit Agricole for a letter of credit, worrying that if it did, “[Credit Agricole] may see our whole chain”.

On April 2, Trafigura pulled out of the trade because PPT was unable to supply it with a letter of indemnity countersigned by PPT’s bank. A worried Uehara texted Lai: “OMG. Take away Trafi, then who will be our buyer? That’s the problem?”

But just minutes later, Lai emailed PPT details of a replacement transaction without Trafigura, in which ZenRock’s role was switched to being a buyer from PPT and Shandong Energy International was introduced as seller to PPT.

Justice Cooke wrote that while he accepted the traders’ evidence that they were not aware that the prices dictated by ZenRock were much higher than the market at that time, he found it impossible to believe that they were not aware of the circular nature of the trade.

Lai did not respond to a request for comment sent to Concord Energy Pte Ltd, which reportedly hired the trader shortly after ZenRock collapsed.