The UK’s Serious Fraud Office (SFO) has announced it is investigating potential fraudulent trading and money laundering at GFG Alliance, dealing another serious blow to the group’s efforts to find emergency funding after the collapse of Greensill.
The SFO announced on May 14 it would probe “suspected fraud, fraudulent trading and money laundering in relation to the financing and conduct of the business of companies within the Gupta Family Group Alliance (GFG), including its financing arrangements with Greensill Capital”.
It is the first time enforcement authorities have announced an investigation into the alliance, which is headed by metals magnate Sanjeev Gupta. Members include several UK-based steel industry companies, as well as trading house Liberty Commodities.
The SFO says it cannot comment further as its investigation is ongoing. A GFG spokesperson says the group notes the announcement and “will co-operate fully with the investigation”.
“GFG Alliance continues to serve its customers around the world and is making progress in the refinancing of its operations which are benefitting from the operational improvements it has made and the very strong steel, aluminium and iron ore markets,” the spokesperson adds.
The investigation stems from the insolvency of Greensill, which until its collapse in March was a major source of funding to GFG Alliance companies.
The Financial Times revealed that as part of Greensill’s insolvency proceedings, administrators Grant Thornton approached several firms with outstanding invoices from Liberty Commodities – only to be told they had never done business with the company.
Gupta has since said outstanding invoices are part of future receivables programmes, whereby Greensill would provide funding against invoices that it expected to generate in future.
In some cases, he says, those were from companies merely “identified as a potential customer” rather than those already trading with Liberty.
US-based mining company Bluestone Resources has made the same claims in a lawsuit against Greensill, alleging that Greensill executives helped draw up a list of potential customers as the basis for providing finance.
But Greensill has attempted to distance itself from that practice. Founder and chief executive Lex Greensill insisted to a UK parliamentary inquiry this week that the company only funded future receivables programmes where there was a history of real trading activity.
David Cameron, former UK prime minister and a Greensill advisor until its collapse, added at a second hearing that the allegations against GFG “are very disturbing, if true”, but that he had no knowledge of those arrangements.
“It seems concerning and I’m sure it needs to be got to the bottom of,” he said.
Accusations of questionable activity linked to GFG Alliance have emerged several times in recent years, however.
The group has struggled to attract bank financing after several institutions terminated relationships between 2016 and 2018, citing concerns of questionable activity. Several industry representatives told GTR in April that the appetite for lending to GFG was already close to zero.
There had been some glimmers of hope for Gupta, with his steelmaking business in the UK reaching an agreement for a £200mn loan from US asset manager White Oak in May, according to Bloomberg.
White Oak has since confirmed it has terminated the agreement with GFG, however. “As with any regulated financial institution, we are not in a position to continue discussions with any company that is under investigation by the Serious Fraud Office for money laundering,” the company says.
Trade finance experts say that view would likely be shared across the sector.
“It would be highly unlikely if not impossible to get any level of financing for your business while being investigated for serious fraud,” says Oliver Chapman, group chief executive at supply chain procurement firm OCI, speaking to GTR.
“One must question any financier who would want to go near a business in that situation. And with the high levels of due diligence within the industry now, I don’t think a financier could be seen to be working with a company being investigated, from a perception point of view – even if there was a sound business case.”
Sean Edwards, chairman of the International Trade and Forfaiting Association (ITFA), adds: “Our members would be very careful about dealing with a company that’s under an investigation like this.”
Public sector lending has also been refused, with UK ministers citing concerns over the group’s opaque structure.
UK business secretary Kwasi Kwarteng said in April that the wider group “has financial problems that we have not really got to the bottom of” and so approving its request for a £170mn bridge loan would be “very irresponsible”.