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A court has ruled that a Kazakh bank cannot sue global commodity traders Archer Daniels Midland (ADM), Bunge and Grove in the British Virgin Islands over allegations they defrauded the lender of US$231mn through a letter of credit discounting scheme.

Kazakhstan’s BTA Bank was merely using a group of dissolved special purpose vehicles (SPVs) in the tax haven as “anchors” to create a trial in which it could take aim at the “deep-pocket[ed]” commodity traders, the Eastern Caribbean Supreme Court ruled in a judgement published on February 13.

BTA Bank claims it lost US$231mn through an alleged trade finance fraud scheme between 2005 and 2009 orchestrated by its former owner Mukhtar Ablyazov.

According to the ruling by Justice Gerhard Wallbank, the bank says the commodity traders earned commissions for arranging back-to-back trades with the British Virgin Islands SPVs. BTA issued letters of credit (LCs) for the trades, which were discounted by a third-party bank.

The structure left the bank exposed because the LC loans were only secured by the SPVs, which had no assets or actual control over any goods. Some 100 LCs were issued in this way, according to the judgment.

The bank said proceeds from the LCs were siphoned to a Latvian bank, Trasta Komercbanka, which was shut down in 2016 over money laundering concerns.

BTA’s claim alleges conspiracy to defraud, knowing receipt of proceeds from the LC scheme and unjust enrichment by the SPVs, ADM, Bunge, Grove and others. In all, it named 54 defendants in the litigation.

The allegations echo those made by a Russian lender last year against traders including Bunge, Cargill and the Louis Dreyfus Company, over a similar alleged LC scheme.

 

“Contrived artifices”

BTA filed a claim against the SPVs in 2021 and the following year was granted a court order allowing the bank to serve ADM, Bunge and Grove, as well as a small number of their employees with the lawsuit, even though they are not located in the territory.

ADM, Bunge, Grove and the former employees challenged the order, arguing that there was no underlying case for the court to hear because the SPVs had been struck off the companies register, a previous lengthy administration process had yielded no recoverable assets, and they had no directors or existence “beyond a technical one”.

Justice Wallbank agreed, finding that because there was no case to be tried between the SPVs and BTA, the international traders should not be served with the suit either.

“The Court is not obliged… to play along with, nor to affirm, delusions, or far-fetched speculation, nor for that matter with contrived artifices calculated to persuade the Court into allowing its processes and resources (and thus BVI taxpayers’ money) to be used to litigate claims which have no genuine utility here,” he wrote in the judgment.

BTA only named the SPVs as defendants “so that it could bring perceived ‘deep-pocket’ defendants, in the shape of the commodity traders ADM, Bunge and Grove, here to sue them,” he ruled. “I do not believe BTA’s unconvincing blandishments to the contrary.”

Justice Wallbank said that Kazakhstan, Germany or Switzerland would be more appropriate countries to hear the claims because key employees were stationed there at the time of the alleged scheme.

Lawyers representing BTA in the case did not respond to requests for comment from GTR, including on whether it will seek to bring its claims against the traders in another court.

It is the second recent legal setback in the case for BTA, after a Delaware court in October refused the bank permission to appoint a receiver for ADM Trade Resources Inc, which the bank claims earned US$12.8mn over the duration of the alleged LC scheme.

Ablyazov could not be reached for comment but has denied guilt in the many cases BTA are pursuing against him. He told Bloomberg Law last year that he is being persecuted for his opposition to Kazakhstan’s authoritarian government. The value of judgments entered against him in cases brought by BTA now exceeds US$4.4bn, according to the judgment.

ADM, Bunge and Grove had not responded to requests for comment as of press time.