Commodity trading giant Trafigura Group is setting aside $1.1 billion after an internal review discovered fraud by individuals in its Mongolian petroleum products supply business, the commodity trader said in a public written statement.
“The misconduct included manipulation of data and documents, resulting in inflated sums being paid by Trafigura, and deliberate concealment of overdue receivables,” its statement said. An external investigation followed the internal review and has confirmed the sum of the fraud was accumulated over five years, Trafigura said.
According to Trafigura, these activities went undetected for five years. The company identified the misconduct during an internal review in late 2023, which was later confirmed through an external forensic investigation.
Trafigura said a small group of individuals was involved, and disciplinary actions are underway. Executive Chair and CEO Jeremy Weir expressed disappointment over the incident, saying: “There is no place in Trafigura for wrongdoing. We are taking the necessary disciplinary measures and remain confident that this issue is confined to the Mongolian business.”
“Following a comprehensive risk assessment of our global network of offices, in-depth reviews have been completed in higher-risk locations with no significant findings,” Trafigura’s statement said. “We have identified and will continue to implement a range of further actions to strengthen credit control, risk management, operational and other controls.”
Exposure to local players
Trafigura’s business operations in Mongolia revolved around selling oil products to local distributors on credit. Under this system, distributors delayed payments to Trafigura, deducting logistical costs before settling the balance. But the arrangement created a complex financial exposure to local players, making it difficult to detect discrepancies.
“A significant part of the debt has been acknowledged by our main counterparty in Mongolia, and we plan to hold them to their repayment obligations,” Trafigura said. If the company successfully recovers some of the misallocated funds, the financial loss may be less than the current $1.1 billion provision. But Trafigura’s $1.1-billion provision is equivalent to the approximate value of Mongolia’s oil-products consumption for an entire year, Reuters calculations showed.
Trafigura’s metals business in Mongolia, which is handled from outside the country, has not been affected and is continuing as usual, the firm told Reuters.
The revelation comes at a critical time for Trafigura as Weir prepares to transition leadership to Richard Holtum, the current head of gas operations.
Related charges against individuals
Related to these fraud allegations is a Swiss trial of Trafigura Group and its former COO Mike Wainwright on corruption charges, which has been scheduled for December.
The Swiss federal prosecutor’s office announced the charges against Wainwright, Trafigura, and two other individuals late last year. And it will be the first time such a senior executive at a commodity trading firm has faced trial on corruption charges.
Swiss prosecutors allege that Wainwright approved bank transfers and cash payments totaling around $5m to the head of a unit of Angola’s state oil company Sonangol between 2009 and 2011. The Angolan official was also charged, as well as an intermediary who was described as a former Trafigura employee.
Commodity traders are in the regulator’s crosshairs in the UK, too: Its top fraud agency is pursuing a high-profile corruption case against Alex Beard, Glencore’s former head of oil, and four other former employees.
And, in February, a New York court found former Vitol Group trader Javier Aguilar guilty on three bribery and money-laundering charges after a seven-week trial.
CFTC and DOJ
In June, the US Commodity Futures Trading Commission (CFTC) ordered Trafigura to pay a $55m civil penalty for what the agency described as the misappropriation of material nonpublic information and engaging in manipulative conduct that affected published benchmark rates. The CFTC also said the Houston-based firm impeded whistleblower communications, preventing them from voluntarily communicating with the CFTC’s enforcement staff during its investigation.
And in March, the US Department of Justice announced that Trafigura Beheer B.V. (the trading company’s parent) would pay over $126m to resolve a Foreign Corrupt Practices Act investigation stemming from the company’s scheme to pay bribes to Brazilian government officials to secure business with Brazil’s state-owned and controlled oil company, Petróleo Brasileiro S.A. Trafigura also resolved an investigation by law enforcement authorities in Brazil for related conduct.