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Trafigura said it uncovered “serious misconduct” in its Mongolian oil business that could result in a loss of up to $1.1bn, dealing a blow to the Switzerland-based trading house as it transitions to a new chief executive.
The commodities trader on Wednesday said it was taking disciplinary action against a “small number” of individuals inside the company who were suspected of involvement in the alleged fraud.
The latest scandal to hit the company is centred on Trafigura’s sales of petroleum products into Mongolia, where it is one of the largest oil suppliers, over a period of five years.
It raises questions about risk controls at the group, which last year took a hit of nearly $600mn because of an alleged fraud against Trafigura, in which more than 1,000 cargoes, supposedly of nickel, were found to contain less valuable material.
Trafigura alleges some of its employees in Mongolia colluded with counterparties to overcharge the group and hide money that was due to it.
“The misconduct included manipulation of data and documents, resulting in inflated sums being paid by Trafigura, and deliberate concealment of overdue receivables,” the company said. “It involved a complex chain of transactions with a small number of local counterparties.”
Trafigura, which is registered in Singapore, initially uncovered irregularities in its Mongolian business late last year when it conducted a company-wide review of significant lines of credit after the nickel scandal, said people close to the situation.
A second external review confirmed a “significant exposure” for the group. “A substantial proportion of the total exposure has been acknowledged as a debt owed to Trafigura by our principal counterparty in Mongolia,” Trafigura said.
Chief executive Jeremy Weir said he was “bitterly disappointed” by the misconduct. “There is no place in Trafigura for wrongdoing . . . Following in-depth reviews, we are confident that this issue is isolated to a self-contained operation in Mongolia,” he added.
The company, which reported net profits of $1.5bn during the first half of this year, may restate its prior-year results as a result of new provision. The alleged misconduct at Trafigura was first reported by Bloomberg.
The scandal arrives at a delicate time for the trading house, where incoming chief executive Richard Holtum, previously head of gas and power at the company, is preparing to take the helm in January.
Weir, who has led the company for a decade, has worked to draw a line under scandals at the company. Earlier this year, it pleaded guilty in the US to paying almost $20mn of “corrupt commissions” in Brazil between 2003 and 2014.
In December Trafigura and its former chief operating officer Mike Wainwright, who retired in April, will separately go on trial regarding alleged bribery in Angola between 2009 and 2011. Wainwright rejects the charges against him, and Trafigura said it will defend itself in court.