Commodities giant’s woes raise challenges for Singapore as clean trading hub

Singapore’s squeaky-clean reputation as a major hub for the international commodities business is being tested by Trafigura Group, a scandal-tainted commodities giant whose annual revenue runs into the hundreds of billions of US dollars and which is seeking to resolve investigations by authorities in three countries. Incorporated and domiciled in Singapore, Trafigura is the world’s largest private metals and second largest oil trader, with 2023 revenue of US$244.3 billion and net profit of US$7.4 billion. The company employs more than 12,000 employees in more than 50 locations including Singapore and Geneva. Trafigura Group’s parent, Trafigura Beheer, was founded in Switzerland in 1993 and is headquartered in the Netherlands.

“As part of keeping a shiny front, Singapore goes out of its way to attract big multi-national names. Grants and benefits or exceptions of all sorts are dangled for the right bright names,” a Singaporean lawyer who declined to be named told Asia Sentinel.

“Singapore has long sought to develop its commodity trading sector, and has done so with great success,” Steve Vickers, the chief executive officer of Steve Vickers Associates, a regional political and corporate risk consultancy, told Asia Sentinel. Trafigura, he said, “is a major player in the commodities industry, but has obviously faced a range of legal challenges in the US, Switzerland, Brazil and elsewhere. Handling conflicts of laws and jurisdiction can prove immensely challenging for local regulators and prosecutors – given their budgets and the complexity of such cases. As such, these companies are often one step ahead of regulators. For its part, Trafigura operates a complex international legal structure, with footprints in the Netherlands, the UK, Singapore and elsewhere.”

Trafigura Group and its former chief operating officer Mike Wainwright are scheduled to stand trial for corruption in a Swiss court in December, according to Switzerland’s Federal Criminal Court. The group has been seeking to resolve investigations by authorities in the US, Brazil, and Switzerland into payments made by former employees via third parties, approximately 10 or more years ago, it said in a December 6, 2023 statement. The Swiss office of the Attorney General (OAG) has asked the Federal Criminal Court to consider charges against Trafigura Beheer for failing to prevent alleged unlawful payments via a third party to a former employee of Sonangol, the Angolan state energy company, between 2009 and 2011, Trafigura said.

According to an indictment by the OAG, an Angolan official was alleged to have accepted, between April 2009 and October 2011, undue advantages from Trafigura Group in bank transfers totaling €4.35 million, cash payments totaling US$604,000 and payment of hotel and meal expenses totaling 797.25 Swiss francs related to a stay in Geneva. A former employee of Trafigura Group was alleged to have granted, between August 2009 and October 2011, part of the above-mentioned advantages to the Angolan official in the form of bank transfers totaling €4 million and cash payments totaling US$604,000 in Angola. These facts amount to active bribery of foreign public officials under Swiss law.

Fraud related to US and Singapore

On June 17, the US Commodities Futures Trading Commission (CFTC) ordered Trafigura Trading, a wholly-owned subsidiary of Trafigura Group, to pay US$55 million for fraud, manipulation, and impeding communications with the CFTC, the US regulator announced on the same day.

From January to March 2017, Trafigura developed and deployed a large fuel oil export program designed to export fuel oil from the US Gulf Coast to Singapore in order to profit from arbitrage for fuel oil, according to the CFTC. Trafigura established a long derivative position in US Gulf Coast high-sulfur fuel oil, in part as an economic hedge for its anticipated purchases of physical fuel oil to export to Singapore.

In February 2017, the firm bid heavily for and bought cargoes of fuel oil for an amount much larger than it had ever previously purchased in a single month, said the CFTC. Its heavy bidding and buying activity created artificially high benchmark values, which benefited Trafigura, the CFTC added, to the detriment of market participants who looked to rely on the benchmark as a fair price reference, the CFTC pointed out.

The case was the result of a disclosure by a whistleblower, said a report by Kohn, Kohn & Colapinto, the US law firm which represented the whistleblower, on June 17.

“Holding a multinational company headquartered in Singapore accountable for misconduct which occurred in Mexico further demonstrates the transnational scope and impact of U.S. laws and whistleblower programs,” said Kohn, Kohn & Colapinto founding partner Stephen M. Kohn.

Brazilian Car Wash scandal

“Corrupt practices have long been common in the commodities trading world. Of course, that culture has changed, and is improving, but it is still an uphill struggle. A major case involving bribes to Petrobras employees in Brazil in recent years is illustrative of this challenge,” Vickers said.

Trafigura Beheer pleaded guilty on March 28 and agreed to pay more than US$126 million for violations of the US Foreign Corrupt Practices Act (FCPA), stemming from the company’s scheme to pay bribes to Brazilian government officials to secure business with Brazil’s state-owned oil company Petrobras, the US Justice Department announced on the same day. According to US court documents, between approximately 2003 and 2014, Trafigura Beheer and its co-conspirators paid bribes to Petrobras officials in order to obtain and retain business with Petrobras. The payments were connected to Brazil’s biggest political corruption case, nicknamed the Car Wash scandal.

On March 28, Trafigura Group said the US Justice Department credited Trafigura “because it cooperated with the investigation and demonstrated recognition and affirmative acceptance of responsibility.” The Justice Department also said it recognized Trafigura Group’s decision to end the “use of third-party agents” for business origination in 2019 and its implementation of enhanced procedures related to anti-corruption and compliance monitoring.

“The provision of credit for commodities and use of contractor structures were long a part of this approach, which have previously facilitated the structuring of corrupt payments,” Vickers explained. “The commodity traders have long done business in jurisdictions with scant rule of law and high levels of corruption. Their knowledge of these places has previously allowed for “information arbitrage” that resulted in huge profits. However, this knowledge came from operating in extremely corrupt jurisdictions.”

Singapore regulators, he said, “should ramp up oversight and seek greater understanding from the commodity traders of their accounting and compliance mechanisms, including those in place in other jurisdictions. The regulators also need to make clear to businesses such as Trafigura that what happens elsewhere has repercussions in Singapore.”

On October 30, the Singapore government implemented a multi-pronged national strategy involving the Police Force, the Central Narcotics Bureau, and the Corrupt Practices Investigation Bureau to combat money laundering, as Asia Sentinel reported on November 1.

On October 4, Indranee Rajah, Singapore's Second Minister for Finance and National Development, said her country’s measures against money laundering are “a fine balancing act – because for every step and every measure there are trade-offs. The system cannot be too lax but at the same time it cannot be too stringent, because we do not want to stifle genuine, law-abiding businesses,” Asia Sentinel reported on October 31.

No Singapore government agency has been implicated in any fraud or corruption in relation to Trafigura.