March 4, 2015 / 9:36 AM / 4 years ago

China police freeze two Trafigura bank accounts over alleged fraud

BEIJING, March 4 (Reuters) - Chinese police have frozen two bank accounts held by Trafigura, one of the world’s three largest private oil and metals traders, as the authorities investigate an alleged $32 million gasoline trade fraud, according to three sources.

Police have held Beijing-based Trafigura employee Tian Meng since August in the northern city of Cangzhou and can detain him for up to seven months without charge.

The investigation was launched after private Chinese trader Qingdao United Energy (QUE) told police it had lost $32 million when a trader, Zhang Wei, arranged trade financing deals with Tian that used QUE’s letters of credit without its consent to cancel out Zhang’s personal trading losses with Trafigura, sources have said.

Reuters was unable to reach Tian or Zhang for comment.

According to two sources with direct knowledge of the matter and another who had been briefed by police, the police last month froze one account at Industrial and Commercial Bank of China and another at Bank of China, both held in Shanghai by Trafigura Private Limited, a Singapore unit.

The banks did not respond to requests for comment.

Trafigura will be anxious to avoid any disruption to its business in Shanghai, the hub for its metals activity in China, the world’s largest buyer of most commodities.

“This will first hamper (Trafigura) obtaining financing in the relevant Chinese banks,” said a senior China-based trader with a western trading house. “If the news spreads, other Chinese banks will be scared off, too.”

“COMMERCIAL DISPUTE”

In late February, police told prosecutors they proposed a charge of contract fraud against Tian Meng, Zhang Wei and Trafigura Pte Ltd, the sources said.

Trafigura declined to comment.

A senior Trafigura source, however, said the company was aware of the latest developments in China and of the proposed charges.

“As far as we are concerned, there is no change in the substance of this matter, which is a commercial dispute and not a matter for police or state prosecutors,” said the source.

“We believe the prosecutors will conclude there are no charges to answer, but if any are brought we will vigorously contest them.”

A Cangzhou Police Bureau spokesman declined to comment.

Two of the sources said police believed the Swiss trader’s Singapore-based trade operation helped arrange the gasoline financing deal, after investigators went through email traffic Zhang turned in to police.

Prosecutors could revise the charge over the next five months and might ask the investigators to gather more evidence.

In late 2014 the same senior Trafigura source told Reuters that Zhang, who had been trading derivatives with Trafigura since 2011 using collateral and credit backed by a local-government-backed firm, had accumulated losses of $32 million by late 2013 and agreed to a financing scheme with Tian and the Singapore-based gasoline team to settle the losses.

Zhang bought 700,000 barrels of gasoline from Trafigura at market price using letters of credit issued by QUE and then sold them back to Trafigura at a discount of $32 million, two official sources with direct knowledge of the investigations said.

The senior Trafigura source said in December that Tian believed Zhang was the authorised agent of QUE, and that Zhang had represented other companies in previous transactions without problems.

Commodity financing deals in China are already under the spotlight after a billion-dollar scandal at Qingdao Port, where a private Chinese trading firm has been accused of duplicating warehouse certificates to secure bank loans. (Editing by Will Waterman)

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