Looking at Reuters commodities news this morning, I noted a story regarding one Kostyantin Zhevago who apparently embezzled some $133m from a bank that he was the ‘beneficial’ owner of. He is also the leading shareholder of iron pellet producer – Ferrexpo. Another story we posted here yesterday talks about how the Pemex trading arm has banned doing business temporarily with Trafigura over potential bribery issues. As the story relates,
“The world’s largest independent commodity traders here are facing scrutiny globally for alleged corruption after years of investigations into bribes of public officials in several countries in Latin America.
Pemex and other state oil companies have become wary of doing business with merchants, which include Trafigura and rival Vitol.
Earlier this month, PMI Comercio International suspended new deals with Trafigura and its subsidiaries until further notice, according to company communication seen by Reuters. The document did not state a reason for the ban.”
It also reminds us that,
“Vitol, the largest commodity merchant, agreed last year to pay $164 million to U.S. and Brazilian authorities after admitting it bribed officials in Mexico, Brazil and Ecuador to obtain and retain business with state oil companies there.
Ecuador’s state company Petroecuador has since 2020 removed Vitol and Gunvor from its suppliers list amid the probes.”
Glencore has also been the subject of CTFC and Swiss probes into its activities while a news story by Bloomberg reported on the activities of one former senior executive who routinely carried $500k cash in a bag on his travels to pay ‘commissions’. The story quotes Torbjorn Tornqvist as follows and focuses on the publication of a book called The World for Sale by Javier Blas and Jack Frachy, currently an Amazon bestseller.
“Unfortunately this is something that has plagued the commodity industry,” Torbjorn Tornqvist, the co-founder of oil trader Gunvor Group Ltd., said of bribery and corruption. “There’s a lot of skeletons and many of them, most of them, will never be surfaced.”
Those of us that have worked in this industry for many years are well aware of many, many similar stories and I can only imagine that the book is full of corruption and commodities. Over the last few years, this has had some negative consequences as financing banks exited much of the sector as a result of a number of scandals and fraudulent activities that impacted them. In a wry note to the story, however, a Reuters article from 2020 notes,
“Big banks seeking to reduce trade finance exposure are likely to favour lending to the well established large independent merchants such as Vitol and Trafigura.”
Additionally, the memory of the painted rocks masquerading as copper still remains fresh in our collective memories. Metals fraud was also in the news in 2018 when it was discovered that records were being falsified and quality assurance issues emerged at Mitsubishi Materials.
All of this unwanted attention has started to have quite a bit of impact on systems. As was pointed out to me recently, a simple GPS device and a lock tampering warning device were all it would have taken to alert to the fact that the copper was being tampered with and was at an unplanned location for a short period of time. Workflow, approvals, audit trailing as well as integration with a variety of devices like GPS and tamper warning devices are all making the wanted list for software these days. Part of the interest in blockchain is also around transaction security and trust. In particular, the metals inventory and repo financing side of the industry has taken a very hard and long look at blockchain and other technologies to enhance verification, authenticity checking, and trust. The KYC regimen has also been considerably tightened as has the focus of lending banks and financiers on risk management and controls. With the move to the cloud for many applications, we have also seen an increase in interest in security, especially amid hacking and ransomware attacks. The regulators are also working harder to identify and punish fraud and this is helping drive reg tech software to help support the regulatory compliance side of the business that is now mandatory.
Technology can be used to address many of these issues and increasingly, it is being deployed along with better controls and processes, and these features are increasingly cited as functional requirements for CTRM and related software.