LONDON, March 6 (Reuters) - Trafigura paid companies connected to Indian businessman Prateek Gupta for nickel that did not match contract specifications or come with documents verifying its authenticity, affidavits filed by the commodity trader to a London court showed.
Metal industry sources say it is unusual to pay for material without valid documents, particularly given the large amounts of nickel involved in the transactions between the companies owned by or linked to Gupta - known as UIL entities - and Trafigura.
The affidavits were presented during a case Trafigura is bringing against Gupta in London's High Court, alleging "systematic fraud" by Gupta's companies in substituting other materials for nickel the commodity trader had bought.
A spokesperson for Gupta said last week they were "preparing a robust response" to the allegations "that will be made available soon".
On Feb. 9, Trafigura said it had booked a $577 million charge for the first half of 2023 after discovering some nickel cargo it received did not contain the metal.
At current prices on the London Metal Exchange, $577 million would buy more than 20,000 tonnes of nickel, an amount that a producer might hold, but not small trading companies such as those linked to Gupta, industry sources say.
Contracts to buy and sell metal typically use Harmonised System (HS) codes that specify grades. Authenticity is determined with certificates of analysis (CoA), which are created by the metal producer.
"I understand that it has been discovered that the 'HS codes' on many of the bills of lading tendered by the corporate defendants were incorrect," said Mirza Reza Ispahani, an in-house lawyer at Trafigura in the affidavit.
"For completeness, there are also some bills of lading with no HS codes provided."
"There is a similar issue pertaining to the fact that Trafigura did not insist on the provision of certificates of analysis for each trade which could be readily matched to the subject material prior to payment, even though this was required under the contracts."
Trafigura said in response to a request for comment that the discovery of the situation was "an opportunity to review and tighten systems and procedures, and a thorough review is underway".
The firm's transactions with Gupta's companies were carried out by the office in Mumbai, India, with oversight from Geneva traders from time to time, said Sokratis Oikonomou, Trafigura's then head of nickel trading, in another affidavit.
"I understand that our team in India took the view that since most of the shipments of nickel were to be re-purchased by the UIL Entities under the buy-back transactions in any event, these documents should not hold up completion of the initial sale of the nickel under the contracts," the document said.
Also known as transit finance, the buy-back transactions in question involved Trafigura buying nickel from companies connected to and controlled by Gupta and selling it back to those companies at a future date for a higher price.
Around two-thirds of global nickel supplies are used to make stainless steel, though its use in the lithium-ion rechargeable batteries that power electric vehicles is accelerating.
(Reporting by Pratima Desai; Editing by Jan Harvey)
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