THE SENSITIVE FOLDER IN THE FEDERATION
In the pre-electoral period, how to better send a message to an electorate and politicians (willing to get re-elected) that are concerned by sensitive topics such as shadow banking, corruption, money laundering or the reduction of tax havens (Switzerland …) ?
Gunvor, 4th largest oil trader in the world (180 million mt) with its head office in Geneva, Switzerland.
“In January 2012, Gunvor employees watched in amazement as federal police searched the company’s headquarters, located at 80–84 Rue du Rhône, in one of Geneva’s most exclusive neighbourhoods. The police officers carried away box after box of documents, and the Africa Desk’s hard drive. Amazing indeed, but then The Office of the Attorney General of Switzerland had just launched criminal proceedings against unknown offenders for “suspected money laundering operations”.
The targeting of commodity traders and banking flatters the ego of some NGOs by highlighting certain reprehensible practices in the eyes of a population particularly attentive on banking drifts.
When the Swiss NGO Public Eye has launched the report Gunvor in Congo. Oil, cash payments and embezzlement (gunvorincongo.publiceye.ch) Gunvor SA has appeared to be the worst standoff since the Addax affair.
One of our counterparts (active in the sphere of international trade financing) since the 80s is categorical:
“the real targets would be the shareholders (of Russian and Swiss Citizenship) and possibly also of American nationality like Marc Rich (founder of Glencore several times sought by the FBI for having circumvented the embargos after being sentenced in absentia and pardoned by Bill Clinton), the current Glencore, Gunvor, Trafigura and Vitol, major oil trading companies based mainly in Switzerland (which until now protected their interests and anonymity under the “sacrosanct Swiss banking secrecy”.
This report shows, credibly, how Gunvor Genève got swamped in corrupt practices that haven’t and should have nothing to do with the core business of buying, transporting, and selling commodities.
During 2011, Gunvor realized an estimated interest rate of 14.64% on $500M, which at first sight, doesn‘t appear disproportionate given the country risk profile. However the Gunvor profit guidance FY11 provided by Public Eye reveals what is a stunning breakdown for an oil trader:
“By wearing both the banker and the trader hats, Gunvor was able to make profits on both the prefinancing deals and on its trading operations. However to calculate more precisely the Swiss trader’s profit from its Congo operations, we must also take into consideration the revenues generates as an intermediary in the country. Gunvor indeed received significant commissions on the execution of public works carried out by the Congolese state with the funds coming from its prefinancing deals. It is interesting to note that Gunvor’s core business of trading generated less profits than either its “banking” or “door opening activities”.
What is described is Gunvor Genève allegedly using kickbacks to secure the shorts (Chinese or Brazilian) and (SNPC foreign officials) producers plus acting, it seems, as “un-official banker” for the Congolese government.
Infographics- Oil Deal Commissions
A Complex Case
The Gunvor affair has led to Portugal’s largest ever corruption case
In Switzerland the Gunvor dossier is under the care of attorney-general Michael Lauber and Philippe Knupfer, Prosecutor at Section of Complex and Financial Matters.
“These Famous Gunvor shipping JVs”
Public Eye alludes to a 10-year contract signed in 2014 between Gunvor and SNPC with a Waterway Petroleum Ltd, a Gunvor related-entity administered from the Bahamas.
This entity can be linked to other Gunvor’s dealings in South-America. (the famous $1/bbl kickbacks) and the oil shipping-entities owned by Gunvor (Waterway Petroleum ld) scalping Chinese pre-pays.
Gunvor also used Waterway Petroleum to conduct oil trades in the framework of $1 Billion oil prefinancing deal entered between Petrochina and state-owned company Petroecuador. Waterway, owned and created by Tornqvist the major shareholder of Gunvor in 2012, was the vehicle that paid commissions totalling USD 69 million to a Petroecuador executive… In return, the russian trader was getting the exclusivity on the cargoes to bid the supply of refineries in the United States, apparently, without tender or competition.
“PROFIT-SHARING FOR DUMMIES”
“Officials at state-owned oil companies often supplement their income by offering the traders an attractive “short-cut” when buying the shipments of oil. This is how it works: the officials give the buyer a choice in advance of three different prices. These are the average price five days before the shipment leaves port, five days around, or five days after. In oil lingo, these are known as “options. Depending on price movements, sometimes you win with these options, sometimes you lose. There is, however, one way to win every time: to choose between the three pricing period retrospectively, that is, when the prices are actually known”.
“The head of trade finance at a large Geneva-based bank said this was a “classic” stunt pulled on cargo prices, commonplace in Nigeria, for example. He told us that some traders “always make gains on their price options. There is a simple reason for this: they submit the three options and a random official then rips the other two – the ‘inaccurate’ ones – after loading, so that traders always get the best price”. This banker added that when they asked “their customers [traders] to call their options before loading, two-thirds changed bank…”.
“According to one of our sources, it is precisely “this shortcut” that SNPC officials had allegedly proposed to Gunvor. If this was indeed the case, then the deal must have benefited both the trader, which maximised profits, and the Congolese officials paid in exchange for this favour, to the detriment of the SNPC. We have not been able to confirm this hypothesis, but it is similar to practices commonly used in Congo. The trading company Philia S.A had a similar profit-sharing clause within its contract with Congolese public refinery, CORAF”.
Many times people have tried to come forward on corruption in the world of oil traders but at each occasion medias or the STSA have held it back. In Genève it’s obviously an embarrassing position for the stakeholders.
The question to elucidate is at what time a counterparty becomes an undesirable ?
Behind each trader, there is… a Bank
“Given that barrel prices ranged from USD 95 to USD 125 in 2011, the margins regularly exceeded 1 %”.
“When margins are above 1 %, I begin to have my doubts. Beyond 1.5 %, I no longer have doubts. No service can possibly justify such margins”, said the head of trade finance at a major Geneva-based bank. And just to clarify: “The lack of competitive bidding and the extent of the margins that the traders realise explain why we stopped financing operations in Congo.”
[a banker that we muse may be BNP Paribas (Suisse) …]
Shall you know the Truth and
the Truth shall make you free.
“ABN AMRO, along with a large group of international banks – including Rabobank, ING, Société Générale, RBS, Deutsche Bank and Unicredit – is a bank that serves Gunvor. Gunvor itself states: ‘All of Gunvor’s activities are in line with international standards for financial crime risk, including anti-money laundering, economic sanctions, counter-terrorist financing, and anti-bribery and anti-corruption’. Our own compliance investigation has not brought to light anything to contradict this statement.” “We will not terminate a relationship with any of our clients based on unconfirmed news. However, if it is proven that Gunvor has an unacceptable history, ABN AMRO will terminate the relationship, subject to the required legal procedures”.
ABN AMRO: End of client relationship if news about Gunvor is true
For the institutionals financing the commodity trade, Gunvor is a good reminder that the status of a counterparty can change fast.
Let’s put it straight, no one expects a trade house to do business for charity but a company skirting the laws-precisely the Anti Money Laundering (AML) signs its own death warrant. Just common sense for anyone with business instinct. 🇨🇭
The Canton of Geneva has still in memory the departure of Addax, the diva terminated on corruption suspicions in August 2017. Further along the lakeside artery of the rue du Rhône, a similar scenario for Gunvor SA can be envisaged.
Gunvor Genève has a profound significance on how commodity traders are expected to operate in the public domain.
Gunvor SA on 80-84 Rue du Rhône is a constructive loss, the trader has broken the bond that they had towards Switzerland along with the set of rules governing the Swiss financial system. Its principals are renegades.
The original antipathy towards the trading houses within the foreign policy and international finance institutions realm–as evidenced by senior officials viewing some trader(s) in an end-run- gains additional traction.
As a distinct point- the commodity river always flow and the Russian trader may mystically re-emerge as a polymorph- Rosneft Trading S.A some hint.
The Swiss Trading & Shipping Association (STSA), whose mission is to defend the interests of its members and explain the commodity trading industry in the public is in serious trouble, left with an ungrateful task which seems moreover bound to become drawn out.
Perhaps the STSA board can opt to expel Gunvor SA from its membership or preconize a less-straigthforward solution with more formalities, thus risking a longer agony and more antipathy”.
Jacques S. Structurer