A Look Inside this Company Operating in the Shadows
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A Look Inside this Company Operating in the Shadows

by | published December 18th, 2019

The next several installments of Oil & Energy Investor will go into depth into one of the largest oil traders in the world.

This is a story that I have been following for over two years, and it showcases a staggering amount of corruption and scandal – put extremely simply, the company at the center here was involved in a multi-year program to evade international trading sanctions.

I have decided to lay all this out for you now because of a recent December 5 announcement that the UK Serious Fraud Office (SFO) has initiated an investigation into bribery allegations against this company. No further information was provided, but as a result, this company’s stock tumbled over 9% on the London Stock Exchange (LSE) where it trades.

Some of what the Brits will be looking into dovetails into my own investigations conducted for international financial clients; what follows in the next few columns is what my own work turned up, and it places this company smack in the middle of some contentious recent global events.

During my work on this unfolding scandal, I have made use of an extensive personal network of international contacts, some of whom extend back to my time in U.S. intelligence.

In the course of what I am about to describe, you will get a glimpse into the world of shadows that encompasses the underbelly of global energy transactions. You will also be introduced to some of the characters whose paths I occasionally cross.

Here’s where it all started…

“Paradise” in “Panama” Papers

On April 3, 2016, the “Panama Papers” were leaked to the public, and German newspaper Süddeutsche Zeitung(SJ) became the center of attention.

The leak was, and still is, the largest breech ever, comprising of documents from Panamanian law firm/corporate service provider Mossack Fonseca.

However, the size of the breech of the “Panama Papers” were challenged by what happened a year later, on November 5, 2017.

That’s when the so-called “Paradise Papers” were released, again bringing SJ into the spotlight. The sheer volume of data here placed this leak just below the Panama Papers.

The Paradise leak involved about 13.4 million documents from two offshore service providers – Bermuda-based Appelby and Asiaciti Trust – along with registers of 19 tax havens (or “tax paradises”).

Due to the vast amount of paperwork requiring review in both the Panama and Paradise releases, SJ brought in hundreds of media and financial forensic investigators under the aegis of the International Consortium of Investigative Journalists (ICIJ).

Now, “Paradise” had information on how more than 120,000 individuals and companies had utilized offshore tax havens and conduits to move funds, create holdings, and/or circumvent domestic regulations worldwide.

For today’s purpose, however, Iwill consider only one of these, Swiss-based oil, commodities, and metals trading giant Glencore.

The Conversation that Started It All

The Paradise Papers were what were available to the public. What I have reviewed in connection to them, however, brings a much deeper look into what has been going on in Glencore for years.

I have had occasion to consider the trader previously in restricted access analysis completed for international clients. At that time, the issue had been the trader’s use of bribes and suspect payoffs to control “phantom barrels” of oil in international exchange.

I had been following several avenues to explore how Glencore had been pulling this off.

And what emerged is the largest series of oil evasions I have ever encountered.

In late October of 2017, I ran into a former colleague while in Europe with whom I had been involved in a few intriguing energy intelligence operations over the years, but we had fallen out of touch.

Over the course of an afternoon, we compared notes and he advised me of the impending release of what would become the Paradise Papers, which marked the first time I had heard of this breech. My colleague, on the other hand, was part of the ICIJ network reviewing the documents.

This conversation provided some necessary connections on what I have considered for some time to be a major geopolitical oil scandal.

And it begins with a major acquisition in Australia.

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Digging Deeper into the Anomalies

Back in 2013, Glencore was defending against a sanctions evasion. At the time, it had obtained government approval to acquire

mining giant Xstrata. That buy (valued at more than US$90 billion) vaulted Glencore into being the third-largest mining company in the country, one of the largest global coal producers… and at the core of a massive evasion of international sanctions.

The Xstrata purchase was the latest in a series of Glencore evasive plays stretching back a decade. The following shows how it laid out, and comes either from documents contained in the Paradise Papers or from those sources who have reviewed the documents.

According to the Papers, Glencore is the secret major shareholder in SwissMarine Corp. Following that release, the Australian Financial Review subsequently identified material misstatements and omissions in bank applications and financial agreements prepared by SwissMarine in 2013 which led some analysts to conclude that international anti-money laundering laws may have been violated.

At the time, Greek shipowner Victor Restis, SwissMarine’s second largest shareholder, was in jail awaiting trial for fraud, money laundering, and embezzlement. However, he remained a SwissMarine director.

SwissMarine’s board approved bank account forms and an application to join Nasdaq OMX Commodities Clearing House in Stockholm, which deleted Mr Restis from both the list of directors and the list of major shareholders, while explicitly denying that any director was under investigation for fraud or money laundering.

Copies of the bank applications are contained in Appleby files of Bermuda-based law firm Appleby, obtained by SJ and the ICIJ. Those papers

reveal Glencore’s hidden links to the sanctions scandal, which unfolded as Western intelligence agencies worked in 2012 and 2013 to identify companies trading with Iran.

The documents show that Glencore secretly funds and helps operate a “ghost fleet” of 167 bulk cargo ships through SwissMarine. None of this was known in 2012 when Glencore and Xstrata announced merger plans. Even today, SwissMarine owns 11 Capesize vessels (large vessels carrying coal and iron ore) while chartering another 156 ships.

Yet investigators quickly ran into a vexing question:

Glencore has its own subsidiary, ST Shipping, that operates ships under a tax-free deal with Singapore. So why would a commodities trader want or need a secret holding in another shipping fleet?

Well, you may have heard of a notorious man by the name of Marc Rich…

Sincerely,

Kent

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