Trader buys $ 36 million worth of copper and gets painted rocks instead

Source: Sinan Borovali / KYB Law Firm

Commodity dealer Mercuria Energy Group Ltd. struck a deal last summer to buy $ 36 million of copper from a Turkish supplier. But when the cargoes arrived in China, there were nothing but containers full of painted stones.

The saga unfolds like a gangland thriller, with the Swiss trading house saying it has fallen victim to cargo fraud. Before the journey from a port near Istanbul to China even began, about 6,000 tons of blister copper in more than 300 containers was swapped with jagged pavers, sprayed to resemble the semi-refined metal.

The bizarre case shows that commodity traders are vulnerable to fraud, even with security and inspection controls in place. In 2014 and 2015, Mercuria made provisions to cover potential losses after metal was seized by authorities in a warehouse in the Chinese port of Qingdao as part of fraud research.

Turkish police detained 13 people in connection with the counterfeit buyer regulationMercuria, one of the five largest independent oil traders in the world, is seeking redress in both Turkish courts and a UK arbitration case against the copper supplier, Bietsan. It has also filed a formal criminal complaint with Turkish police and prosecutors for alleged cargo substitution and insurance fraud, requiring authorities to determine who is responsible.

Several phone calls to Bietsan’s office in Tekirdag went unanswered.

“Suspects believed to be involved in various strands of this organized crime against Mercuria have been detained,” Mercuria of Geneva said in a written statement thanking Istanbul’s Financial Crimes Department.

The story is composed of legal documents, interviews and local media reports

Copper switched

Last June, Mercuria agreed to buy copper from Bietsan, a Turkish supplier with which it had previously done business, said Sinan Borovali, the trading house’s lawyer in Turkey. It appears that copper was initially loaded into the first batch of containers before being inspected by an inspection company. Seals were then applied to the containers to prevent fraud.

But under the cover of darkness, the containers are said to have been opened and the copper replaced with paving stones, Borovali of Istanbul law firm KYB said in an interview. The fraudsters switched between fake and real container stamps in an effort to avoid detection.

When ships left the Marport terminal in Ambarli harbor every few days, the same thing happened: the copper was secretly unloaded overnight and replaced with painted rocks. “This was how they did it,” said Borovali.

With the ships at sea, Mercuria paid $ 36 million in five installments, with the final payment being made on August 20, 2020, according to documents provided to Turkish investigators by the commodity trader. The fraud was only discovered when the ships arrived at the Chinese port of Lianyungang later that month. By then all eight ships were en route to China.

Organized crime

“A petition has been filed by the buyer against the seller and two intermediaries,” the Turkish police said in a statement. “The incident has been determined to be the result of organized fraud.”

Normally, in such cases of non-delivery, a trading house could make a claim on a freight’s insurance policy. But Mercuria found that only one in seven contracts the Turkish company used to insure the freight was genuine. The rest was forged.

The 13 suspected fraudsters have been taken into custody this month in a series of police raids. Some have since been allowed to leave custody and be placed under house arrest, according to local news reports. More hearings on the matter are expected starting this week.