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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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World’s Largest Oil Traders Caught In Global Corruption Scandal

Over the past two years, some of the world's largest oil traders have become the envy of many smaller traders for managing to pull some outlandish profits amid one of the worst oil crises in history. These traders, including Big Oil companies and independent traders, have been doing a rip-roaring business ostensibly by following Warren Buffett's mantra of being greedy when others are fearful and having access to esoteric resources such as giant underground storage caverns.

But, alas, it appears that some players have been gaining the upper hand on the market mainly through underhanded deals. Indeed, Vitol Group, the world's largest oil trading firm, has just agreed to pay $164 million in fines and disgorgement by the DOJ and CFTC for oil bribes in Brazil, Mexico, and Ecuador. Further, Vitol has been slapped with penalties by the CFTC for attempting to manipulate two S&P Global Platts physical oil benchmarks. 

According to DOJ documents, Vitol in fact admitted to having bribed government officials for more than a decade between 2005 and 2020. According to the DOJ, Vitol paid more than $8 million in bribes to Petrobras executives with the Brazilian oil company giving the trading house valuable information about its tenders. Nevermind the fact that Vitol has for years insisted it has zero tolerance for corruption.

The CFTC has revealed that Vitol's is the first action ever brought by the commission involving foreign corruption.

Meanwhile, Vitol's independent peers, including Trafigura AG and Glencore Plc as well as officials at Brazil's state oil firm Petrobras (NYSE:PBR) are currently being investigated for alleged bribery schemes and use of agents to win new business.

Widespread corruption

It's beginning to appear that corruption in the world of oil trading could be far more prevalent than previously thought. Related: Oil, Gas Rigs Increase For Fourth Week In A Row
Here's a rundown of recent cases of giant oil traders trying to obtain deals through unscrupulous methods.

  • Brazilian prosecutors in 2018 opened a probe into alleged bribery schemes by Vitol, Trafigura, Glencore Plc, and officials at Petrobras. The latest investigation is an extension of Brazil's six-year-long Car Wash scandal. Following the damning allegations by Brazil, the DOJ launched its own probe into the three major traders.
  • Glencore is facing no less than four separate investigations by the DOJ, CFTC, Switzerland's Office of the Attorney General, and The UK's Serious Fraud Office for bribery and violations in various mining jurisdictions across the globe.
  • Trafigura is facing a lawsuit in Brazil seeking damages from the company and its former executives on corruption allegations involving Petrobras. The lawsuit is seeking to freeze 1 billion reais ($187.55 million) of the defendants' assets.
  • Last year, Swiss federal prosecutors found Gunvor criminally liable for securing oil deals in the Republic of Congo and Ivory Coast through corrupt practices. Gunvor was ordered to pay almost 94 million Swiss francs ($94.8 million).

Cooking the books

While bribery cases appear to be on a definite uptrend in the oil trading world, oil traders are by no means strangers to an even more egregious practice: Cooking the books.

Back in April, Reuters reported that fabled Singapore oil trading firm, Hin Leong Trading (Pte) Ltd, had systematically cooked its books in a bid to hide US$800 million in futures losses over the years. A report by the Wall Street Journal was even more incriminating, finding that the said firm used "routine and pervasive" forgery to inflate its assets by more than $3 billion.

Related: Energy Stocks Soar And Oil Prices Climb

A two-month investigation by court-appointed independent administrators revealed convoluted accounting that allowed the distressed firm to overstate its assets for years. The investigators found that Hin Leong's true assets amounted to just $257 million, or a mere 7% of the $3.5 billion it had in liabilities back then, mostly to loans from banks, including HSBC Holdings PLC.

Hin Leong posted net profit of $78 million against total liabilities and equity of $4.56 billion for the period ended October 31, 2019. However, investigations revealed that the firm's total liabilities amounted to $4.05 billion, while assets were just $714 million, leaving a hole of $3.34 billion.

According to an affidavit by the founder's son, Lim Chee Meng, Hin Leong also secretly sold some of the millions of barrels of refined products that it had pledged as collateral to secure the loans. This resulted in a significant shortfall between the inventories pledged to its lenders and what it actually held, potentially resulting in huge losses for the banks. Interestingly, Deloitte & Touche LLP, the firm that audited Hin Leong's accounts for the period ending October 31, 2019, failed to flag these anomalies.

All these damning cases are a major setback for the oil and commodity trading markets, a sector that has earned a reputation for persistent malfeasance that's dogged the industry for decades.


That said, dozens of other smart trading desks like Equinor ASA (NYSE:EQNR) have been able to make billions in profits by leveraging the famous contango plays.

By Alex Kimani for Oilprice.com

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Leave a comment
  • George Doolittle on December 19 2020 said:
    I agree there is an issue of "oil demand" outside of North America to include Canada, Mexico, the Caribbean and Panama which does create a "pricing mystery." Somebody trading oil futures contracts last March lost a fortune certainly.

    Just as certainly China was more than willing to be a buyer...at that low to zero price...but since that time shipping prices for everything have exploded to the upside and indeed stock prices for shipping Companies have soared...Tesla being the most spectacular example which ironically enough is a pure BEV.

    Silver prices have rocketed higher this week as well which I would think make monetary Authorities very nervous. Oddly enough the exact opposite has been the case. Certainly a great time to be selling plywood.

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