PUBLISHED ONJuly 23, 2015 9:22 AM
BEIJING/LONDON - Chinese police will seek to formally charge an employee of Swiss trading giant Trafigura as early as Thursday, according to sources familiar with the probe, in a step that could escalate a closely watched 11-month stand-off over alleged fraudulent oil trading.
Police will ask prosecutors to charge Tian Meng, Trafigura's Beijing-based oil marketer, with contract fraud and fraudulently obtaining letters of credit, one of the sources who is in law enforcement said. The request is due to be filed on Thursday.
It isn't clear if prosecutors will follow through. They have turned down two previous attempts to lay charges against Tian.
Under Chinese law this is the final request that will be considered.
Prosecutors could not be reached for comment, but sources close to Trafigura said the earlier requests by police to file charges had been turned down due to a lack of evidence.
The source in law enforcement said it was not unusual for prosecutors to turn down initial requests before charges are filed.
Senior sources at Trafigura, one of the world's leading oil and metals trading houses, view the investigation as a test of the rule of law in China and stress the matter is a commercial dispute and should not involve police or state prosecutors.
Investigators in the city of Cangzhou detained Tian last August after private Chinese trader Qingdao United Energy filed a complaint to police, alleging it had lost US$32 million (S$43.7 million) via trade financing deals arranged without its knowledge between Tian and local trader Zhang Wei.
Reuters has been unable to reach Tian and Zhang for comment. Li Yixin, founder of Qingdao United Energy, said he expected"the truth to be revealed and justice done." The pressure on Trafigura in China has grown after a second employee, the head of its Beijing operations, Li Bo, was arrested on June 1.
Senior sources at Trafigura said they do not believe that Li was involved in any of Tian's transactions and are unclear on what the grounds are for his detention. "We have written letters of complaint to municipal and national authorities. Unfortunately, we have not heard back," a senior source at Trafigura said. "We are ready to engage with police to understand the case better, but we have not obtained any satisfactory engagement from police so far," the source said.
Reuters was unable to reach Li or the press officer at Cangzhou Police Bureau, which is in charge of the investigations, for comment.
COMMODITY FINANCING
Li, a Singaporean citizen and the main face for the Swiss firm's Chinese oil business, was detained by police as he was preparing to fly to Singapore.
Under Chinese law, people can be kept under arrest for up to seven months without being formally charged.
Deals involving using commodities as collateral to raise money have become more sensitive in China after a billion-dollar scandal at Qingdao Port, where a private trading firm has been accused of duplicating warehouse certificates to secure bank loans.
The source in law enforcement said freezes imposed on two bank accounts held by Trafigura in China will be extended for another six months, after the first freeze expires at the end of this month.
The two accounts, which both belong to Trafigura Private Limited, a Singapore unit, were with the Industrial and Commercial Bank of China and Bank of China , the source said.
The two banks could not be reached for comment by phone.
A senior Trafigura source said that the accounts had been used to trade oil but did not contain funds when they were frozen and the move would not affect oil trading operations.
Trafigura's China operations, which cover oil and metals, employ a total of 220 staff at nine representative offices, and generated more than US$6.44 billion in turnover last year, according to a company report.