Nickel owes its name to the devil. The commodity’s English name is from the German term Kupfernickel. In the 1400s, miners mistook nickel for copper ore because of its red colour. Once they realised their mistake, the miners blamed Old Nick — a name for the devil. The name “nickel” is derived from Old Nick.
This week, the devil has struck the nickel market. Envy Asset Management and Envy Global Trading are commodity traders based in Singapore. Ng Yu Zhi, a director of both firms, has been accused of fraud.
Ng, who is 33 years old, had allegedly got the Envy entities to raise money from investors to fund nickel trading. The transactions were fake, it is said. The alleged total fraud amounts to $1 billion.
He has been charged with four counts of fraud, with additional charges expected. His assets of $100 million have been seized. The colourful Ng has a penchant for posing in front of his lavish car collection.
Fraudsters have posed fake trades as legitimate transactions through an old trick called lading and teeming (L&T). L&T has been a staple of commodity frauds. It is the practice of receiving funds from one customer and allotting it to a previous customer’s account. This inflates the receivables balances. L&T is similar to a Ponzi scheme. It needs to be constantly repeated to evade attention.
Leverage is more powerful for commodities like nickel. The fake trades can be used as collateral for financing. This is much more lucrative than the staid business of trading commodities. Envy has been accused of borrowing $1 billion from investors to fund the fake trades.
Faking $1 billion of commodity trades requires meticulous planning. If proven, it would be shocking that it evaded the attention of financiers.
The alleged Envy scam comes close on the heels of another major commodity fraud case. Last year, Hin Leong, one of the Asia’s largest marine fuel traders, collapsed due to an alleged fraud. The losses amounted to US$4 billion ($5.38 billion), or 1% of Singapore’s GDP. Hin Leong was founded by Lim Oon Kuin, a 78-year-old trader.
He had begun delivering fuel to Singapore’s docks with a single lorry in the 1960s. His business rose exponentially, as did Singapore’s status as a hub. The Covid volatility in March 2020 was his undoing. Marine fuel prices fell by 35% that month, exposing his alleged fraud.
An investigation by PwC, the appointed judicial manager, revealed Hin Leong’s repeated use of L&T. The same cargo was used in several parallel transactions. For instance, Hin Leong sold 780,000 barrels of diesel to Unipec, an oil company, in March 2020. The same cargo was used as collateral for three separate deals, according to PwC. Eventually, there were four banks and three commodity traders claiming the cargo.
There is a solution that may prevent L&T frauds. Blockchain, the technology that is used for cryptocurrency Bitcoin, provides a unified ledger. Blockchain is a list of records that contains a timestamp and transaction data.
Blockchain should be universally used in trading commodities. It would mean that there would be unique records for cargo. A trader would not be able to pledge the same cargo to multiple financiers.
Some of the giants of commodity trading like Gunvor and Mercuria have invested heavily in blockchain. Banks such as Societe Generale and ING are advocating it.
Apart from preventing fraud, blockchain would make commodity trading more efficient. A financier would not require the army of personnel to verify financing opportunities.
It would cut the cost of trading, benefitting the consumers of the commodities. Fujairah, a port in the Gulf, is one of the largest centres for marine fuel. S&P Global Platts uses blockchain to collate oil terminal stock levels for the Fujairah oil authority. The statistics are blockchain-verified.
It is one of the first cases of blockchain use in the energy field. Alleged fraud cases like Envy and Hin Leong should encourage others to follow suit.
The global commodity trade in 2019 was US$19 trillion. The financing of receivables amounts to US$3 trillion, or one-sixth of the world’s commodity trade.
The vast scale of receivable financing underlines the risk from frauds. Blockchain may help to keep the devil at bay.
