Wedoany.com Report-Nov 4,  Trafigura Group is a giant of commodity trading. On any given day, it handles enough oil to supply the entire needs of France three times over. Its global reach stretches from US crude oil export infrastructure to fuel stations in more than 20 countries across Africa, Asia and Latin America.

Yet in a distant corner of its empire, far from the attention of top executives in Geneva and Singapore, a crisis has been brewing for some time.

Last week, the company admitted it faces a loss in Mongolia of up to $1.1 billion, linked in part to suspected fraud by its own employees. Trafigura alleges that staff manipulated payments while concealing a mountain of overdue debts, allowing the exposure to run out of control for years without raising any red flags.

For people inside and outside Trafigura, the revelation was a bombshell. Most shocking was the scale of the likely loss relative to the size of Mongolia's oil market. There are over 100 countries that use more oil than Mongolia, according to data from the US Energy Information Administration, among them Luxembourg and Nepal. Its consumption of about 35,000 barrels a day is worth roughly $1 billion a year. For Trafigura, Mongolia made up less than 0.3% of all the oil it traded. 

This account is based on interviews with eight people with direct knowledge of Trafigura and its activities in Mongolia, who asked not to be identified due to the sensitivity of the subject. Last week, Trafigura Chief Executive Officer Jeremy Weir said the company was "bitterly disappointed" by the situation and was confident it was isolated to the Mongolia business, and the company's investigation is still ongoing.

The debacle is shining another harsh light on the company’s internal controls, and raises questions about why it took almost a year to fully disclose the situation. For outsiders, it reinforces commodity trading’s fast-and-loose reputation, coming months after some of the biggest players — including Trafigura itself — pleaded guilty to corruption charges in the US.

Speaking privately, nine bankers, including at some of the company’s key lenders, said they were astounded by the size of the potential loss, and want to know how Trafigura will prevent it happening again. Still, the loss is unlikely to affect the company’s ability to borrow money, several of them said.

“The key question, as always, is how quickly and effectively one learns from mistakes and implements corrective measures,” said Jean-Francois Lambert, a consultant and former commodity banker. “Not merely by reshuffling or dismissing staff and launching a lengthy recovery process, but by strengthening the company’s governance, internal processes, and controls.”