Letters of credit (L/Cs) were employed in an alleged US$32 million fraud arranged between an oil trader working for Qingdao United Energy and a worker at commodities trading house, Trafigura.

As part of an ongoing investigation, Chinese police have frozen two Trafigura bank accounts.

Discounted resale

Reports allege that oil trader Zhang Wei used L/Cs issued by Qingdao to buy 700,000 barrels of petrol from Trafigura at the market price.

The oil trader subsequently sold the petrol back to Trafigura at a discount of US$32 million.

Trader's reputation

A source at Trafigura has told the Reuters news agency that the commodities trading house believed Zhang was Qingdao's authorised agent, and that the trader had represented other companies in previous transactions without problems.

Trafigura's position is reportedly that this is a commercial dispute and not a matter for criminal proceedings.

Frozen accounts

But it has emerged that a Trafigura employee, Tian Meng, has been held by police since August and can be detained for seven months without charge.

The frozen Trafigura accounts are reportedly held at Industrial and Commercial Bank of China and Bank of China.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.