LONDON (Reuters) - Commodities trading house Trafigura's warehouse business Impala has become the latest company to initiate legal action in connection with suspected metals financing fraud at two of China's ports, according to a legal document.
Trafigura has started legal proceedings in London against two units of U.S. bank Citi (N:C) and trade house Mercuria Energy Trading, according to the document written by Citi's lawyers that outlines the bank's argument in separate, but related, litigation against Mercuria.
Chinese authorities launched an investigation in May into whether private metals trading firm Decheng Mining and its related companies used fake warehouse receipts at Qingdao Port and nearby Penglai to obtain multiple loans secured against a single cargo of metal.
The Citi document does not say what action Impala is taking or why, and it does not implicate Impala, Citi or Mercuria in the alleged fraud.
But it shows that Impala has joined other trading houses and global banks, including Mercuria, Citi, Standard Bank (J:SBKJ) and Standard Chartered Bank (L:STAN), in initiating lawsuits and counter-suits over an estimated $1 billion (£599 million) exposure to the suspected fraud in China.
A spokeswoman at Trafigura said the company does not comment on legal matters. Citi declined to comment on Impala's action beyond what is contained in its document.
A spokesman for Mercuria said of Trafigura's action: "The matter is rather complex and we do not estimate it is appropriate to comment on it at this stage."
The dispute between Citi and Mercuria pivots on contract obligations and the ownership of metal worth more than $250 million held in warehouses in Penglai and Qingdao. Impala is one of the warehouse operators in those locations.
The Chinese authorities imposed a lockdown on parts of the two ports where the metal is held, preventing anyone, including Citi, Mercuria and the warehouse operators, from accessing the material, according to Citi's document.
It says there is a range of steps which the party with responsibility for the metal will need to take.
"The parties will need to know what steps to take against the warehouse operators," Citi's lawyer Daniel Toledano says in the document.
"In particular, proceedings have already been commenced against Mercuria and Citi by one of the warehouse operators, Impala, and the parties need to be able to consider how their interests are affected by those proceedings and take a view as to whether, and how, to contest them."
Toledano declined to comment on the case, referring Reuters' queries to Citi.
(Additional reporting by Melanie Burton in Sydney; editing by Veronica Brown, Greg Mahlich and Tom Pfeiffer)