The Trafigura case demonstrates how to make a bad situation worse

Swiss-based and privately owned, Trafigura is the world’s third largest oil trader and the second largest non-ferrous metals trader. The company found itself at the centre of an unfolding scandal in August 2006 when thousands of people fell ill and at least 10 died – with some reports saying 15 – over a period of weeks in Abidjan, the capital of Ivory Coast in west Africa, allegedly caused by toxic waste dumped around the city.

The subsequent high-profile court cases and legal activity, and spectacularly poor public relations, have meant that Trafigura has become synonymous with corporate misbehaviour.

Brendan May, managing director of Planet 2050, says: “It’s really incredible to think that a company will use the legal and PR profession so coyly to end up making their name world famous for corporate irresponsibility. The irony is that three months ago no one outside their sector had actually heard of this firm.”

So what had happened? How did a company that no one had heard of gain such notoriety?

Following reports of the toxic dumping, a number of newspapers and TV channels across Europe started digging deeper to discover the murky chain of events leading up to the disaster. Working with journalists, environmental NGO Greenpeace launched an aggressive campaign against Trafigura, blaming the company for the Abidjan disaster.

The story had begun in early 2006 when Trafigura’s oil traders in London decided to buy coker naphtha, a refinery by-product, from a state-owned refinery in Mexico, hoping to make a quick profit. All they needed was to somehow reduce the sulphur content from coker naphtha and sell it at a premium which could be used as a blend-stock to make finished gasoline.

Between March and June 2006, three loads of 28,000 tonnes of coker naphtha were received in Texas and transferred to the Probo Koala, a cargo ship chartered to Trafigura.

Caustic soda and other chemicals were then used to clean the coker naphtha on board Probo Koala. The process produced about 500 tonnes of slops or waste, and Trafigura faced the problem of how to dispose safely of this potentially toxic material. In July 2006, Probo Koala arrived in Amsterdam where one of the three principal corporate offices of Trafigura is located.

Amsterdam Port Services, a Dutch waste management company, agreed to treat and dispose of the waste. But when APS began the processing at its plant, a strong smell alerted neighbours, who called the fire department. APS then discovered that the slop was much more polluted than earlier believed, requiring sophisticated treatment. APS then wanted a higher price for completing the treatment of the waste – which was not forthcoming.

As a result of this dispute, the Probo Koala took the slops back and set out to sea. In August 2006, it arrived in Ivory Coast, where it delivered the chemicals to a local waste-handling company called Compagnie Tommy. On the night of August 19, Tommy illegally dumped the waste at 18 sites across Abidjan, allegedly without treating it.

In the following weeks, thousands became ill, complaining of nausea, breathing difficulties, vomiting and diarrhoea allegedly caused by the dumped waste. At least 10 people died, according to local health officials. Hospitals were overwhelmed and could not admit patients in such large numbers. The scare prompted the government to close down all the schools and cull hundreds of pigs to prevent the spread of disease. The health problem became so serious that Ivorian president Laurent Gbagbo sacked three ministers for failing to deal with it effectively.

Not guilty, but $246m poorer

When the news of people falling sick in Abidjan broke out, Trafigura sent two senior executives to offer help. They were eventually arrested by the local authorities, and only freed in February 2007, after Trafigura reached an out-of-court settlement with the Ivorian government. The company agreed to pay $198m for the clean-up and helping the victims. But the company denied any wrongdoing and refused to accept any legal liability for the incident. Trafigura said it made the payment because of “considerable sympathy for the people of Abidjan” and that it was “working with the government to improve their lives”.

Having cleared Trafigura of all charges, the Ivorian authorities prosecuted the waste handler, Tommy, and jailed the owner for 20 years.

Criticising the deal between the company and the Ivory Coast government, Greenpeace International said it would continue its campaign “until the full extent of liabilities have been established”.

Leigh Day & Co, a British law firm that brought a class action lawsuit in the high court in London against Trafigura on behalf of 31,000 Ivorians seeking damages, also refused to drop the case. The lawsuit claimed the Ivorians were poisoned by the slops dumped in Abidjan.

In September 2009, Leigh Day and Trafigura finally agreed to an out-of-court settlement for $48m, only weeks before the case was due to open in the high court. Trafigura agreed to pay $1,553 to each of the 31,000 claimants. The settlement was reached after a team of 20 experts, appointed in equal numbers by Trafigura and Leigh Day, failed to establish a link between the slops dumped and health problems and deaths reported in Abidjan.

The settlement came days after a UN report said there was “strong prima facie evidence that the reported deaths and adverse health consequences are related to the dumping of the waste from the cargo ship Probo Koala”. Trafigura rejected the report, saying it was inaccurate and poorly researched.

Announcing the settlement, a lengthy joint statement by Trafigura and Leigh Day included the declaration: “Leigh Day & Co, in the light of the expert evidence, now acknowledges that the slops could at worst have caused a range of short-term, low-level flu-like symptoms and anxiety.”

The statement further added that “it remains Trafigura’s position that it did not foresee, and could not have foreseen, the reprehensible acts of Compagnie Tommy in dumping the slops in and around Abidjan in August and September 2006, and that Compagnie Tommy acted entirely independently of, and without any authority from, Trafigura”.

Trafigura director Eric de Turckheim said after the settlement: “From day one, we maintained that the ‘trial by media’ initiated against us by Leigh Day & Co, and subsequently taken up by journalists working for the BBC and the Guardian, Independent, NRK in Norway, and Volkskrant and Greenpeace in Holland amongst others, was utterly wrong and inappropriate. The English legal system, and not the media, should have been the sole arbiter of this entire process.”

Trafigura’s critics, however, say that the company actually avoided the English legal system by settling out of court.

Greenpeace continues the campaign

Greenpeace says it will continue its campaign. After Trafigura settled the class action suit with Leigh Day, Greenpeace petitioned a Dutch court to bring criminal charges of murder, manslaughter, negligence and conspiracy against Trafigura executives, blaming them for dumping the toxic waste in Abidjan. With the petition, Greenpeace has submitted copies of internal emails – first exposed by the BBC in September – exchanged among top executives of Trafigura as evidence that the company knew the Probo Koala waste was toxic and its dumping was banned in Europe and many other countries.

“It is a disgrace that the company has been denying blame up to this day, and has enlisted the services of law firms and PR companies in order to try to keep the facts from being disclosed,” says Marietta Harjono, Greenpeace toxic campaigner in the Netherlands. “Prosecuting Trafigura in a criminal court has become even more important now that it has been revealed that the lawsuit filed against Trafigura by 31,000 victims is being settled in the UK, thereby preventing the truth from coming out.”

If the Dutch court admits the Greenpeace petition, Trafigura may finally have to defend itself in a court of law.

Scandal handling

The way Trafigura handled the crisis has come under intense scrutiny by corporate responsibility observers. From the beginning, Trafigura denied any responsibility for the incident and blamed the waste-handling contractor for the problem. It also said that the waste disposed by Probo Koala was not sufficiently toxic to have caused serious illness or deaths.

The company wanted everyone to accept this position. Whoever refused was sued or threatened to be sued for libel. The company hired Carter-Ruck, a London-based law firm with a reputation for handling libel cases for powerful clients. The first to get sued was Leigh Day & Co. Then the BBC was sued for publishing material about the case that Trafigura lawyers claimed was inaccurate. The BBC countersued. The Norwegian Broadcasting Corporation (NRK) and the Dutch newspaper Volkskrant say they also received threats of libel action from Trafigura’s lawyers for publishing stories relating to the Abidjan disaster.

And then came the turn of the Guardian, a UK newspaper that had been regularly reporting on the scandal. In September this year, the Guardian got hold of a secret report prepared by the British scientific consulting firm Minton, Treharne & Davies weeks after the incident in Abidjan at Trafigura’s request.

The report noted in conclusion that the waste dumped in Abidjan was “capable of causing severe human health effects through inhalation and ingestion. These include breathing difficulties, nausea, eye irritation, skin ulceration, unconsciousness and death. There would also be a strong and unpleasant odour over a large area. All of these effects were as reported in this incident.”

Trafigura had kept this report secret. When it learnt that the Guardian wanted to publish the report, Carter-Ruck approached the London high court and succeeded in obtaining an emergency so-called “super injunction” against the newspaper in a private hearing. The super injunction not only prohibited the Guardian from publishing the report, it also prevented the newspaper from disclosing that such an injunction had been passed against it. Violating these would be contempt of court: directors of the Guardian could be imprisoned and the assets of the newspaper seized.

Though the Guardian was prevented from publishing the report by the injunction, the report was published in other countries and quickly spread through blogs and social networking websites. In fact, the power of social media was evident when overnight Trafigura topped the list of trending topics on Twitter.

Days later, a dramatic twist came when British MP Paul Farrelly tabled a question in parliament revealing the existence of the super injunction. The Guardian informed Carter-Ruck that it intended to publish the information about the parliamentary question. As the Guardian revealed later, Trafigura’s lawyers warned the newspaper that doing so would be contempt of court. The law firm also sent a letter to John Bercow, speaker of the House of Commons, suggesting that the matter was sub-judice, implying that a debate in parliament should not take place.

These attempts angered a number of MPs who viewed it as an attempt to gag a newspaper from reporting parliamentary proceedings and, even worse, an attempt to prevent a debate in parliament.

The incident almost threatened a conflict between the parliament and the British judiciary when the speaker announced that the House of Commons would go ahead with the debate about the use of super injunctions to gag the media. A day later, however, Trafigura’s lawyers backtracked and sent the Guardian a note stating that the paper should ignore the super injunction. Carter-Ruck denied that it intended to prevent a debate in parliament or tried to gag the Guardian from reporting parliament proceedings.

Trafigura says the Minton report was preliminary and was later proved wrong. But it has not published the final report, if there is one.

Where it went wrong

Corporate responsibility commentators say the company clearly messed up handling the crisis. “All the text books will tell you that when faced with such a situation, a company needs to find the facts quickly, disclose them quickly, alert all those who can alleviate the problem and make a commitment to work with the affected communities and help to clean up the damage,” says Mark Goyder, director of London-based think tank Tomorrow’s Company.

Brendan May of Planet 2050 is surprised by the way Trafigura handled the situation. He says that the case has brought back memories of the 1970s, a period before the corporate responsibility movement began. “It is almost as though all the good practices that we learnt from the experience of other companies like Chiquita, Gap or Nike have been totally overlooked in this entire episode.”

May says this case shows that when a company is governed by a culture that says only lawyers and PR people can speak for the company, the crisis can actually worsen.

Being a privately held company may have also affected the way Trafigura handled the crisis. May says: “Privately held companies do not have the same automatic transparency and ethical requirements that a publicly held company has. The private nature of the firm meant that historically they have been far less exposed to the kind of public scrutiny that they face now.”

But May points out that some of the most innovative and progressive companies in the corporate responsibility world became so because once they went through a major crisis or problem. He says Chiquita, the US-based producer and distributor of bananas, is a good example of such a company. A number of scandals and accusations rocked the company in the 1970s and 1980s. But the firm used that legacy to transform itself into a leader in corporate responsibility.

May says Trafigura has a choice. He says: “It can spend the next five years in a perpetual state of crisis management by reacting, panicking and firefighting, trying to salvage its credibility, or use the lessons for a major transformational movement to turn a corner and in five years becoming better than anyone else in their sector in the way they tackle social and environmental issues.”

However, May adds that it takes a long time for a company to rehabilitate its reputation after such a crisis. “This always needs to begin with a sincere apology. If the company remains reactive, negative and remains in a bunker, they will find it very, very difficult to establish any credibility.”

Gallery says goodbye but banks say hello

In October, the London-based Cynthia Corbett Gallery decided to drop Trafigura as a sponsor for the art prize meant for an international exhibition showcasing the work of 16 international emerging artists. The gallery has renamed the prize from what was the Trafigura Art Prize to the Young Masters Art Prize. “We feel that the recent events involving Trafigura are detracting from the main purpose of the prize, which is to celebrate emerging and newly established artists,” the gallery says.

However, the scandal does not seem to have affected investors much. In November, Trafigura managed to secure a $700m credit facility, exceeding its $505m request, largely from Asian investors. The syndicated facility was arranged by banks including ANZ, Standard Chartered Bank, DBS Bank and Industrial and Commercial Bank of China. A Trafigura statement says: “The success of the facility demonstrates the strong relationship we enjoy with the banking community as well as the banks’ confidence in Trafigura’s business model.”

In March this year, the company had secured a $520m credit facility from mainly European banks. The company plans to use the fund to boost its trading operations in emerging markets such as Central America and Africa.

Trafigura – fast facts

• Founded in 1993.
• Privately held company, headquartered in Lucerne, Switzerland.
• Principal corporate offices in London and Amsterdam.
• 1,900 employees in 42 countries.
• World’s third largest independent oil trader and second largest independent non-ferrous metals trader.
• Mainly trades in crude oil, oil derivatives, copper, lead, zinc and alumina.
• Expanding into bio-fuel sector.
• Significant stakes in several publicly listed mining companies.
• Turnover grew from $12bn in 2003 to $73bn in 2008.
• $440m profit in 2008.
• Operates an off-shore hedge fund through wholly owned subsidiary Galena Asset Management UK with $800m under asset management.
• The Trafigura Foundation was launched in 2007 aimed at charitable activities where the company operates. It had a budget of $4m in 2008.

Source: Trafigura