Steel tycoon Sanjeev Gupta’s GFG alleged to have ‘misappropriated’ funds in Romania

The French government has grounds to believe that Sanjeev’s Gupta’s GFG Alliance has “misappropriated” funds from a steel plant in Romania, according to court documents in a case involving one of the metal magnate’s companies.

Gupta has launched legal action in London in a last-ditch attempt to reclaim a vast aluminium smelter in Dunkirk, northern France, after its takeover by a US private equity firm, American Industrial Partners (AIP). GFG has been under intense financial pressure since the collapse of its main lender, Greensill Capital.

However, filings in the case suggest that legal authorities in France believe laws may have been broken by Gupta’s companies in separate dealings in Romania. GFG is under investigation by the UK’s Serious Fraud Office (SFO) over “suspected fraud, fraudulent trading and money laundering”, and French prosecutors are also investigating, but GFG has not so far faced charges. GFG denied that it has broken any laws.

The smelter, the largest in Europe, is a highly sought-after asset in an important industry for the French government, and it is thought to consume as much as 1% of France’s electricity.

Gupta, an Indian-born, Cambridge-educated commodities trader, bought the smelter from Rio Tinto in December 2018. However, AIP seized control of it in October 2021 after acquiring some of its debt, and the smelter has since become the subject of a bitter legal dispute.

In a filing in response to GFG’s high court action, AIP wrote that its subsidiary, called Lightship, was unable to accept money offered as repayment for one of the GFG loans it held after a warning from the French government on 19 July.

The defence filing said: “Lightship was informed that there were grounds to believe that the funds had been misappropriated from Liberty Galaţi (being a Romanian steel mill in the GFG Alliance), and would never have been able to pass KYC [know-your-customer] checks and AML [anti-money-laundering] scrutiny. Lightship understood, from that information, that there were grounds for concern as to the lawfulness of the transfer of funds from Liberty Galaţi.”

GFG’s Romanian operations, including the large steelworks in Galaţi, a port city on the Danube, have already come under significant scrutiny. A Czech government minister last year called for an investigation into the sale of carbon credits worth £40m from a Czech steelworks to Liberty Galaţi.

A GFG Alliance spokesperson said: “Carbon credits are assets of a company and in common with other large industrial companies, Liberty Steel Group businesses trade carbon credits as part of the usual course of business. That includes transactions to buy and to sell credits according to their business requirements and according to the market price.”

Gupta also owns a small bank, the Bucharest-based Banca Română de Credite și Investiții (BRCI). GFG previously denied that any of the funds tendered to AIP had any connection to BRCI.

There were already “a number of matters of concern” before the French government’s intervention, AIP said in its filing, including the UK’s SFO investigation and “extensive public reporting of allegations of fraud, fraudulent trading and money laundering”.

AIP also highlighted that $180m (£137m) funds were promised for debt repayment via Liberty Finance Management (LIG) Limited, another of Gupta’s companies not directly involved in the smelter’s operations. That company, whose accounts for 2020 are almost a year overdue, only had £33m in assets listed on its balance sheet in 2018 and £61m in 2019.

“That increased the risk that the funds may have been derived from tainted transactions by, or within, the GFG Alliance,” AIP alleged. “There were obvious concerns about the source of the funds.”.

The alleged suggestion by the French government that GFG may have “misappropriated” money from Romania could have serious implications for Gupta’s attempts to refinance his other businesses, including those in the UK. Under UK law companies may not receive money if they believe it may have come from unlawful conduct, and they must carry out strict checks on customers.

After an acquisition spree which saw Gupta snap up tired assets ranging from huge mines in Australia to steel and aluminium plants in the UK, the US and across Europe, the tycoon has been under intense pressure to find new funds after the collapse of Greensill a year ago on Tuesday.

GFG on Monday said it had injected an unspecified amount of money into Liberty Steel in the UK, and that it had persuaded HM Revenue and Customs to drop winding up petitions for four Liberty companies.

The filing alleged that AIP asked GFG several times for information on the source of the funds to repay its loan, but that GFG was only able to provide “certain limited documents filed at Companies House and a copy of Mr Gupta’s passport”. They “omitted to say anything about the actual source of the funds”, the filing said.

GFG claimed that AIP had bought the loans in order to “appropriate” the smelter, and a source briefed on the negotiations claimed that GFG received offers of more than $1bn, five times more than the roughly $200m offered by AIP.

AIP in its filing claimed that GFG had in fact asked it to buy the debt to protect GFG from insolvency after it missed scheduled repayments.

A GFG Alliance spokesperson said: “Many of the claims in AIP’s filing rest on undisclosed documents and alleged conversations with third parties. There was no misappropriation of group money from any company. We took legal advice and thorough steps to ensure compliance with all relevant laws and regulations, and are confident that the transfer of funds to repay AIP did not breach any of them.”

The spokesperson said that “AIP never had any intention of accepting funds, from GFG or anyone else” to repay the loans. AIP used a “premeditated, predatory manoeuvre to seize a valuable asset on the cheap”, the spokesperson said. “AIP’s defence is as cynical as its original expropriation of our asset. We reject AIP’s specious interpretation of events.”