Mitsubishi Corp. has suffered a loss exceeding $90 million in China after uncovering suspected fraud involving one of its copper traders, Gong Huayong. Gong, who was based in Shanghai and worked at Mitsubishi Corporation RtM China Ltd., allegedly made unauthorized trades with local companies, including some that had personal connections to him. The losses amounted to over 600-million-yuan ($82.8 million), which aligns with the 13.8-billion-yen ($92.2 million) loss that Mitsubishi disclosed in its recent quarterly results. The company attributed this loss to a "loss in Chinese trading business," without further details.

The scandal is the latest in a series of cases involving alleged wrongdoing by employees in major commodity trading firms, highlighting the risks posed by individual traders handling large sums of money  While Mitsubishi's loss is considerably smaller in comparison, it has raised concerns within the company, known for its conservative approach to business. The incident has also caused unease among Mitsubishi’s employees, particularly those in China, who fear they may bear the brunt of the fallout.

The investigation into Gong’s actions began earlier this year when some of Mitsubishi’s copper business customers failed to settle trades or defaulted on payments. As part of the investigation, the company found that Gong had permitted certain local companies to defer payment for copper concentrate and refined copper, even though Mitsubishi had not approved these companies as counterparties. Furthermore, some of these companies had personal ties to Gong, which raised suspicions. Gong was dismissed from his position after the fraud was uncovered, and a criminal complaint has been filed with Chinese authorities. Mitsubishi has pledged to cooperate fully with the investigation.

Mitsubishi's Chinese counterparties, who helped uncover the fraud after conducting their own internal investigations, have also reported the matter to the Chinese police. However, despite multiple requests for comment, the Shanghai police have not responded to inquiries. Several traders who previously had business dealings with Gong reported that they have been unable to reach him, with some suggesting that he may have left China on business before the fraud was fully uncovered and did not return.

For Mitsubishi, this loss, while embarrassing, is manageable. The company has reaffirmed its full-year profit guidance of 950 billion yen in its second-quarter results, and the financial impact of the fraud is unlikely to significantly affect its operations. However, this is not the first time Mitsubishi has faced a scandal involving rogue traders. In 2019, the company shut down its Singapore-based oil unit after a rogue Chinese trader was found to have lost more than $300 million. Similarly, in the 1990s, Sumitomo Corp., another major Japanese trading house, suffered over $2 billion in losses due to unauthorized copper trades by its star trader, Yasuo Hamanaka, who was later sentenced to prison.

This latest scandal is likely to make Mitsubishi even more cautious in its operations, especially in China, where it has been traditionally conservative. The company’s leadership will now likely take additional steps to tighten controls and mitigate the risks associated with rogue trading. This incident has also underscored the need for increased scrutiny and oversight in the commodity trading sector, where large sums of money are at stake and the actions of individual traders can have far-reaching consequences.