Sinopec Subsidiary, Addax Petroleum, Reduces International Presence Amidst Corruption Allegations

Start­ing August 9, 2017, Addax Petro­leum, a Sinopec sub­sidiary, will start report­ing directly to head­quar­ters in Bei­jing fol­low­ing the shut­down of three of its inter­na­tional offices in Hous­ton, Aberdeen, and Geneva due to cor­rup­tion alle­ga­tions.  Notably, sev­eral Addax’s inter­na­tional offices are clos­ing fol­low­ing the July 2017 pay­ment of a total of $63.5 mil­lion to set­tle charges that the firm bribed Nige­rian offi­cials.

A four-month long inves­ti­ga­tion into Addax’s finan­cial activ­i­ties in Nige­ria was under­taken by Swiss offi­cials fol­low­ing a refusal by the company’s audi­tor, Deloitte, to val­i­date Addax’s 2015 finan­cial state­ments.  Sub­se­quently, author­i­ties uncov­ered unre­ported pay­ments to local Nige­rian enti­ties and var­i­ous “legal ser­vices” deemed by Deloitte to pos­sess very lit­tle “busi­ness ratio­nale.”  Inves­ti­ga­tors dis­closed that top exec­u­tives includ­ing the company’s CEO and Legal Direc­tor (both of whom were charged in later pro­ceed­ings) had failed to provide suf­fi­cient doc­u­men­ta­tion on the Nige­rian pay­ments, rais­ing sig­nif­i­cant doubts about their legal­ity.

The pay­ments, upward of $80 mil­lion, were specif­i­cally made to a Nige­rian firm, “Kaztec Engi­neer­ing,” a sub­sidiary of Nige­rian oil and gas con­glom­er­ate Chrome Group, led by busi­ness­man Emeka Offor, who was a strong advo­cate of Sinopec’s acqui­si­tion of Addax in 2009.  The $80 mil­lion in sus­pect trans­fers made to Kaztec was allegedly enmeshed in two recent sin­gle-source fab­ri­ca­tion con­tracts awarded to Kaztec by Addax for the Antan field and the Ofrima-Udele oil wells.  These were two of five sin­gle source con­tracts awarded the firm between 2009 and 2014 that, all together, totaled $1.244 bil­lion.  Accord­ing to Deloitte, the $80 mil­lion pay­ments had “very lit­tle busi­ness ratio­nale.”  Sources within and out­side of Addax report­edly claimed the pay­ments were directed at local gov­ern­ment offi­cials.

The deci­sion by Sinopec to cen­tral­ize Addax’s man­age­ment in Bei­jing is likely a defen­sive move to pro­tect the com­pany from future sim­i­lar alle­ga­tions, given the evi­dent track record estab­lished.  (In 2015, for exam­ple, it was reported the com­pany was inves­ti­gated by the Nige­rian gov­ern­ment for evad­ing some $2.8 bil­lion in state roy­alties and taxes.)  Accord­ing to media source, “Africa Intel­li­gence,” Addax has demon­strated a pat­tern of land­ing in legal entan­gle­ments in which it “pays up, switches up its team, and set­tles its legal cases.”  Sources also indi­cated that Deloitte’s refusal to go along with the company’s finan­cial activ­i­ties has led Sinopec to con­tem­plate trans­fer­ing audit­ing respon­si­bil­i­ties away from West­ern firms to solely China-based com­pa­nies.  The clos­ing of over­seas offices could be linked to this objec­tive as well, influ­enced by the juris­dic­tion claimed by Switzer­land in this most recent case trig­gered by the office loca­tion of the com­pany in Geneva.  Addax has sig­nif­i­cant pres­ence in three African coun­tries: Nige­ria, Cameroon, and Gabon and employs more than 1,000 locals across its Africa oper­a­tions.

Below is a visual rep­re­sen­ta­tion of Addax’s global foot­print:

addaxglobalfootprint