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: