AUGUST 31, 2017 – U.S. authorities are investigating China Petroleum & Chemical Corp. over allegations that the state-controlled oil producer paid Nigerian officials about $100 million worth of bribes to resolve a business dispute, according to people familiar with the probe.
Investigators from the Securities and Exchange Commission and Justice Department are looking into allegations that outside lawyers acting as middlemen for the company, known as Sinopec, funneled illicit payments from its Swiss unit to the Nigerians through banks in New York and California, said the two people, who didn’t want to be named discussing an active investigation.
The alleged payments were intended to resolve a $4 billion dispute between the Chinese oil company’s Addax Petroleum unit in Geneva and the Nigerian government over drilling and other capital costs, tax breaks and a division of royalties between Addax and the Nigerian National Petroleum Corporation, the people said.
The U.S. probes are in their early stages, and no action is imminent, one of the people said. The SEC is handling its inquiry through its Los Angeles office, and the Justice Department investigation is being led by the U.S. attorney’s office in that city, the person said. At least one Washington-based prosecutor from the Justice Department unit that investigates potential violations of the Foreign Corrupt Practices Act has traveled to Los Angeles to conduct interviews, the people said.
The company’s shares in Hong Kong added 0.3 percent to close at HK$5.99 on Thursday. The city’s benchmark Hang Seng Index slipped 0.4 percent.
Spokesmen for the SEC and the Justice Department declined to comment. A Sinopec spokesman at the company’s Beijing headquarters also declined to comment.
Sinopec, the world’s biggest oil refiner, is one of the largest foreign state-owned enterprises to be investigated by U.S. prosecutors. The probes renew scrutiny of a matter that the Swiss had closed after a short inquiry. In July, Swiss authorities required Sinopec to pay 31 million Swiss francs ($32 million) in damages after admitting to organizational deficiencies.
The matter springs from Sinopec’s biggest acquisition. The Chinese company bought Addax in 2009 for about $7.8 billion to build a corporate presence in Geneva, a commodity-trading hub, and to expand its oil production in Africa.
Addax operated in Nigeria under a deal with the government. From 2001, Addax benefited from a Side Letter agreement that granted it tax breaks and reimbursements for capital costs, according to a person familiar with details of the contract. Around 2014, Nigerian authorities decided that the Side Letter should no longer apply and demanded that Addax repay about $3 billion of past benefits, the person said.
By the end of that year, according to the person, Addax had filed a lawsuit against the government to protest that decision. It also sought reimbursement of at least $1 billion, contending that the Nigerian National Petroleum Corporation had taken more than its share of crude allotments — a practice known as “overlifting.”
Allegations of bribery surfaced in January of this year after Deloitte said in a public filing that it had resigned as Addax’s auditor because it couldn’t obtain “satisfactory explanations” for $80 million paid to an engineering company for Nigerian construction projects in 2015. Deloitte said that amount appeared excessive for the work performed “and their purpose and timing raise issues which have not been resolved.”
On May 25, 2015, shortly after many of those payments were made, Addax and the Nigerian government reached a settlement that was approved by the Nigerian High Court, the person familiar with the matter said. Sahara Reporters, a news organization in Nigeria, reported that former President Goodluck Jonathan, with just three days left in office, approved the settlement at the urging of Attorney General Mohammed Bello Adoke.
The agreement validated the original terms of the Side Letter, effectively nullifying Nigeria’s demand that Addax repay $3 billion, the person said. It’s unclear if there’s any other litigation pending between Addax and Nigeria.
The administration of President Muhammadu Buhari, Jonathan’s successor, left the original terms of the Side Letter intact but planned to revoke its terms effective Jan. 1, 2016, according to a person familiar with the deal. That would deny Addax at least $1 billion in future benefits and end reimbursement claims.
Deloitte had also flagged in its filing additional Addax payments from 2015 exceeding $20 million, made to “legal advisers” in Nigeria and the U.S from bank accounts in Nigeria and the Isle of Man, a British crown dependency. The auditing firm said it had “received a number of whistle-blowing allegations from within and outside Addax, some of which allege that such payments have been made to bribe foreign government officials and that certain amounts have been embezzled by certain members of management within Addax Petroleum Group.”
An official in Buhari’s office directed inquiries to the NNPC and the Justice Ministry. Spokesmen for the NNPC and Nigeria’s Justice Ministry didn’t respond to multiple messages seeking comment.
The case burst open in February when Geneva prosecutor Yves Bertossa began a probe into Deloitte’s allegations. Swiss law enforcement officials raided the Geneva offices of Addax in March. Addax CEO Zhang Yi and Chief Legal Officer Guus Klusener were jailed under preventative detention, as allowed under Swiss law. They were released three weeks later, a spokesman for the Geneva prosecutor said.
Barely four months later, Bertossa closed the probe. Neither the company nor its executives were charged. Bertossa criticized the company for what he called sloppy accounting, but said that no criminal intent could be established. He also said that Addax had taken steps to overhaul its staffing and anti-corruption processes.
Saverio Lembo, a lawyer for Zhang, declined to comment. Klusener’s lawyer, Vincent Spira, didn’t return calls seeking comment.
U.S. authorities are looking into whether payments handled by an unidentified Nigerian lawyer who is a member of the California bar were used to pay some of the alleged bribes, according to one of the people familiar with the matter. The lawyer was hired to advise Addax executives on the terms of the settlement with the Nigerian government, the person said.
It’s unclear what effect a U.S. probe might have on the rest of Sinopec’s U.S. operations. The company’s shares began trading in Hong Kong, London and New York in 2000. Sinopec also rents an oil terminal in the U.S. Virgin Islands.
A month after the Swiss probe ended, Sinopec announced on Aug. 8 that it would shut down Addax’s operations in Geneva along with offices in Aberdeen, Scotland, and Houston by the end of this year.