United States’ authorities are investigating China Petroleum & Chemical Corporation over allegations that the state-controlled oil producer paid Nigerian officials about $100m 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, according to Bloomberg.
The alleged payments were intended to resolve a $4bn 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 were quoted to have said.
The US 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 US 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.
Sinopec’s American depositary receipts dropped 1.2 per cent on the news and were up one per cent to $75.84 at 1:45 p.m. in New York.
According to Bloomberg, spokesmen for the SEC and the Justice Department and a Sinopec spokesman at the company’s Beijing headquarters declined to comment.
Sinopec, the world’s biggest oil refiner, is one of the largest foreign state-owned enterprises to be investigated by US 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 ($32m) in damages after admitting to organisational deficiencies.
The matter springs from Sinopec’s biggest acquisition. The Chinese company bought Addax in 2009 for about $7.8bn 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 $3bn 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 $1bn, contending that the NNPC 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 resignedas Addax’s auditor because it couldn’t obtain “satisfactory explanations” for $80m 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.
The agreement validated the original terms of the Side Letter, effectively nullifying Nigeria’s demand that Addax repay $3bn, 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 January 1, 2016, according to a person familiar with the deal. That would deny Addax at least $1bn in future benefits and end reimbursement claims.
Deloitte had also flagged in its filing additional Addax payments from 2015 exceeding $20m, made to “legal advisers” in Nigeria and the US 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.”
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 Chief Executive Officer, Zhang Yi, and the 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 criticised 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.