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Addax, the auditor and the accounting hole

Companies and/or individuals involved: Addax Petroleum Limited (Switzerland) / Zhang Yi (CEO), Guus Klusener (Chief Legal Officer) / Paulinus I. O. (Nigerian lawyer)

Charges: Bribery of foreign public officials (Article 322septies of the Swiss Criminal Code (SCC)), linked to a lack of organization (Article 102 SCC)

Swiss lawyers used: Addax Petroleum: Lionel Halpérin (Ming Halpérin Burger Inaudi, Geneva) / Zhang Yi: Saverio Lembo (Bär & Karrer, Geneva), Guus Klusener: Vincent Spira (Spira + Associées, Geneva)

Countries affected: Nigeria, Gabon, Switzerland

Proceedings: Canton of Geneva, United States 

Outcome: 

  • Geneva: abandonment against admission of guilt (Article 53 SCC), CHF 31 million
  • US: Pending

Asset recovery: N/A

The Case

The police operation that took place on 20th March 2017 on the left bank of Geneva was no ordinary operation. The authorities ordered a search to be carried out of Addax Petroleum’s premises on route de Malagnou. Two company executives – the branch’s CEO and its legal director – were arrested for questioning. They were to be held in pre-trial detention for three weeks, before being released on bail. What was the reason for this raid? The Geneva prosecutor’s office suspected this oil company of bribing foreign public officials in Nigeria and Gabon, two countries where Addax Petroleum operated oil wells. 

The initial spark that ignited the affair was a dispute with Deloitte. Since 2005, the firm’s experts had been auditing the financial statements of Addax Petroleum, which had, in the meantime, passed into the hands of the Chinese conglomerate Sinopec. But when the auditors ordered the new management to explain a USD 100 million hole in the accounts for the 2014 and 2015 financial years, its response did not dispel concerns. It brought Deloitte into a difficult ethical predicament. With Addax’s failure to provide supporting documents and satisfactory explanations for questionable payments made to Nigeria and Gabon and faced with its decision to appoint a rival firm, Deloitte published its letter of resignation, dated 14th December 2016, explaining the reasons for terminating the relationship. 

The events were the talk of the town in Geneva’s small oil industry community. The media reaction was accompanied by an investigation conducted in four months by public prosecutor Yves Bertossa. The payments made to the Nigerian engineering firm, Kaztec Engineering, as well as to various law firms, appeared to be suspicious due to a lack of supporting documentation. Their objective according to the indictment of one of the lawyers appointed by Addax, was “to obtain favourable financial terms for Addax in relation to its drilling rights in Nigeria”.

According to Deloitte’s confidential report, which was eventually made public, Addax’s management had systematically suppressed any dissenting voices by buying the silence of executives worried about the payment of bribes. According to the daily newspaper Le Temps, which quotes a proven expert on Addax, the Kaztec company operated as a subcontractor in Nigeria, but the payments made allowed it above all to “consolidate relations” with the oil minister at the time, Diezani Alison-Madueke. Or else, to guarantee favourable treatment of Addax’s tax affairs in the African country.

However, it would be a laborious if not impossible task for the Geneva prosecutor’s office to continue its investigations on site given the situation in the two West African jurisdictions. So, the prosecutor’s office opted for a “pragmatic” solution, according to the wording at the time. The case was closed without any admission of guilt, either by the company or its executives, but via the payment of compensation of CHF 31 million for “potential breaches” to the Canton of Geneva. The Chinese parent company then closed its Geneva subsidiary afterwards, leaving its 174 employees high and dry. Addax Petroleum’s website makes no reference to the company’s Geneva origins or the legal proceedings that led to two of its executives being held in pre-trial detention. 

Seven years after proceedings were abandoned in Geneva, the US justice system has reopened the Addax case by filing an indictment against one of its lawyers in Nigeria, suspected of corruption.

Documents related to this affair

Timeline 

Date

Event

Source

1994Addax Petroleum is founded in Geneva by businessman and art collector Jean Claude Gandur. The company specializes in the exploration and production of crude oil in West Africa, then in the Kurdistan region of Iraq.Addax Petroleum
2009The Sinopec conglomerate pays CHF 8 billion to acquire the Geneva-based expertise and African networks of Addax Petroleum. This is the first acquisition of this size made abroad by a Chinese oil group. Jean Claude Gandur continues his activities through his pre-existing group called Addax & Oryx (AOG), continuing to create a certain confusion with his former company. Business register
19th December 2013Addax Petroleum moves into new 9,000 m2 premises in Geneva. Its ambitious director Zhang Yi says he wants to triple production by 2015 and expand around the world “from Geneva”. Seventy employees are made redundant in the following 18 months.Le Temps
March 2016Deloitte refuses to validate Addax Petroleum’s accounts because of a USD 100 million hole in them. The group decides to change auditor, prompting Deloitte to report publicly its suspicions about corruption.Le Temps
20th March 2017The Geneva authorities conduct a search of Addax Petroleum’s offices. The company’s CEO, Zhang Yi, and its legal director, Guus Klusener, are arrested. They will spend three weeks in pre-trial detention. A third executive will be arrested, then released shortly after. The charges will be dropped under the out-of-court agreement reached by Addax Petroleum with the Geneva judicial authorities.Le Temps
5th July 2017Addax Petroleum agrees to pay CHF 31 million in compensation to the State of Geneva in order to quickly bring to an end proceedings that are tarnishing its image. Pouvoir judiciaire GE
7th August 2017The group announces to its 174 employees that it will close its Geneva subsidiary by the end of the year. This is seen in the industry as Beijing taking its revenge “against Geneva and Switzerland”.Le Temps
11th January 2024The U.S. justice system files an indictment against one of the lawyers appointed by Addax in 2015 to exert his influence on Nigerian National Petroleum Corp (NNPC). I. O. Paulinus was a lawyer in Los Angeles, but also an official of Nigeria’s state oil company. Proceedings are still pending.US Department of Justice

Legislative loopholes

  • Conflict of interest in corporate auditing
  • Systematic corruption seen as a lack of organization
  • Legal action made possible only through a dispute with Addax’s auditor, as well as through the first press articles
  • Lack of cooperation from the local justice authority. Difficult for the case to advance in the Swiss justice system
  • No specific supervisory authority in the commodities sector and no appropriate due diligence obligations for traders