Caixin
Apr 18, 2018 12:10 PM
OPINION

Opinion: Corruption Charges in Angola May Spell Trouble for Sinopec

Recent allegations of corruption against two children of Jose Eduardo dos Santos, a former president of Angola, and against Manuel Vicente, a former vice president of the African state, may have implications for Hong Kong and China. The former president’s son, Jose Filomeno dos Santos, has been charged with corruption, while there are allegations of corruption against Jose Eduardo dos Santos’ daughter, Isabel dos Santos, which she denies. Vicente faces trial for corruption in Portugal. All these developments may shine the light of transparency on a secretive group of companies based in Hong Kong nicknamed “the Queensway Group,” and poses risks for China Petroleum and Chemical Corp. (Sinopec), a Chinese state-owned oil company.

The downfall of the children of Jose Eduardo dos Santos quickly occurred just months after he stepped down as Angolan president in September after a rule of 38 years. Joao Lourenco, who succeeded dos Santos as president, dismissed dos Santos’ son, Jose Filomeno dos Santos, as head of the Angolan sovereign wealth fund, Fundo Soberano de Angola, in January, and sacked the former president’s daughter, Isabel dos Santos, as chairwoman of the Angolan state-owned oil firm, Sonangol, in November. Jose Filomeno and Isabel dos Santos were appointed by their father while he was president to head these two state-owned companies. Jose Filomeno dos Santos was indicted by the Angolan attorney general’s office in late March on allegations of fraud, while Isabel dos Santos is under investigation by her former company and the Angolan attorney general’s office on allegations of irregular transfer of funds.

If a Hong Kong or Chinese mainland company has investments in a country that underwent regime change, and if that former ruler is charged with corruption and nepotism, the company risks collateral damage such as potential loss of business and reputational damage, whether or not that company is guilty of corruption.

HSBC Holdings PLC has frozen an account linked to Jose Filomeno dos Santos’ alleged fraud and reported the matter to British authorities, the Financial Times reported on March 27. How is this Angolan case related to Hong Kong and China? An answer is found in a Hong Kong court judgment on March 7, 2016.

In a judgment of the Hong Kong Court of First Instance, HSBC, a global bank headquartered in London with strong connections to Hong Kong, was the defendant, while the plaintiffs included Pa Sam Nang and Veronica Fung Yuen Kwan, who is believed to be his wife.

The judgment quoted Wu Wing Chuen, the Hong Kong head of financial-crime compliance at HSBC, as saying, “In the course of its investigations, HSBC has discovered that the network of companies with which Pa and Veronica Fung are associated is a highly complex one: Over 30 separate entities have been identified in the so-called Queensway Group, in various jurisdictions across Africa, Latin America, Southeast Asia and the United States. While there is information suggesting that Pa is the boss of the Queensway Group, neither his name nor any of his known aliases appears on any corporate filings for the entities within the Queensway Group. Among these companies, the most prominent example is a company called China Sonangol International Holding Ltd. (CSIHL). CSIHL is partially owned by Angola’s state owned energy firm, Sonangol.”

Wu added: “Both CSIHL and Pa have recently been implicated in a corruption investigation being carried out by the (Chinese) authorities. On October 8, 2015, Pa was arrested in Beijing and reportedly detained by the (Chinese) authorities in connection with an ongoing corruption investigation into the former chairman of Sinopec and Sinopec’s ties with CSIHL. Such information served only to increase HSBC’s concerns in respect of its legal and regulatory obligations to combat financial crime.”

The judgment did not name any Sinopec executives. HSBC declined to comment, while Sinopec did not respond to questions. Executives of the Queensway Group said they could not answer questions.

Given that HSBC recently froze an account linked to fraud charges against Jose Filomeno dos Santos, it will be surprising if the bank does not investigate possible links among the dos Santos family, Sonangol and the Queensway Group. China Sonangol is involved with Sinopec and Sonangol in oil projects in Angola, according to China Sonangol’s website.

Hong Kong corporate records in 2017 indicate Sonangol owns 30 percent of China Sonangol. In 2011, Fung and Vicente, when he was Sonangol CEO, were directors of China Sonangol, Hong Kong corporate records show. In 2012, Vicente resigned as Sonangol CEO and was appointed by then-Angolan President Jose Eduardo dos Santos as vice president of the African nation. Vicente and Fung are no longer directors of China Sonangol, according to the latest Hong Kong corporate records.

In January, a court in Portugal, Angola’s former colonial ruler, began a trial of Vicente in absentia. Vicente is charged by the Portuguese attorney general of bribing a Portuguese prosecutor to cancel two investigations opened in 2011 into suspected money-laundering while Vicente was Sonangol CEO.

If the trial of Vicente in Portugal proceeds, and if investigations of Isabel and Jose Filomeno dos Santos continue, information may surface that may shed light on the Queensway Group, whose businesses across the world are shrouded in secrecy. With two former heads of Sonangol — Vicente and Isabel dos Santos — facing corruption allegations, and a former top executive of the Queensway Group — Pa — in detention in China, this may possibly spell the unraveling of this opaque web of companies. The fate of the Queensway Group will depend on the degree of cooperation among the authorities of China, Portugal and Angola. Conversely, if the authorities of Angola, Portugal and China refuse to cooperate with each other, the Queensway Group may well continue with its secretive business around the world, of which the public would not be the wiser.

Although there is no evidence of wrongdoing by Sinopec in Angola, the Chinese state-owned firm would do well to take measures to ensure it is not implicated in any corruption charges against Vicente and members of the dos Santos family. Since Sinopec has oil projects in Angola, one of the biggest crude oil exporters to China, the company should adopt measures against the risk of falling out of favor with the new Angolan regime. As Chinese companies expand overseas under the Chinese government’s Belt and Road Initiative, the downfall of this long-serving African leader, Jose Eduardo dos Santos, serves as an example of the risks Chinese firms face abroad.

Toh Han Shih, a Singaporean writer based in Hong Kong, has more than 10 years of experience reporting on business and economics related to China.

Read more about China's Belt and Road Initiative.

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