China’s largest oil group CNPC refutes subsidiary’s role in 1MDB money-laundering scandal

China Petroleum Pipeline Engineering (CPP), a unit of China’s state-owned oil and gas giant China National Petroleum Corp, had refuted a media report that money paid for its pipeline projects in Malaysia was diverted to third-party Cayman Islands companies involved in money laundering.

“Over US$2 billion” that Malaysia’s finance ministry paid CPP for pipeline projects under China’s Belt and Road Initiative - financed by loans from the Export-Import Bank of China - had been instead diverted to pay debts owed by Malaysia’s state investment fund 1MDB, which is involved in a US$4.5 billion money-laundering and corruption scandal.

On Wednesday, CPP issued a statement citing news reports from several unnamed media outlets that “contain blatantly false information with respect to (its) pipeline projects in Malaysia”.

Further Reading: Is Malaysia’s 1MDB scandal a Razak family affair?

“We wish to make it very clear that all the funds from Export-Import Bank of China were only paid directly to CPP’s bank accounts,” the Chinese oil company said. “This is in accordance with the strict anti-money-laundering banking rules, regulations, and signed legal agreements.”

It added also, that any allegations or statements that funds from the Export-Import Bank of China were paid to any Cayman Islands-based companies are “completely false”.

On Wednesday, The Wall Street Journal reported that Malaysian officials are investigating whether the government of former Prime Minister Najib Tun Razak had used funds from the China-backed infrastructure programme to help pay off debts that 1MDB owed to an Abu Dhabi fund.

“Chinese companies may be involved in round tripping of major infrastructure projects in Malaysia that siphons off funds from these projects to help 1MDB,” Malaysia’s new finance minister Lim Guan Eng said, according to the Journal report.

Formed by former prime minister Najib, 1MDB is being investigated for graft by authorities in at least six countries, including the US, Switzerland, Singapore. Najib was last month arrested on money-laundering charges related to 1MDB, to which he pleaded not guilty.

Further Reading: Loan from Chinese bank for Malaysian pipeline projects may have been used to pay 1MDB dues

At the centre of the investigation was a US$2.5 billion agreement signed in November 2016, in which CCP would build petrochemical and gas pipelines on Malaysia’s main peninsula, and in the state of Sabah on Borneo island.

Malaysian officials suspect that some of the US$2 billion meant for CPP likely went instead into a series of shell companies before landing at a Cayman Islands-based company.

The officials also suspect that the Cayman-Islands entity paid out the “equivalent of almost US$700 million”, in Chinese yuan, in certain round-trip transaction linked to infrastructure projects in Malaysia, according to the Journal.

This amount was then moved to a bank account at the Industrial and Commercial Bank of China in Malaysia held by the Finance Ministry under Najib’s oversight, which then sent the money to the Abu Dhabi fund’s account with the same bank, the newspaper reported.

CPP provides services for long distance transport pipeline projects, oil and gas field surface construction, large scale oil and gas storage facilities. On its website, it says it is engaged in over 20 pipeline construction projects in Africa and Central Asia.