Malaysia suspects Chinese cash paid troubled 1MDB’s debt

KUALA LUMPUR: Malaysian officials here are investigating whether the Government of former Prime Minister Datuk Seri Najib Tun Razak used funds from a China-backed infrastructure programme to help pay debts owed by the state investment fund at the centre of one of the world’s biggest graft probes.

Prime Minister Tun Dr Mahathir Mohamad in July froze over US$20bil in local infrastructure projects that are part of China’s One Belt One Road initiative, saying the contract values appeared to be inflated, in what he called a sign of possible corruption.

Now, Dr Mahathir’s government suspects cash intended for the projects was diverted through offshore shell companies and used to pay nearly US$700mil of debt owed by 1Malaysia Development Bhd, or 1MDB, according to two government officials involved in reviewing the projects.

Malaysians associated with the Najib government, working with representatives of Chinese companies, appear to have arranged the diversion of funds, the officials said.

“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 told The Wall Street Journal.

China’s foreign ministry didn’t respond to a request for comment.

Dr Mahathir took office in May after pledging to voters to clean up the government, and has since moved quickly to restart investigations into what went on at 1MDB under his predecessor.

Najib has denied any wrongdoing by himself or 1MDB, and an investigation by his attorney general cleared him. His representative didn’t respond to requests for additional comment for this article.

Malaysia, which is on the hook to repay billions of dollars to Chinese banks that financed the projects, is demanding that Beijing agree to restructure the terms, the two officials said.

On Tuesday, Chinese Foreign Minister Wang Yi visited Kuala Lumpur, Malaysia’s capital, the latest in a diplomatic flurry aimed at working out a compromise, according to one of the officials.

In mid-July, Tun Daim Zainuddin, an ally of Mahathir who is leading investigations into the matter, laid out Malaysia’s concerns about the loans in a meeting with China’s Premier Li Keqiang in Beijing, according to a Malaysian official who was present.

Scores of Chinese officials descended on Kuala Lumpur last week, and Mahathir is scheduled to meet President Xi Jinping in Beijing in August.

On Tuesday, China Foreign Ministry spokesman Geng Shuang, in a regular press conference, called Malaysia an important partner, and didn’t elaborate.

China has used the Belt and Road initiative to compete with US influence in Asia, helping build roads, bridges and ports at a time when the US has scaled back development aid.

But China’s infrastructure push also has been dogged by corruption allegations in some countries. China has denied a role in any such corruption.

Malaysian officials are focusing on a US$2.5bil agreement signed in November 2016 in which state-owned China Petroleum Pipeline Bureau, a subsidiary of China National Petroleum Corp, would build a series of petrochemical and gas pipelines on Malaysia’s main peninsula and in the state of Sabah on Borneo island.

Malaysia’s Finance Ministry said it had paid China Petroleum over US$2bil, drawing largely on loans from Export-Import Bank of China.

The Malaysian government suspects money from the project was used to pay debts for 1MDB, which is being investigated for graft in several countries including the US, the two Malaysian officials said.

The officials said their suspicions are based largely on the timing of the transactions ahead of a loan due date and the involvement of key suspects in the 1MDB scandal.

Some money likely was taken by Chinese and Malaysian individuals involved in the deal, they said.

A spokesman for the China Petroleum Pipeline Bureau said that money it received for Malaysian pipelines was used for the project only.

Export-Import Bank of China respond to requests for comment.

A former Malaysian official who worked in the prime minister’s office said Jho Low, a Malaysian financier who investigators say was involved in 1MDB schemes, played a central role in negotiating the pipeline deal and other Malaysia-China infrastructure projects.

Low has denied wrongdoing; his representatives didn’t respond to requests for additional comment for this article.

US and Malaysian officials believe Low organized a scheme to take at least US$4.5bil on from the 1MDB fund between 2009 and 2015, which he and others allegedly used to buy mansions, jewelry, art, and to finance a Hollywood production company.

Malaysia has issued an arrest warrant for Low, who is living in China and Thailand, according to people aware of his movements. — Wall Street Journal didn’t