More than US$20 billion of infrastructure projects were frozen by Prime Minister Dr Mahathir Mohamad this month amid concerns of corruption and possible inflation of contract values.
Two government officials claimed the money from the mega projects was diverted through offshore shell corporations which were used to pay almost US$700 million of 1MDB’s debt.
The officials also said Malaysians who were working for Najib seemed to have organised the siphoning of funds by working with representatives from the Chinese companies.
“Chinese companies may be involved in round tripping of major infrastructure projects in Malaysia that siphons off funds from these projects to help 1MDB,” Finance Minister Lim Guan Eng told WSJ.
According to the report, China’s foreign ministry did not respond to requests for comments.
Malaysia’s investigations are focused on the construction of a series of petrochemical and gas pipelines in the peninsula and Sabah by state-owned China Petroleum Pipeline Bureau, a subsidiary of China National Petroleum Corp, worth US$2.5 billion.
The finance ministry said over US$2 billion was paid to China Petroleum, drawing largely on loans from the Export-Import Bank of China.
Malaysia suspects the money from the project was used to pay off debts incurred by 1MDB, which is also being investigated for corruption in other countries including the US, said the two officials.
Officials voiced concern over the involvement of suspects in the 1MDB scandal as well as the fact that the transactions were done before a loan due date.
They also spoke of the possibility that cash was taken by Chinese and Malaysians in the deal.
A spokesman for China Petroleum Pipeline Bureau told the WSJ that the cash acquired for the pipelines was used only in the project.
The Export-Import Bank of China did not respond to requests for comments.