Chinese oil giants make use of offshore shell companies in Caribbean

China’s scandal-mired oil giants and their senior executives have made extensive use of offshore shell companies in the Caribbean, secret financial records reveal.

The country’s biggest oil companies – Sinopec, PetroChina and the China National Offshore Oil Company (CNOOC) – are among the world’s largest businesses, but executives in the industry are embroiled in multiple corruption probes, many tied to networks of shell companies around the world.

Research by the International Consortium of Investigative Journalists (ICIJ) based on leaked financial records from the British Virgin Islands, reveal dozens of companies tied to the three oil giants, many of which are not disclosed on any publicly available filings by the businesses.

The ICIJ and Guardian, among other outlets, are blocked in China after reporting on Tuesday the offshore holdings of relatives of several current and former Chinese political leaders.

China’s senior oil executives are among the most powerful in the country, and often have extensive ties – some familial – with the country’s political elite.

The records show a long history of offshore use by the oil businesses and executives, with incorporations in the BVI, Cook Islands, and related jurisdictions dating between 1995 and 2008.

One executive, Zhang Bowen, is listed in the ICIJ data as the only director and shareholder of Adept Act Enterprises Limited, active from 2006 to 2008. Last month, Zhang took over as chairman of Kunlun Energy, a subsidiary of CNPC, the Hong Kong-listed parent company of PetroChina.

The chief executive of CNOOC, Yang Hua, was similarly listed as the only director and shareholder of a BVI entity called Garland International Trading Company Limited. His colleague, Fang Zhi, vice-president of CNOOC International, was the director and shareholder of Xin Yue Lianping Company Limited and Xin Yue (BVI) Company Limited.

None of the three companies, nor the executives, responded to repeated requests for comment from ICIJ reporters in China and overseas.

While some of the offshore entities were disclosed in annual reports, many have never been publicly listed. The companies also declined to reveal whether their full list of offshore entities had been reported privately to China’s government, as required under Chinese law.

It is also not clear whether offshore companies tied to oil executives were established as part of those individuals’ official roles, or whether they were founded for other purposes.

There is no evidence that the entities uncovered by the ICIJ were used by the oil companies or their executives to engage in illegal conduct, but the secrecy of the offshore world makes their actual purpose unclear.

China’s oil sector makes routine use of offshore jurisdictions, partly as a means to enable overseas investment, or to avoid often arduously bureaucratic restrictions in China or Hong Kong.

However, offshore shells have also been linked to long-running corruption scandals. One report prepared by the Chinese government and released by the Bank of China suggested more than $120bn had been taken away from China since the 1990s – and indicated a large portion of this had been funnelled through the BVI and other offshore jurisdictions.

The report, written in 2011, said corrupt executives had managed to move money into their offshore shell companies through a variety of increasingly sophisticated means, including fake invoices for goods and services.

It also noted that where once offshore work would be done in conjunction with foreigners, executives at China’s oil giants now had ready access to their own supply of shell companies.

“Previously, these type of offshore companies were generally set up by corporate management together with a foreign partner, but now many mainland enterprises or managers already have their own ‘handbag companies’, ” it noted.

Corruption probes have struck right to the top of the companies. In 2009, the former chairman of Sinopec – ranked by Fortune as one of the world’s five largest companies – was given a suspended death sentence for accepting bribes in excess of $28m.

Allies of a former politburo official who rose through the oil companies – Zhou Yongkang, sometimes referred to as the “Dick Cheney” of China – are also facing corruption investigations.

At least five executives from PetroChina, Zhou’s old firm, have lost their jobs, including former vice-president Li Hualin, who once served as Zhou’s private secretary. The company’s former chairman, Jiang Jiemin, who last year took a post overseeing the agency in charge of state assets, has also been removed from his government position.

As yet, the probes into PetroChina, which are ongoing, have not been publicly tied to offshore use, but more details are expected to merge as investigations continue.

Offshore companies are also at the centre of an ongoing US court case brought by a Chinese entrepreneur, Sun Tiangang, against Sinopec officials, who are alleged to have “devised a scheme to effectively crush Mr Sun’s business empire”.

Sun made extensive use of offshore companies in the BVI to enable a deal in which he took over a multibillion dollar oil pipeline in western China. He told the ICIJ such structures allowed him to avoid capital and regulatory controls that would have prevented his business growing.

His lawsuit, filed in US district court in Los Angeles, alleges that Chinese law enforcement officials and Sinopec colluded to detain him illegally in prison for five years from 2005, and while he was there, change the ownership of his offshore entities – which were held by a proxy – to take control of the pipeline.

The ICIJ’s records show conflicting appointment dates for Xing Xaiojing, currently listed as controlling the offshore company Sun says is rightfully his. One document suggests Xing’s involvement began 26 February 2001, another 31 August 2005.

Sinopec has filed a motion to dismiss Sun’s claim, challenging the US as the appropriate jurisdiction for the suit – it suggests China is the appropriate place for the hearing – adding that even if actions had transpired as Sun claimed, it would not amount to what he suggested.

Sinopec did not respond to repeated requests for comment from the ICIJ on the case.