China's Bank of Communications (BoC) has accused Chinese state-owned oil giant Sinopec of fraud in a legal row centred on the alleged misuse of four letters of credit (L/Cs) extended in 2019.

At least four managers at Sinopec subsidiaries have been detained by Shanghai police in connection with the fraud that features double financing allegations according to a court judgment issued by a Singapore court.

Double financing

The alleged fraud stemmed from how sale contracts had been contrived by Sinopec Singapore (Sinopec SG) as a means of obtaining payment by way of L/Cs for a cargo the trader had already sold and released to Zhong Tuo Group entities under alleged prior contracts, and which it no longer had title to.

"Sinopec SG was seeking to sell the cargo and obtain payment for it twice - first from the Zhong Tuo Group entities, and when it failed to do so, from an issuer of the L/Cs," BoC alleges according to the judgment.

Documents rejected

Shanghai International Holding (SIH) applied for the four L/Cs at BoC's Tokyo branch to purchase the paraxylene from Sinopec SG and sell it to entities in Hong Kong's Zhong Tuo group of companies.

But when Sinopec presented documents at the Hong Kong branch of Australian lender Westpac, BoC's Hong Kong branch rejected the presentation because of suspected fraud in the bills of lading (BLs).

Entitled to refuse payment

"The shipped-on-board date on the BLs was too far from the issuance date of the L/Cs; and the respective vessels carrying the cargo had arrived at the respective discharge ports..." the judgment says.

After investigations, BoC concluded that the cargo had already been discharged, and was of the view that the BLs were being re-used by Sinopec SG to collect payment under the L/Cs. Therefore BoC Tokyo determined that it was entitled to refuse payment under the L/Cs

Disputed allegations

Sinopec SG disputes BoC's allegations of fraud and argues it had first purchased the cargo from suppliers on behalf of another Sinopec subsidiary, Shanghai Jinshan Associated Trading Corporation.

In doing so, Sinopec SG was only acting as a "credit facilitator" on behalf of Shanghai Jinshan, given that Shanghai Jinshan did not have banking facilities that allowed it to apply for L/Cs the judgment says.

The Singapore High Court judgment in the case of Sinopec versus BoC can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.