Chinese Fuel Trader HY Energy Sues JP Morgan and Citigroup Over $40 Million in Blocked Payments

Chinese fuel trader HY Energy has filed lawsuits against JP Morgan and Citigroup over $40 million in payments that the banks blocked in 2023. The regional fuel trader based in eastern China filed separate suits in Shanghai and Beijing courts. The legal action targets the banks' decision to freeze transfers to China Oil and Petroleum Company Limited, or COPC, months before that firm faced U.S.

sanctions. HY Energy alleges the banks failed to process and complete the transfers. The payments were intended for COPC, a Hong Kong-based company. This occurred a year before the U.S. Department of the Treasury's Office of Foreign Assets Control designated COPC.

The Treasury sanctioned COPC in February 2024. The department stated that COPC had materially assisted, sponsored, or provided financial, material, or technological support for the Islamic Revolutionary Guard Corps-Qods Force. Officials described COPC as a front company for the IRGC-QF and its activities involving Iranian oil.

The lawsuits come amid broader tensions in international finance involving sanctions compliance. U.S. banks often freeze transactions when there is a risk of violating sanctions rules even before formal designations occur.

HY Energy's action seeks to address the pre-sanction blocking of funds that were already in process. The outcome of the cases in Chinese courts could influence how international banks handle similar transactions. It also highlights the challenges faced by companies operating in sectors linked to sanctioned regions.

Further proceedings in the Shanghai and Beijing cases have not been detailed in initial reports.