Oil traders face lawsuits over companies hit by U.S. and Iran sanctions

(Bloomberg) — An energy trader seeking to buy British natural gas assets from Shell PLC and Exxon Mobil Corp was indicted on charges that it embezzled funds from an Iranian petrochemical company that was later banned from doing business in the United States.

Francesco Mazzagatti is accused in a London lawsuit of profiting from indirect ownership of Iranian plastic resin maker Mehr Petrochemical Co. The U.S. Treasury Department said last year that Meir was at the center of a vast “shadow banking network” that helped other companies continue to do business on behalf of the Iranian regime.

The London lawsuit was filed in August by Alliance Petrochemical Investment, a Singaporean company that owns a controlling stake in Mehr. It accuses Mazzaghati of distributing the Iranian company’s products and secretly retaining a stake in the company after it was sanctioned by U.S. authorities last year.

Mazzagatti has denied the accusations and said he never controlled Mehr, calling the complaint part of a “vexatious campaign” by former business partner Arshiya Jahanpour, who he said was in fact the operator of API.

“Mr. Mazzagatti will not be subject to any investigation or review related to any dealings with Mel,” his spokesman said in an email. The Financial Times earlier reported details of the lawsuit.

Mazzagatti’s Viaro Energy Ltd. is seeking regulatory approval for a series of deals with Shell and Exxon Mobil off the coast of Scotland that it says would give it control of about 5% of total British natural gas production. If the acquisition is approved, Viaro will have ownership of “the backbone of UK energy production and security”, the company said when it announced the deal in July.

The Shell-ExxonMobil deal includes 11 offshore facilities and is subject to approval by the UK North Sea Transition Authority. The NSTA may consider the ‘suitability’ of the licensee as part of this process. Mazzagatti said he has been in “regular communication” with regulators.

The London lawsuit focuses on accusations that Mazzagatti effectively ran API, saying he continued to lead the company even after resigning from the board in September 2020. The lawsuit alleges that his “deal” with Mehr was based on him remaining API’s CEO.

API filed a lawsuit seeking $143 million in damages and damages, saying Mazzagatti diverted funds from sales of Mehr’s products to another company he set up in the United Arab Emirates.

Mazzagatti is accused of inappropriate behavior dating back to at least 2021. At a meeting that year, he presented a forged bank document containing false account balances, documents show. The lawsuit also separately accuses him of profiting from forged signatures.

“Mr. Mazzagatti continues to serve as CEO, the board of directors continues to customarily act upon his instructions, and the company’s management acts in accordance with his instructions,” API’s current directors said in the lawsuit.

The two sides disagreed on a number of issues, including whether Mazzagatti served as API CEO. Mazzagatti said he was just a board director.

Mazzagati’s lawyers said that Jahanpur, a former close friend, actually ran the company and that Mazagati had always intended to “give up his stake in API before the sanctions took effect.”

Mazzagatti faces a separate criminal trial in Milan, where he is one of about six defendants charged in a corruption case that has dragged on for months. In a small part of the case, Mazzagatti is accused of using proceeds from an allegedly fraudulent deal with Eni to buy shares in API.

Italian judges have dismissed other Italian criminal charges related to attempts to transport oil from Iran. Mazzagatti has denied the accusations, and Viaro said in July that the company expected the remaining cases against him to be dropped.

Mehr was placed under U.S. restrictions in March 2023, a move that blocked any U.S. transactions with the company.

Any foreign financial institution that knowingly facilitates transactions with the company may also be subject to enforcement action, according to OFAC.

OFAC said Mehr’s products were sold through a network of companies, generating billions of dollars in revenue for the Iranian government. According to regulators, the Mehr network helped Iran’s Persian Gulf Petrochemical Industry Commercial Company sell millions of dollars’ worth of high-density polyethylene produced by Mehr to third-party buyers for shipment to Turkey and Asia.

API used the lawsuit to lay out how Mazzagatti allegedly acquired the Mehr stake and questioned whether he tried to conceal it after U.S. sanctions were imposed.

Mazzagatti said he never intended to retain his stake in API after buying it through a Hong Kong company in July 2018, and a few months later transferred 50% of his shares to the Jahanpour family business.

Five days after the sanctions, Mazzagatti formally transferred his shares in a Hong Kong company that owns the remaining 50% of API, called Petrochemicals Industries Ltd., also known as PIL.

The buyer of the sale was a United Arab Emirates company called Sonic Investment Ltd., which is owned by a friend of Mazzaghati’s who lives in Dubai. According to API, Mazzagatti tried to transfer the shares to Sonic a few months ago for “nominal considerations.”

“It can therefore be inferred that PIL remains controlled by and ultimately benefits Mr. Mazzagatti,” API said in the lawsuit.

Najla Baccouche, a friend of Mazzagatti’s, said she and her husband were involved in commodities trading and had been trying to acquire PIL and Mehr before the sanctions. She said in an email to Bloomberg that she was unable to pay Mazzagatti because she “did not receive the profits from the API.”

“None of us expected it to escalate to the level it did, causing problems for everyone involved,” Bakush said.

More stories like this can be found at Bloomberg.com