Oil Trader Faces Lawsuit Over Company Hit by US-Iran Sanctions

Wedoany.com Report-Nov 18,    The energy trader seeking to buy UK gas assets from Shell Plc and Exxon Mobil Corp. was sued over allegations that he diverted money from an Iranian petrochemical company that was later banned from doing business in the US.

Francesco Mazzagatti is accused in a London lawsuit of profiting from an indirect ownership of Mehr Petrochemical Co., an Iranian maker of plastic resin. The US Treasury said last year that Mehr was at the heart 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 Mazzagatti of distributing the Iranian company’s products and secretly retaining his stake even after the company was sanctioned by US authorities last year. 

Mazzagatti denies the allegations and said that he never controlled Mehr, and calls the complaint part of a “vexatious campaign” by Arshiya Jahanpour, a former business partner who he says actually runs API.

“Mr. Mazzagatti is not subject to any inquiry or scrutiny as a result of any dealings with Mehr,” his spokesperson said in an email. The Financial Times reported details of the lawsuit earlier.

Mazzagatti’s Viaro Energy Ltd. is seeking regulatory approval for a set of deals with Shell and Exxon off the Scottish coast that the company said would give it control of about 5% of the UK’s total gas output. The acquisition, if approved, would hand Viaro ownership of the “backbone of the UK’s energy production and security,” the company said when the deal was announced in July.

The Shell and Exxon transactions, which include 11 offshore facilities, are subject to approval from the UK’s North Sea Transition Authority. The NSTA can consider the “fitness” of a licensee as part of that process. Mazzagatti says he has been “regularly communicating” with the regulator.

The London lawsuit focuses on allegations that Mazzagatti effectively ran API, saying he directed the company even after stepping down from the board in September 2020. He “dealt” with Mehr on the basis that he remained CEO of API, the suit says. 

$143 Million

API is suing for $143 million, plus damages, saying that Mazzagatti diverted money from the sale of Mehr products to a separate corporate vehicle he set up in the UAE.

Mazzagatti is accused of misconduct through at least 2021. At a meeting that year, he produced a faked bank document bearing a false account balance, according to the filing. The suit also separately accuses him of profiting from forged signatures.

“Mr. Mazzagatti continued to act as CEO, the board continued to be accustomed to acting at his direction, and the management of the company acted at his direction,” the current directors of API said in the lawsuit.

The two sides disagree about a wide range of issues, including whether Mazzagatti ever served as CEO of API. Mazzagatti says he was simply a board director. 

Mazzagatti’s lawyers said that Jahanpour, a onetime close friend, actually ran the company and that Mazzagatti had always intended to “divest himself of the shareholding in API before the sanctions took effect.”

Milan Case

Mazzagatti separately faces a Milan criminal trial, where he is one of about a half dozen defendants facing charges related to a corruption case that has been dragging on for months. In a narrow part of the case, Mazzagatti is accused of using proceeds from an allegedly fraudulent deal with Eni SpA to buy the stake in API.

Other Italian criminal charges relating to the attempted delivery of oil from Iran were dismissed by a judge. Mazzagatti denies the allegations and Viaro said in July that the company expects the rest of case against him to be dropped.

Mehr was hit with the US restrictions in March 2023, in a move blocking any US dealings with the firm.

According to the Office of Foreign Assets Control, any foreign financial institution that knowingly facilitates transactions with the company could also find itself subject to enforcement action. 

OFAC said Mehr’s products were marketed through a web of companies that generated billions of dollars for the Iranian government. The Mehr network helped Iran’s Persian Gulf Petrochemical Industry Commercial Co. market millions of dollars of high-density polyethylene produced by Mehr to third-party buyers for delivery to Turkey and Asia, according to the regulator.

API used its lawsuit to lay out how Mazzagatti allegedly acquired the Mehr stake and raised questions about whether he tried to conceal it after the US sanctions were imposed.

Mazzagatti says he never intended to keep his stake in API after buying it through a Hong Kong company in July 2018 and that he transferred 50% to a Jahanpour family firm a few months later.

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

The sale went to a company in the United Arab Emirates called Sonic Investment Ltd., which is owned by a friend of Mazzagatti who lives in Dubai. According to API, Mazzagatti had tried to transfer the shares to Sonic months earlier for a “nominal consideration.”

“It is therefore to be inferred that PIL remains under the control and ultimate beneficial ownership of Mr. Mazzagatti,” API said in the lawsuit.

Mazzagatti’s friend, Najla Baccouche, said that she and her husband are involved in commodities trading and had been attempting to acquire PIL and Mehr before the sanctions. In an email to Bloomberg, she said that she hasn’t  been able to pay Mazzagatti because she has “been unable to gain access to API’s profits.” 

“None of us expected the matter to escalate to the degree that it has, creating issues for everyone involved,” Baccouche said.