Zaiwalla & Co challenge $16m blocked as a result of sanctions

A Dubai-based petroleum products trader accused a U.K. broker on Tuesday of wrongly withholding $16.5 million from its cash account due to U.S. sanctions targeting Iran, at the beginning of a London trial.

Beneathco DMCC alleged that R.J. O’Brien Ltd. was trying to avoid paying out funds from an account due to U.S. sanctions on the trader because of its alleged links with the Iranian state. But the broker is not subject to U.S. jurisdiction, Beneathco argued.

The dispute is over whether R.J. O’Brien is prohibited from transferring the funds to Beneathco due to U.S. sanctions and a court order. R.J. O’Brien is indirectly wholly owned by Delaware-based JVMC Holdings Corp.

Beneathco argued that there was no legal barrier to R.J. O’Brien honoring the debt, as it was not subject to U.S. sanctions legislation. Making the payment would not require the involvement of any U.S. individuals or entities, the trader said.

The U.S. OfÔ¨Åce of Foreign Assets Control sanctioned the Dubai-based company in January 2020, following President Donald Trump’s order in August 2018 to reimpose sanctions on Iran, according to court Ô¨Ålings. OFAC sanctioned Beneathco for allegedly transferring millions of dollars to the National Iranian Oil Co. and offering to obscure the origins of Iranian products, R.J. O’Brien said.

Beneathco asked R.J. O’Brien to transfer its cash balance after the U.S. sanctions were imposed, according to the broker. The Dubai company had recently conducted futures trades using its membership with R.J. O’Brien’s U.S. afÔ¨Åliate, the broker added.

Rachel Barnes KC of 3 Raymond Buildings, counsel for Beneathco, said in written arguments that R.J. O’Brien’s indirect ownership by a U.S. company did not mean it was bound by the U.S. sanctions. OFAC apparently believing that this was enough was not necessarily determinative, she added, saying that ”when OFAC has been challenged in court, it has lost on more than one occasion.”

Barnes cited the U.S. Supreme Court’s landmark 6-3 Loper Bright Enterprises v. Raimondo decision in June 2024, which ended a decades-old precedent that required the judiciary to defer to executive agency legal interpretations. That decision meant OFAC might not be able to successfully defend itself if R.J. O’Brien challenged it in a U.S. court, Barnes argued.

Jacob Turner of Fountain Court, also Beneathco’s counsel, said the court should not accept R.J. O’Brien’s argument that allowing the payment would contradict U.K. government foreign policy. The U.S. and the U.K. often use different approaches to Iran despite both viewing the Gulf state as hostile, he said, citing the U.K.‘s non-participation in the U.S. bombing of Iran on June 22 as an example.

”[The U.S. and the U.K.‘s] legal and policy responses are, very often, quite different, and this is especially so in regards to the Middle East,” Turner said.

Maya Lester KC of Brick Court Chambers, counsel for R.J. O’Brien, said her client is not seeking to retain and use Beneathco’s funds for itself, but that its obligation to transfer the money to the trader was temporarily suspended while the sanctions are in place.

”[R.J. O’Brien’s] obligation is not released,” Lester said in written arguments. ”It does not get to ‘keep’ the cash balance for itself. Rather, the payment obligation (if one has arisen) is temporarily suspended.”

Lester added that Beneathco amended its request for the funds in September, asking her client to pay the money to a company called Future Plus Goods Wholesalers LLC. The Dubai-based trader has not explained its connection with Future Plus, and R.J. O’Brien has grounds to suspect that this third party is connected to an individual and a U.A.E.-registered company with a similar name, both of which are also under U.S. sanctions, Lester added.

A company regulated by the Financial Conduct Authority cannot ”pay $16.5 million to anyone; payment can be made only if the payee passes due diligence checks,” Lester said. ”Here, a sanctioned person is directing that payment be made to an unknown third party [that] is not [R.J. O’Brien’s] customer.”

The trial, before Simon Colton KC, sitting as a High Court Judge, continues Wednesday.

Beneathco is represented by Rachel Barnes KC of 3 Raymond Buildings and Jacob Turner of Fountain Court Chambers, instructed by Varun Zaiwalla and Leigh Crestohl of Zaiwalla & Co.

R.J. O’Brien is represented by Maya Lester KC, Fred Hobson KC and Joshua Pemberton of Brick Court Chambers, instructed by Morgan Lewis & Bockius UK LLP.

The case is Beneathco DMCC v. R.J. O’Brien Ltd., case number CL-2024-000328, in the Commercial Court, King’s Bench Division of the High Court of Justice of England and Wales.