Chinese energy company HY Energy Group Co. has filed lawsuits against JPMorgan Chase and Citigroup over frozen payments intended for a Chinese entity that fell under U.S. sanctions, according to Bloomberg.
HY Energy filed suit against Citibank in a Shanghai court in February, alleging the bank failed to complete a $27 million transfer initiated in July 2023 to China Oil and Petroleum Company Limited. Citibank reportedly informed HY Energy in May 2024 that the funds had been released to the U.S. Treasury’s Office of Foreign Assets Control.
Sanctions Entanglement
China Oil and Petroleum Company Limited has been designated on OFAC’s Specially Designated Nationals list under programs tied to the Islamic Revolutionary Guard Corps and Iran sanctions. The company is linked to the IRGC-Qods Force, making any transaction involving it subject to U.S. blocking requirements.
The case illustrates how companies conducting routine cross-border payments through the dollar-based financial system can find themselves caught when counterparties are subsequently sanctioned by the United States.
Broader US-China Sanctions Standoff
The lawsuit arrives at a moment of escalating tensions between Washington and Beijing over sanctions enforcement. In late April, OFAC sanctioned Hengli Petrochemical (Dalian) Refinery Co. and targeted dozens of vessels carrying Iranian oil as part of “Operation Economic Fury”. Days later, Beijing issued an unprecedented order directing Chinese companies to ignore U.S. sanctions on five domestic refiners linked to the Iranian oil trade — the first time China has deployed its 2021 blocking statute.
OFAC on April 28 issued an advisory warning financial institutions of sanctions risks tied to China’s independent “teapot” refineries in Shandong Province, urging enhanced due diligence and threatening secondary sanctions against foreign banks that facilitate such transactions.
Banks in the Crossfire
The HY Energy lawsuits underscore the impossible position facing global banks operating across both jurisdictions. Under U.S. law, banks must block transactions involving sanctioned entities or face severe penalties. Under China’s new blocking order, compliance with those same U.S. restrictions could expose firms to liability in Chinese courts.
With a summit between President Donald Trump and Chinese President Xi Jinping expected later this month, the sanctions dispute — and the legal battles it is generating — remains unresolved.
