Executive Summary
This case concerns a dispute arising from an escrow agreement related to the sale of an oil tanker, MT KIBAZ, between Virgo Marine (Dubai) and Kibaz Shipping LP (Marshall Islands), with Reed Smith LLP (RSUK) acting as escrow holder and Barclays Bank as the third-party bank. Virgo was designated under US OFAC sanctions (EO 13846) in September 2022, leading RSUK to instruct Barclays to block escrow funds. Subsequent disputes focus on RSUK’s liability for withholding payment of the balance due to sanctions compliance concerns and Barclays’ refusal to release funds, implicating complex contractual, regulatory, and sanctions compliance issues.
Sanctions Highlights
- Virgo Marine was designated by the US OFAC under Executive Order 13846 on 29 September 2022.
- RSUK initially considered itself a “US person” under EO 13846, justifying the blocking of funds.
- Barclays refused to release escrow funds citing risk of violating US sanctions.
- RSUK later retracted its “US person” status but Barclays maintained refusal to release funds.
- The escrow agreement limits RSUK’s liability except for gross negligence or fraud; indemnity clauses protect RSUK from losses except for those caused by gross negligence.
- Barclays’ Customer Agreement explicitly prohibits payments that may breach sanctions or damage reputation.
Emerging Risks
- Potential liability for RSUK if courts find breach of fiduciary or contractual duties despite sanctions compliance.
- Risk of protracted arbitration over entitlement to escrow funds, especially the Deposit.
- Ongoing uncertainty in cross-jurisdictional enforcement of sanctions impacting escrow and trust accounts.
- Banks’ cautious approach to sanctions compliance may delay or block legitimate transactions, increasing litigation risk.
- Possible reputational damage to RSUK and Barclays linked to sanctions enforcement actions.
Geopolitical Impact
- US sanctions enforcement extraterritorially affects entities registered in Dubai and Marshall Islands.
- UK courts and banks are caught between English law obligations and US sanctions compliance.
- The case highlights tensions between US sanctions policy and EU/UK financial institutions’ operations.
- Broader implications for transactions involving entities connected to sanctioned countries such as UAE, Marshall Islands, and indirectly Venezuela and Libya.
- Reflects ongoing geopolitical friction involving US sanctions on Iran, Venezuela, and related jurisdictions.
Economic Intelligence
- The frozen escrow funds total approximately USD 11.35 million (Balance) plus USD 1.965 million (Deposit).
- The dispute delays the sale and transfer of a significant maritime asset (oil tanker).
- Financial institutions face increased compliance costs and operational risks in handling escrow accounts linked to sanctioned parties.
- Potential impact on maritime trade financing and insurance markets due to sanctions-related transaction freezes.
- Litigation and arbitration costs add financial burdens on all parties involved.
Strategic Recommendations
- Parties should seek expedited arbitration or court rulings to clarify entitlement and reduce funds’ immobilization.
- RSUK and Barclays must enhance sanctions compliance frameworks with clear protocols for escrow accounts.
- Legal counsel should closely monitor evolving US OFAC designations and related sanctions regimes.
- Consider engaging with OFAC for licenses or clarifications to unblock funds lawfully.
- Financial institutions should develop risk mitigation strategies balancing sanctions compliance and contractual obligations.
- Litigants should prepare for cross-jurisdictional enforcement challenges and reputational risk management.
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**Source Notes:**
Sanctions Intelligence Digest, [https://empyreanprotocol.com/litigation/view/www.bailii.org/ew/cases/EWHC/Comm/2025/1157.txt](https://empyreanprotocol.com/litigation/view/www.bailii.org/ew/cases/EWHC/Comm/2025/1157.txt)