Reports alleging that fuel tankers appeared to breach U.S. sanctions against Iran were cited in court filings by a bank as it sought to seize the ships, accusing the owners of loan default.

The accusations, which led to the temporary arrest of the vessels in Singapore late last month, come as the U.S. seeks to isolate the regime in Tehran by cutting off oil sales, a major source of revenue. They also underscore how traders and shippers suspected of violating sanctions can run foul of their own lenders, not just governments.

Hanover-based Norddeutsche Landesbank-Girozentrale, known as NordLB, detailed its claim in documents filed last month in the High Court of Singapore seeking the arrest of the vessels, accusing their China-based owner of defaulting on a $30 million mortgage agreement.

The German lender said in the filings it was notified June 25 by the London P&I Club, a shipowners’ association that provides protection and indemnity insurance, that coverage on the ships would be terminated. That came one day before Lloyd’s List, an industry news publication, reported that two of the ships — Gas Infinity and Gas Dignity — appeared to have transported Iranian liquefied petroleum gas in breach of U.S. sanctions, the bank said.

Transponders Off

NordLB said it believes London P&I terminated coverage after being contacted by Lloyd’s to comment for the article. The London P&I club confirmed that it no longer insures Gas Infinity, but declined to comment further.

The tankers, along with Sea Dragon, were used as collateral for a $30 million loan NordLB made in July 2018 to Silvana Limited, Sea Dragon Group, and Sea Dolphin Co., with China’s Kunlun Holding Co. and Kunlun Shipping as guarantors, according to the affidavit. The companies have offices in Shanghai and Hong Kong.

Gas Infinity and Gas Dignity turned off their transponders, which usually publicly broadcast their locations, when approaching the Strait of Hormuz and then turned them on again several days later when they were laden with fuel, the bank said in the affidavit, citing Lloyd’s article. The bank also cited a Bloomberg article describing similar activity by another LPG tanker owned by Kunlun Trading Co., a shareholder of the borrower.

Sheriff’s Arrest

While the bank only cited media reports for its suspicions the ships broke sanctions, it described the actions, as well as losing satisfactory insurance coverage, as “events of default” on the mortgage.

Gas Infinity was placed under sheriff’s arrest in Singapore on July 22 and Sea Dragon on July 24, according to information from the Supreme Court of Singapore. Both ships have since been released. Gas Infinity is currently signaling China as its next destination while Sea Dragon is anchored off the south of India and indicating U.A.E.’s Khor Fakkan as its next destination, Bloomberg ship-tracking data show.

A woman who answered the phone at Kunlun Holding’s office Friday declined to comment and an email to Hong Kong-based Kunlun Shipping Co. went unanswered. Nobody responded to emails and phone calls to people associated with the Chinese companies whose contact information was included in court exhibits. NordLB declined to comment on the case.

In the court documents, NordLB said that the owners denied Gas Dignity had been in Iranian waters. But, it added, their response included location data missing days that corresponded to the time when Lloyd’s reported the transponder was turned off.

The bank also said that the copies of logbooks provided by the owners to show Gas Infinity was undergoing sea trials were mostly illegible and didn’t identify the name of the ship, according to the documents.

The two ships that were detained in Singapore under sheriff’s arrest, Gas Infinity and Sea Dragon, have both since sailed. Allen & Gledhill, representing NordLB, called for the release of the tankers in Singapore’s high court on July 29. The attorneys didn’t respond to an email seeking comment on the issue.