Author: Zulfi Meerza
26 April 2023
2 min read
Tobacco giant British American Tobacco (BAT) recently agreed to pay more than $635 million in resolutions with US authorities for violating sanctions imposed on North Korea.
The cigarette producer announced that it had entered into a three-year deferred prosecution agreement with the Department of Justice (DOJ) and a civil settlement with the Treasury’s Office of Foreign Assets Control (OFAC). BAT’s indirect subsidiary in Singapore has entered into a plea agreement with the DOJ.
The resolutions are the DOJ’s largest criminal sanctions penalty and the largest-ever OFAC settlement with a non-financial institution. The $635 million total to be paid includes a $440 million penalty and a $189 million forfeiture payment to the DOJ, and an additional $5 million to OFAC; which imposed a $508 million civil penalty but credited most of it to the DOJ.
Assistant Attorney General Matthew Olsen said: “The cornerstone of US sanctions on North Korea is that the DPRK’s (Democratic People's Republic of Korea’s) murderous repression at home and relentless pursuit of nuclear capabilities threaten not just its own people, but the entire international community. Allowing funds to illegally flow into the coffers of the DPRK is an unconscionable act.”
OFAC said that BAT’s standing committee, which includes senior executives, had obscured the company’s 60% stake in a joint venture with a North Korean company that allowed it to sell cigarettes in the country. BAT had sold its stake in the joint venture to a Singaporean trading group for one euro and stated that it was no longer involved in North Korean tobacco sales, even though it maintained control of the joint venture through the Singapore group.
OFAC said that more than $250 million was paid to BAT through a “complex, multistep process” involving banks in North Korea, Singapore, China and the US financial system, with the company concealing its misconduct from banks. OFAC added that it applied the statutory maximum civil monetary penalty because of how egregious BAT’s violations were, the company not self-disclosing them voluntarily, senior management’s knowledge of them and the efforts at concealing them through “an opaque series of front companies and intermediaries”.
North Korea is reported to make approximately $1 billion a year from the tobacco industry, with US authorities saying that such funds are used to support its nuclear and missile programmes.
The UK’s Serious Fraud Office dropped a separate corruption investigation into BAT two years ago as it decided that the evidence did not meet the standard for prosecution set out in the Code for Crown Prosecutors. Its investigation had run for four years.
Jack Bowles, BAT’s chief executive at the time of the announcement, said in a statement that the company deeply regrets “the misconduct arising from historical business activities”, and that “significant steps’’ had been taken to address the problems.
This case is a clear illustration of US authorities’ appetite for rooting out and punishing the most egregious sanctions breaches, in line with foreign policy objectives. It is part of a larger DOJ response to the ongoing efforts of North Korea to evade sanctions and use the US financial system to engage in illicit trafficking, with counterfeit cigarettes being a major source of income to the North Korean government.
A valuable lesson coming from this case is that non-US companies must be vigilant as to their supply chains and involvement of their subsidiaries in transactions, due to the wide reach of the US sanctions regime. Non-US companies face potential liability for exporting goods or services from the US in violation of US sanctions or for “causing a violation” by involving a US person in a transaction that would be prohibited for that US person.
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