On April 25, 2023, the US Department of Justice and the Office of Foreign Assets Control of the US Department of the Treasury announced the settlement of charges against British American Tobacco (“BAT”) and its subsidiary BAT Marketing Singapore (“BATMS”).
BAT, based in London, is one of the world’s largest manufacturers of tobacco products. The DOJ claims that BAT and BATMS engaged in an elaborate scheme to circumvent US sanctions on the Democratic People’s Republic of Korea (“DPRK”). According to court documents, BAT used a third party company, Joint Venture Tobacco Factory, to continue tobacco sales to North Korea between 2007 and 2017 after publically stating that it would no longer be involved in North Korea business. Sales to North Korean entities through the third party resulted in over $400 million in sales, which were processed through front companies to conceal the connection to the DPRK.
BATMS pleaded guilty to an information charging it and BAT with conspiracy to commit bank fraud in violation of 18 USC §§ 1344, 1349, and conspiracy to violate the International Emergency Economic Powers Act (“IEEPA:), 50 USC § 1705. BAT entered into a deferred prosecution agreement to resolve the charges. Their alleged co-conspirators, Sim Hyon-Sop, Jin Guanghua, Qin Guoming, and Han Linlin, have been charged with one count of conspiracy to commit bank fraud, conspiracy to violate IEEPA, conspiracy to launder monetary instruments, four counts of violation of IEEPA, and five counts of laundering monetary instruments.
According to the indictment, the DPRK uses income from the production and trafficking of counterfeit cigarettes to fund the development and production of weapons of mass destruction; tobacco-related transactions constitute one of the country’s largest single sources of hard currency revenue, as documented by the US Department of State. The co-conspirators repeatedly reincorporated the companies they controlled in order to avoid bank scrutiny, registering the front companies in the United Kingdom, China, the United Arab Emirates, and causing banking institutions unknowingly to process US dollar transactions on behalf of DPRK entities.
The DOJ agreed to enter into the three-year Deferred Prosecution Agreement in light of BAT’s willingness to acknowledge and accept responsibility for its acts, the company’s lack of criminal history, its provision of valuable information to advance the DOJ’s investigation, and BAT’s agreement to continue cooperating with US authorities. Pursuant to the DPA, BAT undertakes to continue cooperating fully, to pay penalties and fines in the amount of $440,350,738 and criminal forfeiture of for the IEEPA offenses of $189,541,115 – a total of $629,891,853, which represents the largest total monetary penalty, fine and forfeiture amount ever paid for DPRK sanctions violations.
In addition, the DPA, which may be extended for one year, requires AT to implement a compliance and ethics program designed to prevent and detect Bank Secrecy Act and sanctions violations, and to comply with general sanctions and anti-money laundering measures such as continuing to apply the OFAC sanctions list to US dollar transactions, use of the SWIFT (Society for Worldwide Interbank Financial Telecommunications) system for bank transfers and maintenance of a database of SWIFT messages. The company is also required to submit annual reports on its bank fraud and US sanctions compliance program.
In a parallel measure, OFAC published a web notice and settlement detailing its resolution of BAT’s potential civil liability for apparent violations of the North Korea Sanctions Regulations and the Weapons of Mass Destruction Proliferators Sanctions Regulations. According to OFAC, the apparent weapons of mass destruction violations are based on BAT’s remission of approximately $250 million from a North Korean joint venture to the company’s Singaporean subsidiary, BATMS, through bank accounts ultimately controlled by sanctioned North Korean banks, using the US financial system to clear the transactions. The apparent violations of the North Korea Sanctions Regulations involve the use of the US financial system by BAT’s subsidiary to receive payments for North Korean tobacco exports.
In determining the appropriate penalty, OFAC took into account BAT’s failure to voluntarily self-disclose the apparent violations and the egregious nature of the conduct, along with aggravating factors such as the company’s willful engagement in the conspiracy to transfer hundreds of millions of dollars through US banks despite the interest of sanctioned North Korean banks, concealment of BAT’s involvement in the transactions through the use of an opaque series of front companies and intermediaries, the company’s actual knowledge of the apparent violations, the transactions’ contribution to an important sector in the DPRK economy, and the company’s status as a sophisticated global company. OFAC viewed as mitigating factors BAT’s cooperation in the investigation, and the company’s violation-free record over the preceding five years, but did not reduce the statutory maximum penalty amount, instead imposing the statutory maximum penalty amount, $508,612,492. However, BAT’s obligation to pay OFAC the portion of the settlement arising from its apparent violation of the Weapons of Mass Destruction Proliferators Sanctions Regulations — $503,263,807 – is deemed to be satisfied by the company’s payment of penalties in that amount assessed by the DOJ based on the same conduct. The remainder of OFAC’s penalty, $5,348,685, must be paid to the US Department of the Treasury.