British Tobacco Company Settles With US Over Alleged Sanctions Breaches
A British cigarette manufacturer agreed to pay American authorities more than $635 million to settle alleged sanctions violations after the U.S. said the company illegally sent tobacco and tobacco products to North Korea. British American Tobacco will pay about $508 million to the Treasury Department’s Office of Foreign Assets Control, the agency's largest fine in more than four years, and pay an additional fine as part of a deferred prosecution agreement with DOJ.
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OFAC said BAT conspired to illegally receive payments from North Korea through U.S. banks in violation of the North Korea Sanctions Regulations and the Weapons of Mass Destruction Proliferators Sanctions Regulations. The company didn’t disclose the violations, OFAC said, calling the case “egregious.”
The alleged violations stemmed from an agreement between BAT’s Singapore subsidiary and North Korea in 2001 to create a joint venture in North Korea that would manufacture and distribute the company’s cigarettes. About six years later, BAT's top London executives agreed to sell its stake in the venture for one euro to a Singapore-based trading group. The sale was to address BAT’s “concerns over its public association with North Korea and difficulty remitting profits out of the country,” OFAC said.
The terms of the divestment, completed in 2007, “purposefully obscured” BAT’s ownership and control over the joint venture, the agency said, and allowed the Singapore company to act "as a vehicle" for BAT to continue earning money from the joint venture.
Between 2009 and 2016, the North Korean company remitted U.S. dollar payments to BAT’s Singapore subsidiary “through a complex, multi-step process,” OFAC said. This involved the North Korean company sending funds from its account with U.S.-sanctioned Foreign Trade Bank (FTB) in North Korea “through various accounts in China that contained the interests of FTB and front companies” for U.S.-sanctioned Korea Kwangson Banking Corporation (KKBC), OFAC said. The process was “meant to reduce the risk of the money being frozen ‘in any leg of the transaction’ process,” OFAC said.
The agency said “multiple” internal memos and emails showed BAT managers in the Asia Pacific knew as early as 2005 that they could be violating sanctions. But BAT and its subsidiaries didn’t stop the conduct, even after both KKBC and FTB were sanctioned by OFAC, the agency said. OFAC said company employees “sought to conceal their apparently violative conduct from banks,” including by letting a wire transfer expire rather than respond to a question from a bank that would have “revealed the payment’s connection to North Korea.”
OFAC said BAT’s conspiracy led to 228 payments totaling more than $250 million. BAT’s Singapore subsidiary also sold cigarettes to the North Korean embassy in Singapore, OFAC said, causing U.S. banks to process 15 transactions worth nearly $30,000 combined.
OFAC fined BAT $508,612,492, the maximum civil monetary penalty the agency could have levied against the company and OFAC’s largest penalty since fining the German, Austrian and Italian branches of UniCredit Group banks more than $611 million in 2019 (see 1904150048). The agency said it settled on the fine because BAT and its subsidiaries “willfully conspired” to transfer hundreds of millions of dollars through U.S. banks and were “aware” that the transfers were blocked by U.S. sanctions.
OFAC also pointed to the fact that BAT tried to hide the transactions and payments “through a complex remittance structure that relied on an opaque series of front companies,” ignored requests for information from banks and asked counterparties to remove mentions of North Korea from documents. Upper management also had “actual knowledge” about the “conspiracy,” OFAC said.
The payments also helped North Korea establish and operate a cigarette manufacturing business, which has “reportedly” netted the country’s government over $1 billion per year, OFAC said. The agency also noted that BAT is a large and sophisticated international company.
Although BAT entered into settlement agreements with U.S. authorities, the company said its Singapore subsidiary entered into a plea agreement with DOJ. The agency also announced charges against North Korean banker Sim Hyon-Sop and Chinese facilitators Qin Guoming and Han Linlin for their roles in helping North Korea secure the tobacco.
Jack Bowles, BAT’s chief executive, said: “we deeply regret the misconduct arising from historical business activities that led to these settlements, and acknowledge that we fell short of the highest standards rightly expected of us.” The company has recently “transformed” its compliance and ethics program, Bowles said, and will make “continued refinements” to its program as part of the settlement.
OFAC said the company cooperated with OFAC’s investigation, including by suspending the statute of limitations and “providing detailed document productions” and “prompt responses” to OFAC requests. Under the OFAC settlement, BAT agreed to “maintain” certain sanctions compliance measures for the next five years, including by ensuring its management promotes a “culture of compliance.” The company must also conduct an OFAC risk assessment, maintain written compliance policies and procedures, conduct internal and external audits, train its staff on compliance procedures and submit an annual compliance certification to OFAC for the next five years.