Tobacco Giant to Pay $629 Million to Settle Charges it Violated US Sanctions on North Korea
The hefty penalty is part of a “deferred prosecution agreement” that the company has reached with the U.S. Justice Department, officials announced on Tuesday.
At the same time, a Singapore-based subsidiary of BAT pleaded guilty to charges of conspiracy to commit bank fraud and conspiracy to violate U.S. sanctions.
The settlement caps a long-running U.S. investigation into BAT’s alleged violations of U.S. sanctions on North Korea.
In 2007, the company spun off its North Korea sales to a third-party company, announcing that it was no longer doing business in the country.
But in reality, BAT continued to do business in North Korea through the third-party company that was controlled by its Singapore subsidiary, according to court documents.
Over the 10-year period, BAT and its subsidiary sold nearly $428 million worth of tobacco products to North Korea.
To pay BAT, North Korean purchasers allegedly used front companies to hide the transactions from U.S. financial institutions.
A 'warning to companies'
Matthew Olsen, assistant attorney general for national security, said the nearly $630 million BAT has agreed to pay is the largest penalty ever imposed by the Justice Department in connection with U.S. sanctions on North Korea.
“And the latest warning to companies everywhere about the cost and the consequences of violating U.S. sanctions,” he said.
“Holding corporate wrongdoers who violate U.S. sanctions accountable is an important priority for the Justice Department,” Olsen said at a news conference.
In a statement, BAT chief executive Jack Bowles expressed regret for the “misconduct,” adding that “we fell short of the highest standards rightly expected of us.”
BAT said it had stopped all business activities related to North Korea in 2017.
Three accused in tobacco scheme
Separately, the Justice Department unsealed charges against North Korean banker Sim Hyon-Sop, 39, and Chinese nationals Qin Guoming, 60, and Han Linlin, 41, in connection with an illegal effort to facilitate the sale of tobacco to North Korea.
The three men are accused of engaging in a scheme, from 2009 to 2019, to buy $74 million worth of leaf tobacco for North Korean state-owned cigarette manufacturers and using front companies to hide North Korea’s involvement from the U.S. banks that processed the transactions.
The banks would have frozen, blocked, investigated or declined to process the transactions had they known they were connected to trade with North Korea, the Justice Department said.
The tobacco purchases resulted in nearly $700 million in revenue for the North Korean manufacturers, one of which was owned by the country’s military.
U.S. prosecutors say cigarette trafficking is a significant source of revenue for the North Korean government and helps fund its nuclear weapons program.
Every $1 North Korea spends on smuggled tobacco products generates revenue of up to $20, prosecutors say.
The U.S. State Department announced a reward of $5 million for information leading to the arrest of Sim, and a reward of $500,000 for Qin and Han.
The charges against the three men are unrelated to BAT’s violation of U.S. sanctions.