British American Tobacco (BAT) will pay more than $635 million to resolve claims that the business broke U.S. sanctions against North Korea by importing tobacco products into the country over the course of several years.
According to the Office of Foreign Assets Control (OFAC) and Department of Justice (DOJ) of the Treasury Department, BAT participated in a scheme to export tobacco goods to North Korea through a Singapore-based subsidiary. In order to avoid being associated publicly with North Korea, the company withdrew from a joint venture between its Singapore subsidiary and a North Korean company in 2007. This move "purposefully obscured" the company's continued effective ownership and control over the venture, according to OFAC's enforcement release from Tuesday.
According to OFAC's settlement agreement, payments to BAT were sent through Chinese accounts, shell businesses, two North Korean banks that are sanctioned by the United States, BAT's Singapore-based subsidiary, and the North Korean embassy in Singapore.
According to a news statement from the DOJ, the scheme diverted over $415 million in transactions from North Korea to BAT in US dollars. According to OFAC, the transactions helped North Korea "establish and operate" a cigarette manufacturing company that brings in more than $1 billion annually for the government. This revenue is used to fund the nation's nuclear and missile development as well as the weapons proliferation.
A subsidiary of BAT in Singapore entered a guilty plea to conspiring to commit bank fraud and to break the International Emergency Economic Powers Act. BAT and the DOJ came to a deferred prosecution deal on the charges.
The DOJ also made public accusations against Chinese facilitators Qin Guoming and Han Linlin as well as North Korean banker Sim Hyon-Sop that were filed in the U.S. District Court for the District of Columbia. The agency reported that all three men are at large.
According to the regulator, BAT cooperated with OFAC's investigation by agreeing to extend the statute of limitations on some of the accusations, providing thorough documentation upon request from investigators, and responding quickly to information requests.
BAT's behavior was labeled "egregious" by OFAC, who also observed that it was not revealed voluntarily.
In the course of reaching a deal with the DOJ, the business agreed to pay fines totaling more than $629 million. The DOJ payment was taken into account to have fulfilled an OFAC fine of more than $503 million. BAT and OFAC separately agreed to pay a total of $5.3 million to cover the transactions made through the North Korean embassy in Singapore.
According to the DOJ's National Security Division, this is the largest fine in the division's history.
Management at BAT "“had actual knowledge regarding the apparent conspiracy from its inception through its termination," according to OFAC. This claimed knowledge allegedly included the standing committee, which approved the joint venture's divestiture.
According to OFAC, the scam encompassed 243 transactions handled by over a dozen U.S. financial institutions between 2009 and 2016. BAT asked counterparties to delete all references to North Korea from transactional documentation in order to hide the fact that the country was participating in the payments. BAT ignored information requests and would let questioned wire transfers expire when some of the scheme's transactions were questioned or halted by the banks, OFAC claimed.
The regulator stated, "As this matter demonstrates, creating the illusion of distance between a firm and apparently violative conduct does not shield that firm from liability. … Even though the parent company and subsidiary did not deal directly with the two sanctioned banks, they exposed themselves to civil liability for sanctions violations when they formed and executed the broader scheme to use the U.S. financial system in furtherance of North Korea-related business."
"This matter further demonstrates that, without a culture of compliance driven by senior management and attendant policies and controls, firms increase the risk that they may engage in apparently violative conduct. Senior management decisions to approve or otherwise support arrangements that obscure dealings with sanctioned countries and parties can be reflected throughout an organization, compounding sanctions risks and increasing the likelihood of committing potential violations."
BAT said in July that it had set aside 450 million pounds ($558 million) to pay claims that it had broken U.S. sanctions.
"On behalf of BAT, 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," stated Jack Bowles, BAT's chief executive, in a press release. In recent years, the company, according to Bowles, "transformed" its ethics and compliance program.
By fLEXI tEAM