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British American Tobacco reaches record $629m settlement with U.S. over sales to North Korea

Christian Fernsby |
British American Tobacco (BAT) has agreed to pay $629 million in fines for selling cigarette materials to North Korea for years in violation of US sanctions, the US Justice Department announced.

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British American Tobacco (BAT) and its subsidiary, BAT Marketing Singapore (BATMS) has agreed to pay combined penalties of more than $629 million to resolve bank fraud and sanctions violations charges with U.S. authorities, arising out of the companies’ scheme to do business in North Korea through a third-party company in Singapore, in violation of the bank fraud statute and the International Emergency Economic Powers Act (IEEPA).

Separately, charges were unsealed in the District of Columbia against a North Korean banker and Chinese facilitators for their roles in facilitating the illicit sale of tobacco products in North Korea.

According to court documents, BATMS pleaded guilty to a criminal information filed in the District of Columbia charging BAT and BATMS with conspiracy to commit bank fraud and conspiracy to violate IEEPA. BAT entered into a deferred prosecution agreement (DPA) related to the same charges.

Specifically, in 2007, BAT spun off its North Korea sales to a third-party company, issuing a press statement that it was no longer involved in North Korea tobacco sales.

In reality, BAT continued to do business in North Korea through the third-party company and BATMS maintained control over all relevant aspects of the North Korean business.

Between 2007 and 2017, BAT and BATMS ran the payments for the tobacco sold to North Korean entities through the third-party company, resulting in approximately $418 million of U.S. dollar cash and correspondent banking transactions from North Korea to the third-party company in Singapore – money that was then passed on to BATMS and BAT.

To make these payments, North Korean purchasers used front companies so that U.S. banks – which processed the transactions – would not know about the connection to North Korea.

Pursuant to the DPA and plea agreement, BAT and BATMS will pay a total of $629 million in penalties and fines.

Separately, a federal court in the District of Columbia unsealed charges against a North Korean banker, Sim Hyon-Sop, 39, and Chinese facilitators, Qin Guoming, 60, and Han Linlin, 41, both of Liaoning Province, in connection with a multi-year scheme to facilitate the sale of tobacco to North Korea.

According to court documents, between 2009 and 2019, the defendants engaged in a scheme to purchase leaf tobacco for North Korean state-owned cigarette manufacturers and used front companies and false documentation to cause U.S. financial institutions to process at least 310 transactions worth approximately $74 million that they otherwise would have frozen, blocked, investigated or declined, had they known the transactions were connected to trade with North Korea.

The transactions resulted in an estimated up to nearly $700 million in revenue for the North Korean manufacturers, one of which was owned by the North Korean military.

As alleged in the indictment, cigarette trafficking, including in counterfeit cigarettes, generates significant revenue for advancing North Korea’s Weapons of Mass Destruction (WMD) programs, including its nuclear weapons, which North Korea has been developing since at least 2006.

Counterfeit cigarettes are a major source of income to the North Korean regime, as smuggled tobacco products are estimated to garner revenue of up to $20 on every $1 spent in cost.

In conjunction with this announcement, the U.S. Department of State is announcing a reward of $5 million for defendant Sim, and a reward of $500,000 for defendants Qin and Han, for information leading to the capture of these three charged defendants.

On April 24, the Department of the Treasury designated defendant Sim as a Specially Designated National, preventing him from accessing the U.S. banking system.

If convicted, the defendants face a maximum statutory penalty of 30 years in prison for bank fraud. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

The FBI Phoenix Field Office handled both investigations, and HSI Colorado partnered in the investigation on the individuals. The Justice Department’s Office of International Affairs provided valuable assistance.

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