British American Tobacco 2023 fine the largest fine against a non-financial institution in OFAC’s history

BAT’s subsidiary in Singapore was required to plead guilty to a conspiracy of criminal sanctions, and BAT’s parent company entered into a three-year deferred prosecution agreement (“DPA”). BAT paid a penalty of $629 million.

• https://www.justice.gov/opa/pr/united-states-obtains-629-million-settlement-british-american-tobacco-resolve-illegal-sales

KEY DETAILS

1. In 2023, British American Tobacco (BAT) faced a significant legal and financial penalty.
2. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Justice (DOJ) imposed a combined penalty of $629 million on BAT and its Singaporean subsidiary, British American Tobacco Marketing Singapore (BATMS), for violations related to U.S. sanctions against North Korea
3. The case involved BAT and BATMS engaging in a scheme to sell tobacco products to North Korea through a third-party company in Singapore, circumventing U.S. sanctions.
4. This scheme allowed approximately $418 million to flow from North Korea to BAT and BATMS between 2007 and 2017
5. BATMS pleaded guilty to conspiracy charges, while BAT entered into a three-year deferred prosecution agreement (DPA)
6. This penalty is notable for being the largest ever imposed by OFAC against a non-financial institution⁴. The case underscores the serious consequences of violating U.S. sanctions and the lengths to which companies might go to obscure their involvement in such activities.

MORE DETAILS

OFAC SAYS

• Counterfeit cigarettes are a substantial source of income for the North Korean regime since smuggled tobacco products generate revenue of up to $20 for every $1 spent in cost.

DOJ and the Office of Foreign Assets Control (“OFAC”) announced.

• A joint settlement with British American Tobacco and its Asian marketing subsidiary (“BAT”).  

The settlements arose from

• BAT’s conduct starting in 2007, When BAT spun off its North Korean sales business to a third-party company, it claimed that it was no longer involved in North Korean tobacco sales. 
• In reality, however, BAT continued to conduct business in North Korea through the third-party company, and BAT’s subsidiary maintained control over all relevant aspects of the North Korean business.
• Between 2007 and 2017, BAT processed payments for tobacco sold to North Korean entities through a third-party company, totalling $418 million in U.S. dollars. 
• To make the payments to BAT, North Korean purchasers used front companies so that U.S. banks would not know about the connection to North Korea.
• U.S. financial institutions processed at least 310 transactions worth approximately $74 million, which resulted in an estimated $700 million in revenue for the North Korean manufacturers, one of which was owned by the North Korean military.

OFAC also cited 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. 
• BAT’s upper management has “actual knowledge” about the “conspiracy.”

Under the settlement, BAT agreed to pay combined penalties of $629 million stemming from its scheme to conduct business in North Korea through a third party in Singapore.

• BAT’s Singapore subsidiary pleaded guilty to a one-count Information charge, which charged BAT and its subsidiary with conspiracy to commit bank fraud and violate sanctions. 
• BAT entered into a deferred prosecution agreement (“DPA”).
• OFAC announced a separate civil settlement with BAT under which BAT will pay a civil penalty of $508 million, the largest fine against a non-financial institution in OFAC’s history.
• OFAC cited that BAT and its subsidiary “wilfully conspired” to transfer hundreds of millions of dollars through U.S. banks and were “aware” that U.S. sanctions blocked the transfers. 
• BAT did not voluntarily disclose the conduct, and OFAC characterised BAT’s violations as “egregious.”

OFAC SAYS

• BAT cooperated with the investigation by suspending the statute of limitations, providing detailed document productions and prompt responses to OFAC requests.
• Under the OFAC settlement, BAT agreed to maintain sanctions compliance measures for five years, ensuring its management promotes a “culture of compliance.” 
• BAT must also conduct an OFAC risk assessment, maintain written compliance policies and procedures, conduct internal and external audits, train its staff and submit an annual compliance certification.

Close

• In another action, the DOJ unsealed criminal charges against a North Korean banker and Chinese facilitators, both from the Liaoning Province, for their roles in the illicit sale of tobacco products in North Korea.

• Sim et al. indictment [PDF, 1 MB] https://www.justice.gov/opa/press-release/file/1581541/dl
• Han wanted poster [PDF, 233 KB] https://www.justice.gov/opa/press-release/file/1581546/dl
• Qin wanted poster [PDF, 267 KB] https://www.justice.gov/opa/press-release/file/1581551/dl
• Sim wanted poster [PDF, 227 KB] https://www.justice.gov/opa/press-release/file/1581556/dl

Source

1. https://www.justice.gov/opa/pr/united-states-obtains-629-million-settlement-british-american-tobacco-resolve-illegal-sales
2. Treasury Announces $508 Million Settlement with British American .... https://home.treasury.gov/news/press-releases/jy1441.
3. United States Obtains $629 Million Settlement with British American .... https://www.justice.gov/opa/pr/united-states-obtains-629-million-settlement-british-american-tobacco-resolve-illegal-sales.
4. British American Tobacco's Shift to Smokeless: Progress Made, but Cigarette Declines Persist. https://www.msn.com/en-us/money/markets/british-american-tobaccos-shift-to-smokeless-progress-made-but-cigarette-declines-persist/ar-AA1qRcWj.
5. British American Tobacco Options Trading: A Deep Dive into Market Sentiment. https://www.benzinga.com/insights/options/24/09/40909050/british-american-tobacco-options-trading-a-deep-dive-into-market-sentiment.
6. British American Tobacco stock: hard to resist this 9.5% compounder. https://www.msn.com/en-us/money/topstocks/british-american-tobacco-stock-hard-to-resist-this-9-5-compounder/ar-AA1qHlp5.
7. DOJ and OFAC Reach Historic Resolutions With British American Tobacco .... https://www.paulweiss.com/practices/litigation/economic-sanctions-aml/publications/doj-and-ofac-reach-historic-resolutions-with-british-american-tobacco-for-north-korea-sanctions-violations?id=46871