British American Tobacco hit with $635 million sanctions fine for selling smokes to North Korea

By Lukas I. Alpert

The deal is the largest of its kind with the tobacco giant admitting it worked through intermediaries to hide its business with the sanctioned country.

Here's one way to burn through money.

British American Tobacco has reached a settlement with the U.S. government to pay over $635 million in fines for selling cigarettes in North Korea, using secret intermediaries to sidestep sanctions, the company and U.S. authorities said.

As part of the agreement, the London-based company -- which is one of the largest tobacco companies in the world -- will pay $508 million to the U.S. Department of the Treasury, in the largest sanctions-busting settlement ever reached with a non-financial institution.

The remaining balance of the fines will be used to satisfy lawsuits brought by the U.S. Department of Justice, the company said..

BAT admitted that from 2009 through 2016 it worked through a third-party cutaway company in Singapore to sell over $400 million in cigarettes and tobacco to North Korea and to accept money from the sanctioned country.

As part of the transactions, a BAT subsidiary exported tobacco through the North Korean embassy in Singapore. In order to process the sales, BAT used unwitting U.S. banks to facilitate the transactions, the Treasury Department said.

"Companies that seek to profit from circumventing sanctions by obscuring their involvement will be discovered and will pay a price," said Brian Nelson, of the Treasury Department. "For years, BAT partnered with North Korea to establish and operate a cigarette manufacturing business and relied on financial facilitators linked to North Korea's weapons of mass destruction proliferation network in the process of enriching itself."

The U.S. has imposed financial sanctions on North Korea for years in an attempt to deter the country from developing nuclear weapons. Trafficking in tobacco products generates revenue that is crucial for North Korea's program that is developing weapons of mass destruction, federal prosecutors said.

In a statement, BAT said it had ceased the business deals in 2017 and had moved to revamp its compliance programs.

"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," said Jack Bowles, the company's chief executive.

The framework of the arrangement dated back to 2001, when BAT formed a joint venture with a North Korean tobacco company to sell cigarettes in the country. In 2007, BAT announced it was selling its stake in the venture to a Singaporean company, but continued to maintain control over the business and to profit from it, authorities said.

-Lukas I. Alpert

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04-25-23 1643ET

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