Lawyers for the UK company appeared on Tuesday in Washington federal court, where the US Department of Justice agreed to defer prosecution of BAT in exchange for promised reforms. A Singapore subsidiary of BAT also pleaded guilty to charges of conspiracy to commit bank fraud and conspiracy to violate sanctions. 

The BAT prosecution is part of a US effort to crack down on North Korea’s trafficking in tobacco products and counterfeit cigarettes to generate revenue for its weapons of mass destruction programmes. 

“The profits from this scheme are staggering,” Matthew Graves, the US attorney for the District of Columbia, said in a news conference. “A substantial portion of them are believed to flow back to the North Korean government and its military.”

BAT also reached a civil agreement with the US Treasury Department’s Office of Foreign Asset Control over its business activities in North Korea from 2007 to 2017, the company said in a statement.

“We deeply regret the misconduct arising from historical business activities that led to these settlements,” Jack Bowles, BAT’s chief executive said in a statement. 

Company guidance

BAT said it took a £450-million (R10,22-billion) provision related to the matter in its half-year report in July. The maker of Lucky Strike cigarettes said on Tuesday its full-year guidance is unaffected by the penalty.

US authorities also announced an indictment of a North Korean banker, Sim Hyon-Sop, 50, and Chinese facilitators Qin Guoming, 60, and Han Linlin, 41, both of Liaoning Province. Prosecutors say their case is separate from the BAT charges, but involve a similar multi-year scheme to sell tobacco to North Korea.

The State Department offered a $5-million reward for information leading to the capture of Sim and $500,000 for help in apprehending the two Chinese men. 

As part of its agreement, the Justice Department charged BAT with conspiracy to commit bank fraud and conspiracy to violate the International Emergency Economic Powers Act. But the US will defer prosecution and dismiss the case in three years if the company continues to improve its compliance program. 

Court filings detail a decade-long effort by the BAT unit to evade sanctions because it was aware that US banks would not process correspondent banking transactions on behalf of customers in North Korea. 

Cigarette sales

The conduct involved the North Korean Tobacco Company, which established a joint venture factory in 2001 to manufacture BAT cigarettes for sale in North Korea, according to the filings. In 2007, BAT’s unit announced the sale of its share of the factory to a company in Singapore, but the BAT unit “maintained control of all relevant aspects of the North Korean business”, according to the filings. 

In its deferred-prosecution agreement, BAT admitted that its Singapore unit structured its transactions with the factory “to obfuscate” sales to North Korea, and so caused US banks to process correspondent dollar transactions to help the company.

BAT and its subsidiary designed the scheme “to make it appear that they had divorced themselves from North Korean sales”, the company admitted in a statement of facts. 

No BAT executives were charged. 

The Financial Times reported in 2010 that North Korea generated currency by re-exporting cigarettes manufactured by BAT, and the company said at the time it had halted exports to North Korea. BM/DM