British American Tobacco has agreed to pay a $635mn penalty to US authorities after a subsidiary on Tuesday pleaded guilty to charges that it violated US sanctions on North Korea, in the largest settlement of its kind.
The sanctions breaches relate to business activities in North Korea between 2007 and 2017, the British tobacco group said on Tuesday.
The deferred prosecution agreement was struck between BAT, the world’s second-largest tobacco group, and the US Department of Justice.
“This is the single largest North Korean sanctions penalty in the history of the Department of Justice and the latest warning to companies everywhere about the costs and the consequences of violating US sanctions,” said Matthew Olsen, assistant attorney-general for the DoJ’s national security division.
The agreement and plea address charges linked to bank fraud and violation of US sanctions targeting North Korea, the DoJ said on Tuesday.
The penalties include a $508mn civil settlement agreement with the US Office of Foreign Assets Control, which enforces US sanctions, the largest settlement Ofac has arranged with a non-financial institution. An indirect Singaporean BAT subsidiary entered into a plea agreement with the DoJ.
BAT and its subsidiary “engaged in an elaborate scheme” to sidestep US sanctions and sell tobacco products to North Korea via a “corporate cut-out” in Singapore, Olsen said.
Jack Bowles, BAT’s chief executive, said: “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.”
Bowles said BAT had “transformed” its compliance and ethics programme, which oversees sanctions and anti-money laundering processes, in recent years. The company had already set aside $540mn to pay the fine, according to company filings.
The US has a wide-ranging sanctions regime targeted at North Korea over its nuclear and ballistic missile programme. Last year, the US led a push on the UN Security Council to ban exports of tobacco products as well as crude oil and fuel exports to North Korea, but the move was vetoed by Russia and China.
Owen Bennett, an analyst at Jefferies, said the announcement was positive. “Following the UK’s Serious Fraud Office closing a corruption case in 2021, today’s resolution now means all major sanctions and corruption cases are out of the way” for the company, with the exception of a case in Nigeria for which BAT has set aside £79mn.
BAT’s deal with US authorities comes as the DoJ has taken a tougher stance on corporate malfeasance. It has heightened scrutiny of companies’ conduct after they enter deferred prosecution agreements, which postpone criminal charges for a set period of time to give businesses a chance to show they could rectify the wrongdoing, often in exchange for a financial penalty.
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