DOJ: Cigarette companies to pay $635 million for selling to North Korea and alleged bank fraud

Two tobacco companies that are facing criminal charges have agreed to pay U.S. authorities over $635 million in combined penalties after allegedly breaking sanction rules by selling cigarettes to North Korea.

Criminal charges have been brought against British-American Tobacco Marketing Singapore and parent company British American Tobacco, according to the Department of Justice.

Charges included violating North Korean sanctions, conspiracy to commit bank fraud, and conspiracy to violate the International Emergency Economic Powers Act.

About $5 million of the payment was part of a civil settlement with the U.S. Treasury Department, according to the New York Times. The Justice Department obtained the rest, the biggest in the department's history in relation to North Korean sanctions.

The Justice Department said that in 2007, BAT announced in a press statement that it was no longer selling tobacco to North Korea. However, the DOJ also said BAT continued to do business through a third-party company while BATMS controlled all relevant aspects of the operations.

From 2007 to 2017, BAT and BATMS received approximately $418 million through the third-party company in Singapore, which accepted payments from North Korean entities and transferred money to the other companies.

“British American Tobacco and its subsidiary engaged in an elaborate scheme to circumvent U.S. sanctions and sell tobacco products to North Korea, allowing funds to illegally flow into the coffers of the Democratic People’s Republic of Korea (DPRK),” said Assistant Attorney General Matthew G. Olsen of the Justice Department’s National Security Division.

“On behalf of BAT, we deeply regret the misconduct arising from historical business activities that led to these settlements," BAT’s chief executive, Jack Bowles, said in a statement. "[We] acknowledge that we fell short of the highest standards rightly expected of us,” he added.

Authorities stated that approximately $74 million in financial transactions were made through U.S. banking institutions. A total of 310 transactions were procured by a North Korean banker and two Chinese nationals to buy leaf tobacco for North Korean state-owned cigarette manufacturers. This turned a profit of more than $700 million for the manufacturers, according to the DOJ, which stated that one of the companies was owned by the North Korean military.

It is estimated that North Korea has received a return of up to 20 times the investment on smuggled tobacco products, which has helped fund the country's nuclear weapons program.

The U.S. Department of State announced a $5 million reward for information leading to the capture of the North Korean defendant, Sim Hyon-Sop, 39, and $500,000 for the Chinese facilitators, Qin Guoming, 60, and Han Linlin, 41, both of Liaoning Province.

The defendants face a maximum statutory penalty of 30 years in prison for bank fraud if arrested.

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