British American Tobacco agreed to pay US authorities $635 million (£512million) for alleged sanctions violations in North Korea dating back over a decade.
The settlement between BAT and the Department of Justice, Office of Foreign Assets Control (a financial intelligence and enforcement organization that is part of US Treasury), relates to BAT’s business activities in North Korea from 2007 until 2017.
The FTSE 100 company based in London, which makes Lucky Strike and Dunhill cigarette brands, has signed a deferred prosecutor agreement with the DOJ as well as a civil settlement with OFAC. BAT’s Singapore subsidiary has also entered into a plea agreement with the DOJ. As part of the deal, a district court hearing in Washington DC was held.
OFAC announced last night that its investigation had found BAT engaged in a conspiracy involving the transfer of more than $250,000,000 in profits from a joint venture with North Korea through US financial institutions, relying on designated North Korean bank and a variety intermediaries.
BAT’s Singaporean subsidiaries exported tobacco to North Korean Embassy in Singapore from 2013 to 2017, utilizing “unwittingly” US banks for receiving or processing these payments.
Brian Nelson, the Treasury’s undersecretary for terrorism and financial information, stated: “BAT has partnered with North Korea over the years to operate a cigarette production business, and it relied on financial intermediaries linked to North Korea’s weapons of massive destruction proliferation network to enrich itself.”
US sanctions are aimed at choking off the funding of North Korea’s nuclear and missile programs. In May of last year, Russia and China vetoed a US request for the United Nations Security Council that would have banned exports of tobacco and tobacco products to North Korea.
reported that BAT is under criminal investigation by the US for suspected sanctions violations which has affected the company’s stock price. The company has disclosed information about the investigation before in filings, but declined to say which country was involved.
BAT is the largest tobacco company in the world, with revenues of nearly £27.7 billion . Last year it generated a profit of £9.3 billion . It claimed to have ceased all activities related with North Korea in September 2017.
In its July half-year results, the company had to make a £450m provision for the US investigation. This hit its profits. Nicandro Durante was the chief executive of the company from 2011 to 2019.
Durante, who is currently the interim chief executive at Reckitt Consumer Goods Group, earned more than £50million as chief executive officer of BAT.
BAT’s spokesman declined to comment about whether the company would try to recoup Durante’s salary or other rewards.
Jack Bowles is Durante’s successor as BAT chief executive. He said: “We regret the misconduct that arose from historical business practices that led to the settlements and admit that we did not meet the highest standards that were expected of us.”
He said: “In the last few years, we have transformed our compliance programme to include anti-bribery and anti-corruption, as well as anti-money-laundering.”
BAT stated that the DOJ resolutions recognized the company’s efforts to remediate and its co-operation. The company said that the DOJ resolutions would not have any impact on its financial guidance for the full year.
BAT shares closed at £29.72, up 50p or 1.7%, in London.
Jefferies analysts said that they would consider this update a positive. This resolution means that all major corruption and sanctions cases have been resolved.
Jefferies said: “On a negative reading, this update could bring back debt into focus. The market is concerned about BAT’s debt. However, the payment described here would only increase its leverage by 0.1 times.