Record fine for British American Tobacco over illicit activities in North Korea

British American Tobacco (BAT), manufacturer of the Lucky Strike, Pall Mall and Vogue brands, has been ordered, along with one of its subsidiaries, to pay more than $635 million (€575 million) by the US authorities. The tobacco company has admitted its guilt in setting up an illicit tobacco trade in North Korea for ten years, while this is identified as a major source of funding for the country's massive weapons program.

British American Tobacco and its subsidiary BAT Marketing Singapore (BATMS) have agreed to pay a fine of more than €575 million after admitting that they had set up a mechanism that allowed them to continue doing business in North Korea, in complete violation of the International Emergency Economic Powers Act (IEEPA), which prohibits US citizens, organisations and private companies from trading with North Korea or providing assistance to its government. The IEEPA is aimed in particular at preventing the financing of Pyongyang's nuclear and ballistic missile programmes.[1]. According to Matthew Olsen, assistant attorney general for the Justice Department's National Security Division, this is the "largest sanction against North Korea" in the history of the U.S. Justice Department.[2].

A system of shell companies to conceal the manufacturer's activities in North Korea

BAT continued its activities in North Korea between 2007 and 2017 through the third-party company BATMS, generating approximately $418 million over the period (€378 million), as shown by transactions from North Korea to BATMS, and from BATMS to British American Tobacco. In order to conceal these connections between the manufacturer and North Korea from US banks, a system of shell companies was used to make these payments. According to Matthew Olsen, “British American Tobacco and its subsidiary engaged in an elaborate scheme to circumvent US sanctions and sell tobacco products to North Korea, allowing the funds to flow illegally into the coffers of the Democratic People’s Republic of Korea.” According to him, this sanction should serve as “a clear warning to companies around the world about the costs and consequences of violating US sanctions.”

Illicit trade that finances North Korea's weapons

According to Brian E. Nelson, the Under Secretary of the Treasury for Terrorism and Financial Intelligence, British American Tobacco relied on financial facilitators linked to North Korea’s weapons of mass destruction proliferation network. These facilitators allegedly purchased tobacco leaves for North Korean state-owned cigarette manufacturers over a period of ten years. As the Justice Department points out, these transactions generated revenue for these manufacturers estimated at nearly $700 million, or approximately €633 million, while one of the manufacturers was owned by the North Korean military. As the indictment points out, the illicit tobacco trade is a major source of funding for North Korea’s weapons programs, which the country is said to have been in place since at least 2006. The illicit tobacco trade is a preferred source of funding for North Korea because of its lucrative nature: contraband tobacco products bring in up to $20 for every dollar spent.

Massive and deliberately organized practices for more than fifty years

These practices are not new on the part of the tobacco industry, and in particular on the part of British American TobaccoIn 2000, The Guardian newspaper, in collaboration with the International Consortium of Investigative Journalists[3], showed, based on more than 11,000 internal documents from the manufacturer, that BAT had "exploited the smuggling of billions of cigarettes in a global effort to boost sales and attract generations of new smokers." For one of the investigative journalists who conducted the investigation, the smuggling of tobacco products has been deliberately organized according to a centralized system of lawbreaking since the late 1960s, involving the highest levels of decision-making at the cigarette company. According to the information available to date, the manufacturer's involvement in illicit trade continues, including in conflict zones, such as Africa and the Middle East.[4].

FT

[1] The Guardian, British American Tobacco to pay $635m over North Korea sanctions breaches, 04/26/2023, (accessed the same day)

[2] The United States – Department of Justice, United States Obtains $629 Million Settlement with British American Tobacco to Resolve Illegal Sales to North Korea, Charges Facilitators in Illicit Tobacco Trade, 04/25/2023, (accessed 04/26/2023)

[3] Tobacco Tactics, BAT Involvement in Tobacco Smuggling, 01/31/2020, (accessed 04/26/2023)

[4] The Guardian, Revealed: how British American Tobacco exploited war zones to sell cigarettes, 08/18/2017, (accessed 04/26/2023)

National Committee Against Smoking |