BAT reaches record $629mn settlement with US over sales to N Korea

British American Tobacco (BAT) is to pay $635m plus interest to US authorities after a subsidiary admitted selling cigarettes to North Korea in violation of sanctions.

The company, which manufactures and sells cigarettes, tobacco and other nicotine products, said it has entered into a deferred prosecution agreement with the Justice Department and a civil settlement agreement with the Treasury Department's Office of Foreign Assets Control.

"On behalf of BAT, 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," Chief Executive Officer Jack Bowles said in a statement.

The business activities relating to North Korea took place between 2007 and 2017, according to the statement.

The Justice Department said in its statement that BAT in 2007 spun off its North Korea sales to a third-party company, issuing a press statement that it was no longer involved in North Korea tobacco sales. In reality, however, it continued to do business in North Korea through the third-party company.

To make these payments, North Korean purchasers used front companies so that US banks that processed the transactions would not know about the connection to North Korea, it added.

"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.

"Today’s action, which involves the largest North Korean sanctions penalty in the history of the Justice Department, should serve as a clear warning to companies everywhere about the costs and consequences of violating U.S. sanctions," he added.