Sunday Read: DOJ Stops North Korean Tobacco Fraud.
The U.S. Department of Justice (DOJ) announced a historic settlement with British American Tobacco (BAT) and one of its subsidiaries for sales and trade with companies tied to North Korea, a sanctioned nation. The announcement highlights the seriousness of transnational enforcement and the scope of United States ability to address illegal transactions.
In this Sunday Read, National Whistleblower Center (NWC) delves into the significance of the BAT announcement and explains how laws like the Anti-Money Laundering (AML) Whistleblower Improvement Act afford protections to those who come forward with information about sanctions violations.
Crooked Cigarette Deals
On April 25, 2023, the DOJ announced a major financial settlement with BAT and its subsidiary, BAT Marketing Singapore (BATMS), one of the world’s largest manufacturers of tobacco products based in the United Kingdom. The cigarette maker agreed to pay $629 million in combined penalties to resolve bank fraud and sanctions violations charges with U.S. authorities, arising out of the companies’ scheme to do business in North Korea through a third-party company in Singapore.
The aforementioned actions are in violation of the bank fraud statute and the International Emergency Economic Powers Act (IEEPA). Separately, charges were unsealed in the District of Columbia against a North Korean banker and Chinese facilitators for their roles in facilitating the illicit sale of tobacco products in North Korea.
“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,” 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.”
Information about elaborate schemes like this one is rarely–if ever–available without the help of courageous whistleblowers. In this instance, the sale of tobacco products further supported an authoritarian regime known for its human rights violations. By taking this action the U.S. government is preventing this regime from illegally benefitting from trade violations.
This was not BAT’s first burn for trading with North Korea. In 2007, BAT spun off its North Korea sales to a third-party company, issuing a press statement that it ceased North Korea tobacco sales. But according to the DOJ, BAT continued to do business in North Korea through the third-party company and BATMS maintained control over all relevant aspects of the North Korean business. Between 2007 and 2017, BAT and BATMS ran the payments for the tobacco sold to North Korean entities through the third-party company, resulting in approximately $418 million in cash and correspondent banking transactions from North Korea to the third-party company in Singapore–money that was then passed on to BATMS and BAT.
To make these payments, North Korean purchasers used front companies so that U.S. banks–which processed the transactions–would not know about the connection to North Korea.
“For years, BAT partnered with North Korea to establish and operate a cigarette manufacturing business and relied on financial facilitators linked to North Korea’s weapons of mass destruction proliferation network in the process of enriching itself,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson. “Firms that deal with blocked persons, even indirectly, will be held accountable for actions which undermine the integrity of the U.S. financial system.”
Without critical information about operations on the inside of companies operating global and violating international trade restrictions, U.S. national security issues are under threat. This enforcement action makes clear that no company that does business in the United States can get away with compromising U.S. national and economic security for profit.
AML, North Korea and Transnational Enforcement
The BAT announcement underscores North Korea’s poor reputation among much of the global community. International sanctions violations such as those BAT have recently resolved are a top priority for the DOJ. There are U.S. laws that offer protections and incentives for those with knowledge of illegal activities, such as money-laundering schemes, to come forward and safely and confidently alert authorities.
One such law is the Anti-Money Laundering (AML) Whistleblower Improvement Act, which affords protections to those who come forward about violating sanctions laws.
The Whistleblower Act targets well-funded individuals and entities by establishing an effective whistleblower program to incentivize individuals across the globe to report money laundering and sanctions-busting schemes. The bill is modeled on the whistleblower provisions of the Dodd-Frank Act, which established the hugely successful SEC Whistleblower Program.
Though the AML is best known for its focus on Russian oligarchs against the backdrop of Russia’s illegal invasion of Ukraine, it can also be applied to regimes in North Korea and Iran. The passage of the AML in late 2022 established a fund to pay whistleblower awards.
As Whistleblower Network News (WNN) reported, the AML fund is entirely financed by sanctions collected in whistleblower-assisted cases. This means that whistleblower awards are not reliant on the Congressional appropriations process and pose no cost to taxpayers.
“The new law, for the first time, creates a whistleblower law covering people who report sanctions-busting. Anyone who tries to profit by breaking sanctions against ruthless regimes like Russia, North Korea, and Iran risks being turned-in by a whistleblower,” Stephen M. Kohn, Chairman of the Board at NWC, previously told WNN. “Prior to the passage of the Improvement Act there were no laws protecting whistleblowers who wanted to report violations of the sanctions implemented against Russia, or any other country.”
Thousands of whistleblowers from more than 120 countries have actively used U.S. laws to report instances of fraud, waste, and abuse. Thanks to these laws, whistleblowers now play an essential role in detecting economic crimes worldwide–including bank secrecy, illegal foreign accounts, money laundering, ocean pollution, bribery, securities violations, and more.
The strength of whistleblower laws varies substantially from country to country. Many countries have no laws at all, while others offer only weak protections. The current leader in strong whistleblower protection laws is the United States, which has enacted dozens of federal laws aimed at protecting whistleblowers and incentivizing them to come forward.
Support NWC
At least 59 countries around the world have whistleblower laws. However, the strength of these laws vary widely between countries. NWC aims to inform on the importance of U.S. jurisdiction as they pertain to sanctions laws and the extent of whistleblower protections in such matters. As a 501(c)(3) non-profit our awareness building work is made possible with the support of our generous donors. Please consider donating $50 today to help us continue to educate the public about whistleblower experiences and the role whistleblowers play in putting an end to fraud worldwide.
This story was written by Justin Smulison, a professional writer, podcaster and event host based in New York.
