British American Tobacco (BAT) recently settled for $629 million for violating North Korea sanctions. This sends a clear message from the Department of Justice that enforcement against companies is the new FCPA. The settlement resulted from BAT's continued control of a joint venture in North Korea through a third-party company and its subsidiary's willful conspiracy to transfer hundreds of millions of dollars through US banks, which were aware that the transfers were blocked by US sanctions. In this week's episode of Corruption, Crime and Compliance, Michael Volkov delves into the facts of this important enforcement action and discusses the elaborate use of front companies and attempts to disguise North Korean connections, confirming the DOJ's new aggressive approach to sanctions and export enforcement.

You’ll hear Michael discuss:

Compliance professionals should review the BAT scheme for its elaborate use of front companies and attempts to disguise North Korean connections.
BAT controlled a joint venture in North Korea through a third-party company. Its subsidiary willfully conspired to transfer hundreds of millions of dollars through US banks while being aware that the transfers were blocked by US sanctions. This resulted in a $629 million settlement.
OFAC imposed a $508 million penalty against BAT, the largest fine against a non-financial institution in OFAC's history. This is equal to the statutory maximum that they would have been allowed to collect.
Cigarette trafficking generates significant revenue for North Korea's WMD program. Smuggled tobacco products generate a profit of 1900%.
Senior management needs to drive a culture of compliance and put relevant policies and controls in place to reduce the risk of engaging in violative conduct.
BAT's senior management decisions to approve or support arrangements that obscure dealings with sanctioned countries and parties were reflected throughout the organization, compounding sanctions risks and increasing the likelihood of committing potential violations.

KEY QUOTES:

"British American Tobacco's deceit and elevation of business over compliance permeates this blockbuster settlement for $629,000,000. The BAT settlement really confirms DOJ's new, aggressive approach to sanctions and export enforcement." - Mike Volkov

"Cigarette trafficking generates significant revenue for North Korea's WMD program. In addition, counterfeit cigarettes are a major source of income to the North Korean regime, since smuggled tobacco products generate revenue of up to $20 for every dollar spent in cost." - Mike Volkov

"OFAC noted that this enforcement matter demonstrates that without a culture of compliance driven by senior management and attendant policies and controls, firms increase the risk that they may engage in apparently violative conduct." - Mike Volkov

Resources:

Michael Volkov on LinkedIn | Twitter

The Volkov Law Group

Daf Yomi Shabbos Daf 23 by R' Eli Stefansky