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On Apr. 26, British American Tobacco (BAT) has agreed to pay the United States a US$635 million (S$848 million) penalty for selling cigarettes to North Korea through its Singaporean subsidiary.

Unlucky strike

BAT is the multinational company, headquartered in London, that sells tobacco products such as Lucky Strike and Dunhill. It has an indirect subsidiary in Singapore, BAT Marketing Singapore.

Al Jazeera reported that the subsidiary pleaded guilty to charges that it conspired to violated United States sanctions by selling tobacco products to the Democratic People's Republic of Korea, as North Korea is formally called, and commit bank fraud.

BAT itself entered into a deferred prosecution agreement with the U.S. Department of Justice. Separately, it entered a civil settlement with the US Treasury’s Office of Foreign Assets Control.

According to the New York Times (NYT) the penalty represents the highest penalty received by a company in relation to sanctions on North Korea.

BAT had joined with a North Korean business to share ownership in a North Korean cigarette business, and had publicly said in 2007 that it would sell its portion.

However, the company continued to do business with North Korea through an independent conglomerate based in Singapore. This third party was not named in the filing, according to NYT.

Paid over S$550 million from North Korean clients

Over a decade, the conglomerate was paid at least $415 million (S$553 million) by North Korean clients through front companies for over a decade, relying on "financial facilitators linked to North Korea's weapons of mass destruction proliferation network."

Between 2016 and 2017, BAT's Singapore subsidiary also sold cigarettes to the North Korean Embassy, who would have just relocated to a new premises on North Bridge Road.

It received payment for these sales through U.S. banks or through their foreign branches.

BAT pled guilty on Apr. 24 to these offences, with its Chief Executive apologising for "misconduct arising from historical business activities that led to these settlements", as well as saying that BAT had not done business with North Korea since 2017.

The U.S. Justice Department said that the penalty "should serve as a clear warning to companies everywhere about the costs and consequences of violating U.S. sanctions".

Unchanging regime

North Korea has been subject to a strict sanction regime for multiple decades, a regime that has only become stricter in the past ten years as multiple attempts to engage with it diplomatically in order to curtail its nuclear weapons and rocket program has repeatedly failed.

The country has been regularly testing long range ballistic missiles, alarming neighbouring states such as South Korea and Japan, while flaunting its rocket force, such as in 2022 when Kim Jong Un attended a military parade with his daughter and heir apparent.

Even an attempt to engage personally with North Korean Supreme Leader Kim Jong Un by then U.S. President Donald Trump failed, even after two face to face meetings, the first of which took place in Singapore.

Singapore had previously established official diplomatic relations with the "hermit kingdom", and was its seventh largest trading partner. The relationship allowed for visits by then foreign minister George Yeo.

However in 2017, Singapore suspended its trading relationship under United Nations (UN) sanctions over North Korea's repeated nuclear and missile tests.

But Singapore has been the location of other such sanction breaches, such as in the case of an Ex-Pokka manager who was jailed for selling drinks to the country, and a Singaporean man who is wanted by the U.S. FBI for selling petroleum to the country.

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Top image via Getty