In April 2023, British American Tobacco (BAT) and a subsidiary were charged with conspiracy to violate U.S. sanctions against North Korea and to commit bank fraud related to a joint venture with a North Korean company to sell tobacco products in North Korea.
BAT resolved the case with a deferred prosecution agreement for itself and a guilty plea for the subsidiary. It also agreed to pay more than $629 million to resolve criminal charges brought by the Department of Justice (DOJ) and civil charges brought by the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC)—the largest North Korea sanctions penalty in DOJ history and the largest OFAC settlement ever reached with a non-financial institution.
But BAT's trouble did not end with that case. On Jan. 29, victims of terrorist attacks sued BAT under the Anti-Terrorism Act (ATA). The complaint alleges that North Korea used the proceeds of the joint venture to develop its own weapons program and to assist Hezbollah and Iran's efforts to develop weapons that were used in terrorist attacks against U.S. forces in Iraq. The victims of those attacks allege that BAT is liable because it knew that North Korea would use the joint venture proceeds to help Hezbollah and Iran develop the weapons.
This latest action against BAT demonstrates how even non-U.S. companies that mitigate risk through joint ventures can face substantial—and long-lasting—legal, financial, and reputational risk from business activities that may have some nexus to a sanctioned jurisdiction or that carry even remote potential for terrorist financing.
BAT's Joint Venture
BAT, a British tobacco manufacturer based in the United Kingdom, is one of the world's largest tobacco companies. The DOJ and OFAC cases arose from a joint venture dating to 2001 between British‑American Tobacco Marketing (Singapore) Private Limited (BATMS), an indirect subsidiary of BAT located in Singapore, and a North Korean company to sell tobacco products in North Korea.
Over time, increasing international political pressure and Western sanctions made BAT's direct association with North Korea untenable. In 2007, BAT announced that it had divested its interest in the joint venture, selling its stake to an ostensibly independent Singapore trading company. But according to the U.S. government, this “divestment” was in name only; the sale was structured in a way that let BAT retain effective control over the business. For example, contractual provisions permitted BAT to reacquire the joint venture at nominal cost, and BATMS continued to manage key commercial functions, including supplies and payments. BAT and BATMS continued to profit from sales of tobacco in North Korea distributed through the joint venture.
The joint venture allegedly used the intermediary Singapore entity to transact with BATMS and to move funds out of North Korea and into BATMS accounts. Payments for tobacco and related goods were routed through front companies and third-party intermediaries to conceal the connection to North Korean entities from the financial institutions processing the transactions. Some payments in U.S. dollars went through U.S. correspondent banking channels.
By disguising the origin and destination of funds, BAT and BATMS caused banks to process transactions they otherwise would have blocked. From 2007 to 2017, according to DOJ, approximately $418 million flowed from North Korean customers to BATMS and BAT.
The U.S. Legal Consequences
The DOJ and OFAC. The United States has long imposed extensive sanctions on North Korea, targeting its nuclear and ballistic missile programs and seeking to cut off access to the U.S. financial system. BAT and BATMS's alleged efforts to evade those sanctions led to charges for conspiracy to violate the International Emergency Economic Powers Act (IEEPA), the law under which the North Korean sanctions were imposed, as well as charges of conspiracy to commit bank fraud by obscuring the North Korean nexus to payments arising from the joint venture. See United States v. British American Tobacco P.L.C. et al., No. 23-cr-00118 (D.D.C.).
The government's core allegation in the criminal action was that, to conduct the tobacco business and avoid sanctions, BAT and BATMS conspired to “enact[] an elaborate scheme of utilizing a network of front companies located throughout the world to conceal the North Korean nexus of payments [] made to [the intermediary Singapore entity], which subsequently flowed to BATMS and ultimately BAT.” (Information ¶ 35(b).) This elaborate structure meant that, although BAT and BATMS claimed a commercial arm's-length relationship with the joint venture, they controlled all substantive aspects of operations and financial flows, and thus had knowledge of those activities.
The bank fraud charge arose from the allegation that “BATMS and BAT structured BATMS's transactions with the [North Korean entity] in order to obfuscate BATMS's sales to North Korea, and therefore caused U.S. financial institutions, including the U.S. banks, to process correspondent U.S. dollar transactions for BATMS's benefit.” (Id. ¶ 45.)
Similarly, the IEEPA conspiracy charge was predicated on the allegation that BAT and BATMS conspired to “knowingly and willfully export and cause U.S. persons and entities, to wit, financial institutions located in the United Sates, to export goods and services, to wit, financial services,” to North Korea. (Id. ¶ 79.)
BAT entered into a deferred prosecution agreement, while BATMS pleaded guilty. BAT and BATMS paid combined fines and penalties totaling more than $629 million to resolve the sanctions and fraud charges with the DOJ and OFAC. OFAC noted that its portion of the settlement was the statutory maximum and reflected the “egregious” character of the violations.
‘Nahadi.' In January, nearly three years after the DOJ and OFAC cases were resolved, victims of terrorist attacks committed by Hezbollah and Iran on U.S. forces in Iraq in 2020 and 2022 sued BAT and BATMS under the ATA, 18 U.S.C. § 2333, as amended by the Justice Against Sponsors of Terrorism Act (“JASTA”), Pub. L. No. 114-222, 130 Stat. 852 (2016). See Nahadi et al. v. British American Tobacco p.l.c. et al., No. 26-cv-00274 (E.D.V.A.).
Under the ATA, victims of international terrorism may recover treble damages plus attorney's fees from “any person who aids and abets, by knowingly providing substantial assistance, or who conspires with the person who committed such an act of international terrorism.” 18 U.S.C. § 2333(d)(2).
The Nahadi plaintiffs' theory relies heavily on the public resolution documents from the 2023 DOJ and OFAC matters.
First, the plaintiffs allege that “U.S. government officials found that BAT's misconduct financed and enabled North Korea's missile and rocket programs.” (Compl. ¶ 3.)
Next, they allege that not only did the tobacco joint venture assist North Korean's own weapons system, but that BAT and BATMS knew “that facilitating illicit tobacco production in North Korea financed missile proliferation to” Iran's Islamic Revolutionary Guard Corps (“IRGC”) and Hezbollah. (Id. ¶ 285.)
From this, the plaintiffs conclude that BAT and BATMS “enabled the North Korea-IRGC-Hizballah weapons venture to finance, develop, and refine the exact type of missiles and rockets [] that were deployed to deadly effect in the attacks against Plaintiffs” and that they acted “with knowledge of, or deliberate indifference to, the fact that they were providing assistance to terrorist organizations engaged in violent attacks against Americans.” (Id. ¶¶ 5, 286.)
Takeaways
The cases against BAT and BATMS reflect the long reach of U.S. sanctions and anti-terrorism laws, demonstrating how those laws can reach foreign companies and joint ventures when transactions touch the U.S. financial system. Particularly because sanctions violations can constitute strict-liability offenses, these cases offer several takeaways.
Financial Institutions. BAT allegedly caused U.S. financial institutions to violate IEEPA unknowingly. This is an omnipresent and significant risk for U.S. financial institutions engaged in global business, particularly those engaged in U.S. dollar correspondent banking. Foreign companies operating globally often rely on U.S. banks for clearing, settlement, and funding, making them vulnerable to enforcement actions if compliance is inadequate, which is a particularly acute concern because sanctions violations are strict liability.
Joint Ventures. According to charging documents, BAT engaged in business in North Korea in violation of U.S. sanctions knowingly. But even for firms entering into joint ventures without intending to commit sanctions violations, these cases highlight the risk that merely structuring a business as a joint venture or purportedly divesting an interest does not insulate a parent company from liability if it continues to control or benefit from the enterprise.
Regulators and private plaintiffs are likely to look through formal legal arrangements to assess economic reality and control when determining culpability.
Companies entering joint ventures—especially in regions subject to sanctions—must undertake exhaustive due diligence on local partners' ownership, including beneficial owners, and third-party intermediaries involved in transactions.
Companies will often be served by conducting regular screening against global sanctions lists, engaging in automated monitoring of financial transactions, and exercising rights to conduct audits of their joint ventures with dedicated compliance officers empowered to act independently. Initial vetting at the time of a joint venture's formation is not enough.
Companies should conduct periodic reassessments both as the partnership continues and as geopolitical conditions change. Neglecting ongoing compliance or relying on outdated controls can create blind spots exploited by bad actors in the mix.
Even if a foreign company has no presence in the United States, U.S. dollar clearing and correspondent banking can expose it to U.S. jurisdiction. Companies should map and monitor all payment flows that may touch U.S. financial institutions and ensure that transactions are safeguarded against sanction-related exposure.
Terrorist Financing. The ATA and JASTA provide causes of action for victims of terrorist attacks against those who assisted in those attacks. Though ATA and JASTA apply only if a defendant “knowingly provid[ed] substantial assistance” to international terrorists, the steps companies should undertake to ensure compliance with those laws are typically similar to those for compliance with sanctions—rigorous, ongoing due diligence on customers, partners, intermediaries, and beneficial owners, including screening against U.S. sanctions and terrorism lists.
Conclusion
The sheer scale of the penalties imposed on BAT and BATMS, the application of extraterritorial statutes to conduct generally outside the United States, and the potential for even more liability if any funds are used for international terrorism serve as stark reminders that even when companies create joint ventures to reduce risk, corporate compliance is not optional. U.S. financial institutions and companies engaged in joint ventures, international operations, or markets subject to restraints must adopt robust, adaptive compliance frameworks that consider legal, financial, and reputational risks. U.S. sanctions and terrorism financing continue to be enforcement priorities that resonate across sectors, and companies engaged in global commerce must keep these concerns top of mind.
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