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OFAC settles with Indian tobacco company on North Korean transactions

Financial Crimes Of Interest to Non-US Persons Department of Treasury OFAC OFAC Sanctions OFAC Designations Settlement North Korea Enforcement

Financial Crimes

On March 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $332,500 settlement with an India-registered tobacco company to resolve allegations that it “requested payment in U.S. dollars for its indirect exportation of tobacco to the Democratic People’s Republic of Korea [(DPRK)].” According to OFAC’s web notice, in late 2016, an assistant manager at the company and a representative from a Thai intermediary began communicating about a prospective order of tobacco from a DPRK customer. A decision was eventually made not to include the DPRK customer or to list the DPRK in trade documents for the order. Rather, the order listed the Thai intermediary as the customer and China as the destination. OFAC maintained that the company issued three invoices to the Thai intermediary for its tobacco orders, and asked that payments be sent in USD to either the company’s bank account at a non-U.S. bank in India or to the India-branch of a U.S. bank. Between July and August 2017, four Hong Kong-organized intermediaries remitted funds to the company for these shipments and made five payments totaling approximately $369,228. Four of the five USD payments were sent to the non-U.S. bank, causing three U.S. financial institutions to clear the payments. The fifth payment was sent to the India-branch of a U.S. bank. By directing the Hong Kong intermediaries to remit payments in USD, OFAC claimed the company “caused U.S. correspondent banks that processed the payments, as well as the foreign branch of a U.S. bank, to export financial services to or otherwise facilitate the exportation of tobacco to the DPRK” in violation of the North Korea Sanctions Regulations.

In arriving at the settlement amount, OFAC determined, among other things, that several managers had actual knowledge of the alleged conduct at issue, and that the company “acted recklessly” by “fail[ing] to exercise a minimal degree of caution or care for U.S. sanctions laws and regulations and caus[ing] U.S. financial institutions to export financial services or otherwise facilitate the exportation of tobacco to the DPRK.”

OFAC also considered various mitigating factors, including that the company has not received a penalty notice from OFAC in the preceding five years. Additionally, the company undertook remedial measures upon learning of the alleged violations, cooperated with OFAC throughout the investigation, and agreed to toll the statute of limitations, the notice said.

Providing context for the settlement, OFAC said that this action “highlights the deceptive practices DPRK entities use to evade U.S. and international sanctions and acquire revenue-generating goods, such as by employing intermediaries in various countries to coordinate shipping and make payments.”