OFAC Fines Indian Tobacco Company for Indirect Exports to North Korea

The Office of Foreign Assets Control fined an Indian tobacco manufacturer $332,500 this week for violating U.S. sanctions against North Korea. Mumbai-based Godfrey Phillips India Limited (GPI), which didn’t voluntarily disclose the violations, settled with OFAC after the company used U.S. banks to receive payments for indirect tobacco shipments to North Korea, OFAC said, and used third-party companies to try to hide the payments’ connection to North Korea.

The violations began in 2015 when a GPI vice president reached out to a Thailand-based company, which was acting as an intermediary for a North Korean tobacco company, about selling its tobacco to North Korea, OFAC said in an enforcement notice. GPI exported “free samples” of its tobacco and cigarettes to the North Korean customer at least five times between 2015 and 2017, the agency said.

In 2016, a GPI assistant manager emailed the Thai company about “a prospective order of tobacco” for the North Korean customer, OFAC said. The agency said three other senior GPI officials “proceeded to discuss the logistics of exporting a shipping container full of tobacco” -- as opposed to a “small package” -- and whether they could export the shipment directly to North Korea. The officials discussed whether GPI was “willing” to write North Korea on the container’s bill of lading, according to the notice, or whether they would need to route the shipment through Dalian, China.

After a GPI manager said they would need to “confer” with the company’s finance department, the company ultimately decided to omit North Korea from the bill of lading, OFAC said. Instead, they listed the Thai company as the customer and China as the destination.

Several months later, the Thai company placed orders on behalf of the North Korean customer for more than 174,000 pounds of tobacco, OFAC said. The company used four Hong Kong-organized intermediaries to send the payments to GPI, the agency said, which included three payments to GPI’s bank account at a non-U.S. bank in India and one India-based branch of a U.S. bank. This caused “three U.S. financial institutions to clear the payments,” OFAC said, which totaled about $370,000 and violated U.S. sanctions.

OFAC said the maximum civil penalty was more than $1.7 million, but the agency decided on a lower amount because the violations were non-egregious. The agency said GPI hadn’t received a penalty notice in the previous five years and took remedial action to improve its sanctions compliance program, including implementing screening procedures, know your customer measures and recordkeeping requirements. The company also cooperated with OFAC’s investigation and agreed to toll the statute of limitations.

The agency also pointed to several aggravating factors, including the fact that GPI “acted recklessly” and “failed to exercise a minimal degree of caution or care” for U.S. sanctions. Several of the company’s senior managers also had “actual knowledge” that the shipments were illegal, OFAC said, adding that the exports harmed U.S. foreign policy objectives by providing a “sought-after, revenue-generating good to the North Korean regime.”

The case highlights how foreign companies can violate U.S. sanctions if they process their transactions through the U.S. financial system, including through foreign branches of U.S. banks, OFAC said. The agency stressed that the “absence of a compliance program” may increase the “likelihood” of a sanctions violation, and said companies should look out for “deceptive practices” used by North Korean companies, including employing third-parties in other countries to coordinate shipments and payments.

GPI didn't immediately respond to a request for comment.