Actually, it wasn’t “Lucky Strike” that the dictator preferred to smoke, but Dunhill. Like his father did before him. But these cigarettes are also produced by the long-established British-American Tobacco (BAT) group. Today, the company advertises itself with the slogan: Build a Better Tomorrow (https://www.bat.com/#). Only when one looks at the recent past does one understand why things can only get better in the future: Because the figure of the chain-smoking North Korean dictator Kim Jong-Un plays an inglorious role in it.

Tobacco for North Korea

BAT was fined $629 million in April 2023 for supplying tobacco to North Korea between 2007 and 2017 and processing the payments through U.S. banks under false pretenses. “British American Tobacco and its subsidiary engaged in an elaborate scheme to circumvent U.S. sanctions and sell tobacco products to North Korea, allowing funds to illegally flow into the coffers of the Democratic People’s Republic of Korea (DPRK),” said Deputy Attorney General Matthew G. Olsen of the Justice Department’s National Security Division. The penalty amount is substantial compared to other penalties, and according to the Department of Justice, it is intended to deter other companies from evading U.S. sanctions. Whether it actually does so can be doubted in view of many such circumvention attempts.          

What is sociologically exciting about this case is not that the dictator likes to smoke imported cigarettes and illegally imported them. He also does this with his official cars, such as the Mercedes Maibach and the Rolls-Royces he drives (Neue Zürcher Zeitung, 2019). What needs to be explained is, on the one hand, why companies sometimes use illegal means and very high risks to exploit even the smallest market niches in order to do dirty business. In view of the desperate image campaigns of the companies (“Building a Better Tomorrow”), this does not appear to be rational in the sense of rational choice theory, nor do explanations that relate it merely to the “greed” of the top managers help in view of the overall negligible profit margins. On the other hand, it is interesting to see why and how legal companies can succeed again and again in circumventing the directives and laws of various countries (e.g. the EU and the USA) as well as the UN in order to illegally trade with countries that threaten us and other countries militarily. Again, in the case of BAT, if one follows the indictment of the U.S. Department of Justice, the formally clean facade was decoupled from the actual business activities to be able to operate in the dark field. If one looks more closely, one is amazed at the effort with which legal facades are built up so that a dictator of a small country can illegally import tobacco and export counterfeit cigarettes in order to get hard currency.

 

 

 

 

 

Of course, we could say: cigarettes, so what?! At least they ensure a greater probability of shortening the lifespan of dictators and their staffs in a “natural” way. But in fact, there is something different behind it: There is ample circumstantial evidence that many of these activities are carried out at the direction and under the control of the North Korean government and the ruling Workers’ Party of North Korea. The profits are not only used to finance the smoking lifestyle of the elite, but also to support the production of nuclear and conventional weapons. This applies to the illegal drug trade and the production of counterfeit drugs by North Korea, as well as to the forced laborers sent abroad (see our blog of May 4, 2018 https://heigos.hypotheses.org/9252) and the cigarettes that are in the spotlight today.  

The plot

But first of all, what exactly is it about?

1. First, the plot centers on BATMS, an indirect subsidiary of BAT based in Singapore. It supplied the tobacco.
2. BATMS worked together with the North Korean Tobacco Company (“NKTC”). This is a North Korean trading company specializing in the manufacture of cigarettes sold in North Korea and other markets. NKTC is owned by the North Korean government. According to DoJ, the company was involved in, among other things, receiving the tobacco and arranging for its payment through North Korean banks. This later allowed counterfeit cigarettes to be produced in North Korea and exported around the world.
3. The two established a joint venture company, Joint Venture Tobacco Factory (“JVTF”), in 2001, which later conducted trade through a Singaporean general merchandise corporation (here referred to as “General Merchandise”). The required approval from the US Ministry of Finance was not obtained.
4. Even when BATMS then formally withdrew from the joint venture in the face of tighter U.S. sanctions, the profits still flowed back to BATMS, according to the U.S. Justice Department. But formally, the BAT Group had withdrawn from the North Korean business.
5. According to the U.S. Department of Justice, BATMS supplied goods (primarily cigarette components) to the joint venture (JVTF), in which the Singapore group “General Merchandise” later also held shares. The latter was invoiced for the value of the goods for the tobacco.
6. An employee of General Merchandise sent the invoice for the supplied tobacco on to the North Korean government-owned company NKTC, which settled it in USD through various Chinese front companies. These companies were set up in Dubai by Chinese middlemen to handle payments from North Korea to the U.S., “laundering” the money.
7. The Singapore group General Merchandise then forwarded the North Korean payments for the tobacco to BATMS in the same amount, minus a commission. As far as in the payment traffic US banks came into play, these were deceived over the origin of the money.

In this way, from the point of view of the US Department of Justice, the plot was complete, including illegal money laundering. A lot of effort for the operation of a small, dirty market niche.

The “Supreme Leader” of North Korea

But what did the “Supreme Leader” of North Korea do with the illegally acquired tobacco? Peter A. Prahar, Director, Office of Africa, Asia and Europe Programs, Bu-reau for International Narcotics and Law Enforcement Affairs, U.S. Department of State, reported on this question as early as a 2006 hearing, saying that “security enforcement investigators for major American, British, and Japanese cigarette companies have concluded after extensive investigation that at least one factory located in the DPRK manufactures and trafficks in counterfeit cigarettes. There are reports of as many as 12 such factories, some of which appear to be owned and operated by North Korean military and security organizations, while others appear to pay the DPRK for safe haven and access to transportation infrastructure to conduct their criminal activities. These factories have the capacity to produce billions of packs of counterfeit cigarettes annually” (https://www.govinfo.gov/content/pkg/CHRG-109shrg28241/pdf/CHRG-109shrg28241.pdf). He also said that there have already been 1,300 incidents in the United States involving the seizure of counterfeit Marlboro cigarettes from the Democratic People’s Republic of Korea, among others. If one follows this and other reports (see our blog of 5/4/2018 https://heigos.hypotheses.org/9252), a system of state-directed organized crime has been established in North Korea, which regularly supplies the North Korean Regime with foreign currency.

Why do legal companies go illegal?

But why do legal companies participate in such plots? As always, we try to understand and explain something with our answers to this question, but not to morally justify or even exculpate the actions of the companies. Morally, the case is clear to us, and if that were the issue, we would not need to write about it. If we therefore disregard the obvious moral attributions, the first possible answer to this question is: The urge to make a profit has taken on a life of its own and, as we know, this is realized beyond morality: more or less payments, more or less profit is the valid yardstick here. The risk as well as the anticipated amount of the penalty in case of detection is then offset against the possible profit and thus market niches are also served. Not only according to the motto: small livestock also makes crap. Because it seems as if North Korea, still heavily inclined to smoking (since 2010 also supplied with fake Dunhill and Lucky Strike) is only part of an expansion strategy into the countries of (post)socialist dictatorships with high rates of smokers. For Russia and Belarus were also further developed by the company as a production sites and only abandoned again with the onset of the Ukraine war in March 2022.

However, if this is not enough of an explanation, or if in this explanation the companies seems too monolithic and too strategic, one can try a second explanation. As we have seen, legal organizations try to endow their business activities with formal correctness or appropriateness, knowing that this is only an external form, which is not able to thoroughly instruct the actual operations. Particularly at and beyond the boundaries of the organizations, dark areas repeatedly emerge that elude formal control and which can hardly be made transparent even by the professionalized control instances. Especially when third parties come into play, one must rely on the people who work there to know the red line and to give warning signals where it is crossed. If this does not happen, a life of its own develops in these dark zones, which can quickly lead into criminality. We can observe this in many cases, not only in the case of the BAT Group.

What can we do?

So if we are not satisfied with the first answer and do not assume that everything is always strategically calculated, but also that some things get out of hand: What can legislators and globally operating corporations do to prevent such dangerous aberrations – if they want to?

The corporations could, of course, stop all business in countries with human rights violations. But then business would become difficult. Because human rights violations are also complained about in Germany, for example.

Or: They should simply abide by the applicable rules and laws. Legislators in Germany and the EU have already reacted to the unacceptable human rights violations at the end of the supply chain of many corporations and have made corporations responsible for due diligence with the “Supply Chain Due Diligence Act” and in the EU with the “Directive on corporate sustainability due diligence”. Evaluation according to ESG criteria (environment, social responsibility, governance) is also playing an increasingly important role in corporate sustainability ratings. But even this is proving difficult in practice. Unlike North Korea, corporations cannot set up “total control zones,” and they cannot take on the tasks that states in various countries with serious human rights violations are already failing to do.

For those who want to change something, there are, in our opinion, only more difficult, small-step ways to increase “awareness” in the companies and their environment, to further develop their organization, and to change the career systems. Already regular staff rotation, as well as an increased outsider recruitment, can change the awareness and make risks and wrongdoings less justifiable. But also, the promotion of self-regulation and self-control by the peer group of colleagues can have a significant impact. In this way, the dark areas can be repeatedly brought into view in order to readjust in each case how risky a commitment is that accepts dealing with them. If it was not strategically intended, under such circumstances a tobacco company might also have considered whether it was really worth the risks and the further damages to the image. Because in this case, the “lucky strike” was clearly on the side of the American judiciary.

Sources:

Government Neue Zürcher Zeitung (NZZ) (2019). Nordkorea: Warum Kim Jong Un trotz Sanktionen Mercedes fährt. Available at: https://www.nzz.ch/international/nordkorea-warum-kim-jong-un-trotz-sanktionen-mercedes-faehrt-ld.1496688 (Accessed: May 11, 2023).

Pohlmann, Markus (2018). North Korean Forced Labour in the EU – The Long Arm of the North Korean Dictator, HeiGOS-Blog 4/5/2018. Avaialbe at: https://heigos.hypotheses.org/9252.

U.S. Department of Justice (2023). British  American Tobacco Agrees to Pay $635 Million to Resolve Sanctions and Export Control Violations. Available at: https://www.justice.gov/opa/press-release/file/1581536/download (Accessed: May 09, 2023).

U.S. Department of Justice (2021). United States Obtains $629 Million Settlement with British American Tobacco to Resolve Illegal Sales. Available at: https://www.justice.gov/opa/pr/united-states-obtains-629-million-settlement-british-american-tobacco-resolve-illegal-sales (Accessed: May 10, 2023).

U.S. Government Printing Office (2006). Examining the Effects of the Hurricane Katrina on the Mississippi Gulf Coast: Hearing before the Select Committee on Hurricane Katina, United States Senate, One Hundred Ninth Congress, Secons Session, Field Hearing, April 17,2006. Available at: https://www.govinfo.gov/content/pkg/CHRG-109shrg28241/pdf/CHRG-109shrg28241.pdf (Accessed: May 10,2023).

Further literature:

Financial Times (2022). US lawmakers urge SEC to investigate 17 Chinese companies over Xinjiang links. Available at: https://www.ft.com/content/96ac47d9-3891-43b8-bca7-b8eaf0907dd3 (Accessed May 11, 2023).

Spiegel Online (2023). Nordkorea-Sanktionen: Tabakkonzern BAT muss Hunderte Millionen wegen Verstößen zahlen. Available at:   https://www.spiegel.de/wirtschaft/unternehmen/nordkorea-sanktionen-tabakkonzern-bat-muss-hunderte-millionen-wegen-verstoessen-zahlen-a-a7cc8f1e-c55d-4883-96ad-b6f3cfe83f55 (Accessed May 11, 2023).

The Guardian (2023). British American Tobacco to pay $635m over North Korea sanctions breaches. Available at: https://www.theguardian.com/world/2023/apr/26/british-american-tobacco-to-pay-635m-over-north-korea-sanctions-breaches (Accessed: May 11, 2023).

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