OFAC Settles First Case in 2023: Godfrey Phillips India Pays $332,500 for Violations of North Korea Sanctions Program
OFAC had a quiet start to the year – no enforcement actions but plenty of new and revised sanctions against Russia. OFAC started off March 2023 with a new enforcement action against Godfrey Phillips India, a tobacco manufacturer headquartered in India.
Godfrey Phillips India (“GPI”) agreed to pay $332,500 for five violations of the North Korea Sanctions Program. GPI’s violations stemmed indirectly from GPI’s receipt of U.S. dollars for exports to North Korea in 2017. GPI relied on several third-country intermediary parties to receive payment, which obscured the link to North Korea and caused U.S. financial institutions to process these transactions. GPI did not voluntarily disclose the violations.
Starting in November 2015, a GPI Vice President contacted a Thai intermediary, who had an existing relationship with a North Korean customer. The GPI VP advised the Thai intermediary that GPI could provide competitive rates for various tobacco products. At the Thai intermediary’s direction, between 2015 to 2017, GPI sent free samples of tobacco and cigarettes to the North Korean customer.
In late 2016, a GPI assistant manager communicated with the Thai intermediary through email about a possible order from the North Korean customer. A different VP, a manager and an assistant manager discussed how to export a ship container of tobacco to North Korea, and discussed whether it was legal to do so.
The GPI assistant manager stated:
As I informed to [sic] you yesterday, right now the question is whether GPI as a company is willing to write DPR Korea on the BL [bill of lading], like other companies are doing or not. If we can write DPR Korea consignee on the BL then it is easy otherwise we will need to take the help of [the Thai Intermediary] to help us make the shipment from Dalian, China….
The manager indicated he would confer with GPI’s finance department on how to proceed. GPI eventually decided not to include the North Korean customer’s name in the trade documentation, and instead listed the Thai intermediary as the customer and the destination as China.
Several months later, the Thai intermediary placed order for the North Korean customer totaling 79,200 kg of tobacco. GPI issued three invoices to the Thai intermediary and requested payment in U.S. Dollars either to GPI’s bank account at a non-U.S. bank in India or the India-based branch of a U.S. bank.
The Thai intermediary told GPI that four Hong Kong intermediaries would make the payments to GPI. The Hong Kong intermediaries subsequently made five payments for the tobacco totaling $369,228 to GPI. Four of these U.S. Dollar were made to non-U.S. bank, resulting in three U.S. financial institutions to clear the payments, and the final payment to the India-based branch of a U.S. bank. GPI shipped the tobacco to the North Korean customer through the Thai intermediary.
OFAC noted that GPI acted recklessly when it failed to exercise a minimal degree of care for U.S. sanctions and caused U.S. financial institutions to export or otherwise facilitate the exportation of tobacco to the North Korea. OFAC noted that several GPI managers had actual knowledge that the conduct at issue.
GPI’s remediation included implementing of its Sanctions Compliance Policy, Procedures and Framework in January 2022, which includes screening, KYC, and recordkeeping. OFAC explained that the enforcement action underscored how non-U.S. persons engaged in business with sanctioned actors and jurisdictions can violate U.S. sanctions, and in particular how financial transactions relating to commercial activity with a sanctioned country when processed through U.S. financial institutions can violate OFAC regulations.