UNITED STATES OF AMERICA,
v.
ESSENTRA FZE COMPANY LIMITED,
Defendant.
…
DEFERRED PROSECUTION AGREEMENT
Defendant Essentra FZE Company Limited (the "Company"), by its undersigned representatives, and the United States Attorney's Office for the District of Columbia; and the United States Department of Justice, National Security Division (the "Offices"), enter into this deferred prosecution agreement (the "Agreement"), the terms and conditions of which are as follows:
Criminal Information and Acceptance of Responsibility
1. The Company acknowledges and agrees that the Offices will file the attached one- count criminal Information in the United States District Court for the District of Columbia charging the Company with knowingly and willfully conspiring to violate the International Emergency Economic Powers Act ("IEEPA"), in violation of Title 18, United States Code, Section 371, and Title 50, United States Code, Sections 1701-1707, and the regulations issued thereunder. In so doing, the Company: (a) knowingly waives its right to indictment on these charges, as well as all rights to a speedy trial pursuant to the Sixth Amendment of the United States Constitution, Title 18, United States Code, Section 3161, Federal Rule of Criminal Procedure 48(b), and Local Criminal Rule 45.1 of the United States District Court for the District of Columbia; and (b) knowingly waives any objection with respect to venue to any charges by the Offices arising out of the conduct described in the Statement of Facts attached hereto as Exhibit A, and consents to the filing of the Information, as provided under the terms of this Agreement, in the United States District Court for the District of Columbia.
2. The Company admits, accepts, and acknowledges responsibility for its conduct and that of its officers or employees as charged in the Information, and as set forth in the Factual Statement attached hereto as Exhibit A, which is incorporated herein by reference, and that the allegations described in the Information and the facts described in the Statement of Facts are true and accurate. If the Offices pursue a prosecution that is deferred by this Agreement, the Company stipulates to the admissibility of the Statement of Facts in any such proceeding, including any trial, guilty plea, civil forfeiture proceeding, or sentencing proceeding, and will not contradict anything in the Statement of Facts at any such proceeding.
Term of the Agreement
3. This Agreement is effective for a period beginning on the date on which the Information is filed and ending three years from that date (the "Term"). The Company agrees, however, that, in the event the Offices determine, in their sole discretion, that the Company has knowingly violated any provision of this Agreement or has failed to completely perform or fulfill each of the Company's obligations under this Agreement, an extension or extensions of the term of the Agreement may be imposed by the Offices, in their sole discretion, for up to a total additional time period of one year, without prejudice to the Offices' right to proceed as provided in Paragraphs 17 through 21 below. Any extension of the Agreement extends all terms of this Agreement, including the terms of the reporting requirement in Paragraph 12, for an equivalent period. Conversely, in the event the Offices find, in their sole discretion, that there exists a change in circumstances sufficient to eliminate the need for the reporting requirement in Paragraph 12, and that the other provisions of this Agreement have been satisfied, the Term of the Agreement may be terminated early.
Relevant Considerations
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Future Cooperation and Disclosure Requirements
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Payment of Monetary Penalty
7. The Offices and the Company agree that, based on the factors set forth in 18 U.S.C. § 3572(a), and 18 U.S.C. § 3571(d), a fine of $666,543.88 ("Fine Amount") is an appropriate fine in this case. The Fine Amount represents twice the value of transactions described in the Statement of Facts. The Company and the Offices agree that the Fine Amount is appropriate given the facts and circumstances of this case, including the nature and seriousness of the Company's conduct and the Company's lack of prior history of sanctions violations. Any payments made toward satisfaction of the Fine Amount are final and shall not be refunded. Furthermore, nothing in this Agreement shall be deemed an agreement by the Offices that the Fine Amount is the maximum fine that may be imposed in any future prosecution, and the Offices are not precluded from arguing in any future prosecution that the Court should impose a higher fine, although the Offices agree that under those circumstances, it will recommend to the Court that any amount paid under this Agreement should be offset against any fine the Court imposes as part of a future judgment relating to the conduct described in the Statement of Facts. The Company acknowledges that no tax deduction may be sought in connection with the payment of any part of the Fine Amount. The Company shall pay the fine plus any associated transfer fees within five business days of the date on which this Agreement is signed, pursuant to payment instructions provided by the Offices in their sole discretion. The Company releases any and all claims it may have to such funds, and further certifies that it passes clean title to these funds, which are not the subject of any lien, security agreement, or other encumbrance. Transferring encumbered funds or failing to pass clean title to the funds in any way will be considered a breach of this agreement. The Company shall indemnify the government for any costs it incurs associated with the passing of clean title to the funds.
Conditional Release from Liability
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Corporate Compliance Program
10. The Company represents that it has implemented and will continue to implement a compliance program designed to prevent and detect violations of U.S. sanctions laws and regulations, including IEEPA, throughout its operations, including the operations of the Company's subsidiaries, and majority-owned or controlled joint ventures whose operations are subject to sanctions administered by the U.S. Depru1ment of the Treasury, Office of Foreign Assets Control ("OFAC").
11. In order to address any deficiencies in its sanctions compliance program, the Company represents that it has undertaken, and will continue to undertake in the future, the following sanctions compliance obligations:
a. Continue to not knowingly undertake any U.S. dollar transactions and currency conversions that transit the United States or any transactions involving U.S. persons, with individuals or entities on OFAC's Specially Designated Nationals and Blocked Persons list;
b. Continue to not knowingly undertake any U.S. dollar transactions or currency conversions that transit the United States or any activities involving U.S. persons for, on behalf of, or in relation to any person or entity resident or operating in, or the governments of, Iran, North Korea, or Syria that is prohibited by U.S. law or OFAC regulations;
c. Continue to complete global sanctions training, covering United States, United Nations, United Kingdom, and European Union sanctions and trade control laws for all relevant employees, including, but not limited to, personnel within the sanctions compliance function, as well as relevant gatekeepers and business units. Essentra understands that it bears the burden of identifying relevant employees;
d. Continue to apply and implement compliance procedures and training designed to ensure that the Company's compliance officer in charge of sanctions is made aware in a timely manner of attempts by any person or entity (including, but not limited to, the Company's employees, customers, financial institutions, companies, organizations, groups, or persons) to circumvent or evade U.S. sanctions laws, including, but not limited to, circumvention attempts involving deceptive business practices or suspected North Korean front companies;
e. Abide by any and all requirements of the Settlement Agreement by and between OFAC and the Company regarding remedial measures or other required actions related to this matter;
f. Within 30 days of the execution date of this Agreement, the Company shall notify those individuals with responsibility for sanctions compliance of the Company's compliance obligations under this Agreement and the criminal conduct admitted to in the Statement of Facts and shall certify to the Offices in the Company's first Quarterly Report (as required by Paragraph 12) that such notification has been completed and shall provide the Offices with a copy of such notice.
Corporate Compliance Reporting
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Breach of the Agreement
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Sale or Merger of Company
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Public Statements by Company
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Limitations on Binding Effect of Agreement
[SIGNATURES]
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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
v.
ESSENTRA FZE COMPANY LIMITED,
Defendant.
20-cr-112 (RC)
STATEMENT OF FACTS
This Factual Statement is made pursuant to, and is part of, the Deferred Prosecution Agreement dated July 16, 2020 , between the United States Attorney's Office for the District of Columbia, the United States Department of Justice, National Security Division ( collectively, "DOJ") and Essentra FZE Company Limited ("Essentra FZE"). Essentra FZE hereby agrees and stipulates that the following information is true and accurate. Essentra FZE admits, accepts, and acknowledges that it is responsible for the acts of its officers, directors, employees, and agents as set forth below. Should DOJ pursue the prosecution that is deferred by this Agreement, Essentra FZE agrees that it will neither contest the admissibility of; nor contradict, this Statement of Facts in any such proceeding. The following facts establish beyond a reasonable doubt the charge set forth in the criminal Information attached to this Agreement, and set forth below. All conduct discussed in this Factual Statement occurred on or about the dates described.
Statutory Background
1. IEEPA, enacted in 1977, authorizes the President to impose economic sanctions in response to an unusual or extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States when the President declares a national emergency with respect to that threat.
2. The Department of the Treasury enforces and administers economic sanctions to accomplish U.S. foreign policy and national security goals. In particular, the Department of the Treasury publishes a publicly available list of individuals and entities ("Specially Designated Nationals and Blocked Persons" or "SDNs") targeted by U.S. economic sanctions. SDNs' property and interests in property, subject to U.S. jurisdiction or in the possession and control of U.S. persons, are blocked when they are placed on the SDN list. U.S. persons, including U.S. financial institutions, are generally prohibited from dealing with SDNs and their property and interests in property.
3. Using the powers conferred by IEEPA, the President and the Executive Branch have issued orders and regulations governing and prohibiting certain transactions with countries, individuals, and entities suspected of proliferating Weapons of Mass Destruction ("WMD"). On November 14, 1994, the President issued Executive Order 12,938, finding "that the proliferation of nuclear, biological, and chemical weapons (' weapons of mass destruction') and of the means of delivering such weapons, constitutes an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States, and [declaring] a national emergency to deal with that threat."
4. On June 27, 2008, the President declared in Executive Order 13,466 ("Continuing Certain Restrictions With Respect to North Korea and North Korean Nationals") that "the existence and risk of the proliferation of weapons-usable fissile material on the Korean Peninsula constituted an unusual and extraordina1y threat to the national security and foreign policy of the United States," and thereby declared a "national emergency." The Executive Order further authorized the United States Secretary of the Treasury, in consultation with the Secretary of State, "to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA as may be necessary to carry out the purposes of this order."
5. On March 15, 2016, the President, to take additional steps with respect to the previously described national emergency, issued Executive Order 13,722 to address the Government of North Korea's continuing pursuit of its nuclear and missile programs. Pursuant to that authority, on March 16, 2016, the Secretary of the Treasury promulgated the "North Korea Sanctions Regulations." See 31 C.F.R. § 510.101 et seq. Executive Order 13,722 and the North Korea Sanctions Regulations prohibit the export of financial services from the United States or by any U.S. person to North Korea, unless exempt or authorized by OFAC.
6. Foreign financial institutions maintain U.S. dollar bank accounts at banks in the United States ("Correspondent Banks"). Correspondent Banks accounts are broadly defined to include any account established for a foreign financial institution to receive deposits from, or to make payments or disbursements on behalf of, the foreign financial institution, or to handle other financial transactions, such as currency conversions, related to such foreign financial institution. See 31 C.F.R. § 1010.605. Correspondent Banks serve to support international wire transfers for foreign customers in a currency that the foreign customer's overseas financial institution normally does not hold on reserve, such as U.S. dollars and to conduct currency conversions to/from U.S. dollars. It is through these accounts that the funds used in U.S. dollar transactions clear and/or are converted into other currencies.
7. SDNs are, among other things, prohibited from accessing Correspondent Banks in the United States through foreign financial institutions, either directly or indirectly.
8. The North Korea Sanctions Regulations further prohibited the export of financial services, to include Correspondent Banking activities, by any U.S. person.
9. The North Korea Sanctions Regulations define "U.S. person" as any:
a. United States citizen or permanent resident alien;
b. entity organized under the laws of the United States or any jurisdiction within the United States, including foreign branches; or
c. any person in the United States.
10. The North Korea Sanctions Regulations also prohibited activities that evaded or avoided, or had the purpose of evading or avoiding, any prohibition set forth in these regulations.
Entities
11. Essentra FZE: was incorporated in the United Arab Emirates ("UAE") and sold cigarette products to over twenty-five customers worldwide, including companies in South Africa, Jordan, and the UAE. From in or about 2013 to in or about March 2019, Essentra FZE was a subsidiary of Essentra MEA PTE LTD. Essentra MEA PTE LTD was a joint venture with Company 1, a foreign-based tobacco company ("Company 1"). In or about March 2019, Essentra MEA PTE LTD, and by extension Essentra FZE, became wholly-owned subsidiaries of UK. based Essentra PLC. Persons relevant to this scheme at Essentra FZE include:
a. Person 1 was a supervisor at Essentra FZE and a co-conspirator in this scheme ("Essentra FZE Employee 1 "). All of his or her actions herein were undertaken within the scope of his or her employment by Essentra FZE.
b. Person 2 was a customer-facing employee at Essentra FZE and a co-conspirator in this scheme ("Essentra FZE Employee 2"). All his or her actions herein were undertaken within the scope of his or her employment by Essentra FZE.
12. Front Company 1 was an alleged tobacco component supplier based in the UAE. Company 1 used Front Company 1 as a cutout , in part, for U.S. dollar payments and contract documents involving North Korea customers.
13. Company 2 was a North Korean front company for a state-run tobacco company located in North Korea ("North Korean Company 1"). North Korean Company 1 imported cigarette products into North Korea that were supplied by Essentra FZE, Company 1, and others. Persons relevant to this scheme at North Korean Company 1 include:
a. Person 3, a North Korean citizen, was an export manager for North Korean Company 1, and was a co-conspirator in this scheme (''North Korean Company Employee 1 ").
b. Person 4, a North Korean citizen, was a sales executive for North Korean Company 1, and was a co-conspirator in this scheme ("North Korean Company Employee 2").
14. Company 3 was another foreign-based tobacco supplier that was incorporated in East Asia and participated in this scheme ("Company 3").
Background on North Korean Front Companies
15. The North Korean financial sector is comprised of state-controlled financial institutions that use "front companies to conduct international financial transactions that support the proliferation of WMD and the development of ballistic missiles in violation of international and U.S. sanctions," and are subject to "little or no bank supervision or anti-money laundering or combating the financing of terrorism[] controls." 81 Fed. Reg. at 78,715.
16. The United Nations Panel of Experts found that once North Korea could register a front company without overt links to the country through the assistance of foreign nationals, it became significantly easier for its firms to pass rudimentary due diligence checks by financial institutions and open and maintain bank accounts.
The Scheme
17. Starting in as early as October 2017 and continuing through December 2018 (the "relevant time period"), Essentra FZE conspired with others to violate § 510.212 of the North Korea Sanctions Regulations by causing a U.S. financial institution, including its foreign branch, to export financial services to North Korea, and otherwise facilitate export transactions that would have been prohibited if engaged in by U.S. persons in violation of §§ 510.206 and 510.211 of the North Korea Sanctions Regulations. The co-conspirators failed to seek or obtain the requisite licenses from OFAC in the District of Columbia when conducting such activities. In so doing, the co-conspirators defrauded the U.S. Government by interfering with and obstructing a lawful government function, that is, the enforcement of IEEPA and the North Korea Sanctions Regulations. This conduct occurred in the UAE and the United States.
18. U.S. sanctions prevented correspondent banks in the United States from processing U.S. dollar wire transfers on behalf of customers located in North Korea. In order to deceive banks into processing Essentra FZE's U.S. dollar transactions, North Korean Company 1 and their co conspirators, including Company 1, utilized financial cutouts and front companies, such as Front Company 1, to conceal the North Korean nexus. The defendant's and co-conspirators' deceptive practice tricked U.S. correspondent banks into processing transactions that would not have otherwise been processed.
19. Essentra FZE was aware that its products were destined for North Korea. Essentra FZE and its co-conspirators employed false end-user information for shipments to North Korea to facilitate these shipments. Essentra FZE addressed several commercial invoices to Front Company 1, and falsely listed a company in China as the consignee in order to not alert regulators, banks, or shippers that the true customers were in North Korea.
20. Essentra FZE employees and co-conspirators from Company 1, Front Company 1, and North Korean Company 1 discussed the production, procurement, and export of cigarette products to Notth Korea via front company payments.
21. At all relevant times, Essentra FZE was aware of U.S. sanctions prohibiting transacting with North Korea through the use of U.S. dollar wire transfers. Essentra FZE, to include both Essentra FZE Employee 1 and Essentra FZE Employee 2, conducted regular compliance reviews of their customers to comply with U.S. sanctions laws and regulations, including, but not limited to, trade compliance policies.
Representative Transactions with North Korean Company 1.
22. In December 2017, an employee of Company 1 introduced Essentra FZE Employee 1 to North Korean Company Employee 1.
23. Essentra FZE Employee 2 subsequently met North Korean Company Employee 1 at a meeting in a restaurant in Dubai in early 2018.
24. Essentra FZE Employee 2 understood at the meeting that Company 1 had a pre- existing relationship with North Korean Company 1 and North Korean Company Employee 1. During the meeting, North Korean Company Employee 1 discussed purchasing tobacco filtration products from Essentra FZE for export to North Korea. North Korean Company Employee 1 stated that he had a factory in North Korea and business dealings in Northern China.
25. Thereafter, on February 22, 2018, the Company 1 employee shared North Korean Company Employee 1's contact details with Essentra FZE Employee 2. North Korean Company Employee 1 and Essentra FZE Employee 2 began communicating thereafter via an encrypted messaging platform.
26. An employee of Company 1 provided North Korean Company Employee 1 with Essentra FZE's tobacco filter specifications. North Korean Company Employee 1 then discussed preparing an order with Essentra FZE Employee 1.
27. North Korean Company Employee 1 asked Essentra FZE Employee 2 who would be listed on the Essentra FZE side of the contract. Essentra FZE Company Employee 2 stated that he would need to check with Company 1 to answer such question. North Korean Company Employee 1 replied that it was not important, but to ensure that the documents did not reference North Korea. Specifically, the messages transpired as follows:
- North Korean Company Employee 1: But don't mention that customer is in my country.
- Essentra FZE Employee 1: Ok sure
- North Korean Company Employee 1: You understand what I mean?
- Essentra FZE Employee 1: Yes
- North Korean Company Employee 1: You just mention China or where else. Contract will be signed by other foreign company
- Essentra FZE Employee 1: Understood
28. Approximately three days later, when discussing the supply of such items, North Korean Company Employee 1 again stated, ''you just tell them the destination is China, don't mention about my country." Essentra FZE Employee 2 confirmed and that Company 1 would oversee such efforts.
29. On April 21, 2018, two Company 1 employees communicated with Essentra FZE Employee 1 regarding an agreement with North Korean Company Employee 1, and shared a message from North Korean Company Employee 2 which detailed product specifications.
30. On April 26, 2018, Essentra FZE Employee 2 replied with product specifications and quality testing parameters. Subsequently, an employee of Company 1 sent Essentra FZE Employee 2 a "revised contract," with Front Company 1 as "producer and expo1ter of filter rods," and another front company for North Korean Company 1, referred to as "an importer of Filter Rods from UAE to China" as the buyer.
31. On May 23, 2018, Essentra FZE Employee 1 asked an employee of Company 1 of the status on "NK contract." On May 24, 2018, a Company 1 employee replied, "[w]e have got the contract signed now waiting for the payment." Essentra FZE Employee 1 asked when Essentra could begin production.
32. On June 6, 2018, North Korean Company Employee 1 stated, "I hope you produce our exact required specification as in the contract because it is our first deal. Next order will be easy." Essentra FZE Employee 2 replied "Understand and will inform our production team accordingly."
33. The related invoice showed that the order was for Front Company 1 and shipped to a front company associated with North Korean Company 1. The draft bill of lading falsely stated that the goods were ultimately bound for Dalian, China.
34. A Company 1 employee sent No1th Korean Company Employee 1 the related contract. North Korean Company Employee 2 sent the contract back with requested revisions.
35. On July 4, 2018, North Korean Company Employee 1 asked Company 1 and Essentra FZE employees what the schedule was for shipment of the containers. An employee from Company 1 replied that he was "getting documents from Essentra," which he would forward on to No1th Korean Company 36. On July 9, 2018, North Korean Company Employee 1 received confirmation that five containers were to be shipped on July 17, 2018.
37. North Korean Company Employee 1 and North Korean Company Employee 2 received two invoices dated July 14, 2018, which listed Front Company 1 and falsely listed an end destination of Dalian, China. The contents of both orders were shipped together.
38. On July 25, 2018, North Korean Company Employee 1 asked for an update on the status of the "5 containers" and when they would arrive in Dalian, China. An employee from Company 1 responded that the shipment should arrive in mid-August.
39. On or about September 19, 2018, Front Company 1 wired a payment in AED, which at that time converted to approximately $61,397.12, to Essentra FZE. That AED payment was made to Essentra FZE's bank in the UAE, which was a foreign branch of a U.S. bank. No OFAC license was sought or obtained in the District of Columbia for this foreign currency payment to the foreign branch of a U.S. bank.
40. On or about October 15, 2018, Front Company 1 wired a payment of $149,630.88 to Essentra FZE. No OFAC license was sought or obtained in the District of Columbia for this U.S. dollar payment, which transited through the United States.
41. On or about December 15, 2018, Front Company 1 wired a payment in AED, which at that time converted to approximately $122,243.94, to Essentra FZE. That AED payment was made to Essentra FZE's bank in the UAE, which was a foreign branch of a U.S. bank. No OFAC license was sought or obtained in the District of Columbia for this foreign currency payment to the foreign branch of a U.S. bank.
42. These three payments, which caused a U.S. financial institution, including its foreign branch, to export financial services to North Korea, and otherwise facilitated export transactions that would have been prohibited if engaged in by U.S. persons, were all in violation of the North Korea Sanctions Regulations, totaled $333,271.94.
Representative Transactions with Company 3
43. Beginning in or around October 2017, Essentra FZE employees and co-conspirators from Company 3 discussed the production, procurement, and export of tobacco products to North Korea with the use of front companies facilitated through the U.S. financial system.
44. On October 11, 2017, an employee of Company 3 told Essentra FZE Employee 1, "Before that i need to clarify one thing regarding with dual charcoal filter. .it is North Korean requesting filter, 8 containers per month."
45. The employee of Company 3 further Informed Essentra FZE Employee 1,
I want to know you to clear point about this North Korean client's requesting filters: Our Chinese client those who do tobacco produce in North Korea, they are looking for cheap price filter accordance with above specifications and we found supplier to them and all the invoice and payment process will go through [Company 3] cause of sanction and also agreement.
46. The Company 3 employee further warned that the shipping documents should list a final destination of Dalian, China.
47. This proffer of evidence is not intended to constitute a complete statement of all facts known by the parties, but is a minimum statement of facts intended to provide the necessary factual predicate for the guilty plea. The limited purpose of this proffer is to demonstrate that there exists a sufficient legal basis for the defendant's plea of guilty to the charged crimes. This Statement of the Offense fairly and accurately summarizes and describes some of the defendant's actions and involvement in the offenses to which he is pleading guilty.
Respectfully Submitted
[SIGNATURES AND ACKNOWLEDGEMENTS]
1) Refer to Civil Enforcement Information - Essentra FZE for consolidated commentary on this document, Settlement Agreement (OFAC) - Essentra FZE and Civil Enforcement Information - Essentra FZE.