Foreign Attack Victims Demand Proceeds of Tobacco Sanctions Fine

American victims of terror attacks and other violence abroad are frustrated the Justice Department hasn’t committed to directing the proceeds of a $629 million settlement to a fund designed to compensate them for their suffering.

How DOJ’s record-high North Korean sanctions penalty against British American Tobacco Plc gets divvied up is being closely watched by many of the 15,000 eligible claimants, including victims of the 1998 East Africa embassy bombings, a 1968 North Korean capture of a US spy ship, and 9/11. Their lawyers say the law demands all the settlement proceeds be paid to survivors or families of those killed.

At issue is whether the 2015 law that created the US Victims of State Sponsored Terrorism Fund allows the Justice Department to exclude penalties tied to a nine-year period—covering much of the tobacco giant’s scheme of disguising sales to avoid sanctions—when North Korea was removed from the list of state terror sponsors. Those proceeds could be used to fund other DOJ programs, such as subsidizing state and local police equipment.

“It feels like they’re changing the rules for their benefit, which in effect is punishing the victims of international terrorism again,” said Fred Warmbier, whose son Otto was imprisoned for 17 months by North Korea and died six days after being released in a coma. “This should not be a discussion. Why are we competing with our Justice Department?”

Victims’ lawyers, who stand to earn as much as 25% of what their clients collect, may file suit or ask Congress to require DOJ to distribute all of BAT’s fine into the terrorism fund, according to interviews with seven attorneys who’ve been pressing the issue with DOJ officials.

A department spokesman declined to comment in response to a list of questions about the fund.

In its latest communication with claimants, a Justice Department special master on July 3 said there are “insufficient funds” to distribute payments until 2025 at the earliest.

DOJ’s criminal assets recovery office, which oversees the fund, had earlier said it’s in the process of assessing whether any of the BAT penalty proceeds are eligible for transfer into the account, according to communications with victims’ attorneys that was reviewed by Bloomberg Law.

It’s unclear if DOJ’s decision this week to foreclose payments until 2025—apparently breaking its tradition of keeping the fund open for deposits until Sept. 30—indicates the department has already ruled out including the BAT penalty in the fund.

But DOJ has stated in earlier messages to claimant attorneys that penalties associated with criminal offenses taking place while the involved country was not on the state sponsor of terrorism list won’t qualify. That interpretation suggests much of the $629 million could be allocated elsewhere.

1968 Incident

Disqualifying the BAT penalty would be unwelcomed news for victims and their families of incidents going back more than a half-century.

For instance, North Korea’s 1968 capture and 11-month seizure of the USS Pueblo culminated in a $1.15 billion US court judgment in 2021 against Pyongyang for the 171 hostage survivors or their families.

Thus far, they’ve received “a tiny fraction of the amounts due"—or $4.7 million—from the fund, said their attorney Mark Bravin.

“Many are in their 70s and 80s and have suffered for over 50 years. They deserve to see more in their lifetimes of what they were awarded by the courts,” said Bravin, a partner with Mitchell Silberberg & Knupp. “We are counting on DOJ to deposit all of the North Korea-related BAT settlement money into the fund.”

Although DOJ has paid out $6 billion over four rounds since the fund’s creation, it hasn’t had enough in reserve to make distributions in multiple years and non-9/11 victims have complained that they are less of a priority.

WMD Funding

In April, DOJ framed the BAT settlement as a stern warning against selling products that support a rogue nation’s illicit nuclear weapons program. US law enforcement was heralded for its rare penetration of an elaborate conspiracy to peddle cigarettes inside the walled-off dictatorship.

North Korea generates significant revenue from trafficking cigarettes—"a substantial portion” of which “is believed to flow back directly to the North Korean government, its military, and its WMD program,” said Matthew Graves, the US attorney for Washington, DC, at a press conference unveiling the BAT penalty.

A few months later, terrorism fund participants say they don’t understand why DOJ is still deliberating about whether to transfer the $629 million plus interest to a fund they rely on to collect on US court judgments awarding them damages.

Legal scholars and others who track terrorism damages couldn’t recall a precedent for the department to divvy up a single penalty between the US victims fund and other expenses. They had mixed views on whether the statutory language gives DOJ the discretion to do so for the BAT settlement.

Language of the Law

BAT, the manufacturer of Lucky Strike and Dunhill, reached a deal to defer prosecution by having a subsidiary plead guilty to a sanctions evasion scheme that stretched from at least August 2007 through at least June 2017, court documents said.

Complicating the matter is that the US government removed North Korea from the state sponsors of terrorism list in October 2008, before reinstating it in November 2017.

That means that under the reading of the law DOJ presented to victims’ attorneys, only the share of the settlement stemming from tobacco sales to North Korea during the initial 14 months of violations would qualify for the fund.

Robert Braun, a Cohen Milstein partner representing victims of the 1983 Beirut Marine barracks bombing and their families, said “whether or when North Korea was designated a state sponsor of terrorism was irrelevant” under the language of the statute establishing the victims’ fund.

The statutory language is silent on fund eligibility when individuals or companies illegally sell products to a country for a period that straddles when the nation was both on and off the terrorism list.

The law orders the transfer to the victims’ account of “all funds” from criminal penalties or fines from violations of the 1977 international sanctions law under which BAT was charged “or any related criminal conspiracy” or “other Federal offense arising from” conducting business with a “state sponsor of terrorism.”

Braun and other victims’ attorneys take the position that “state sponsor of terrorism” doesn’t modify the clause referencing the 1977 law, meaning North Korea’s classification at the time of the violations shouldn’t impact the BAT penalty’s eligibility.

Still, Scott Anderson, who specializes in foreign relations and national security law as a Brookings Institution fellow, said DOJ probably has authority to apply a narrow interpretation of the statute to exclude a portion of the BAT settlement.

And DOJ is likely to do so in this case to retain discretion that would avoid obligating itself to distribute to the fund in future cases—"even if here we may see why it’s compelling to transfer the full amount,” said Anderson, a former State Department attorney.

Budgetary Demands

This isn’t the first time the US government has had to balance a desire to fairly compensate victims against other budgetary demands since recoveries can be disbursed to other funds run by the Treasury Department and DOJ.

“It is plausible” that the department, in attempting to properly allocate the BAT penalty “for the benefit of victims and taxpayers,” is finding that the “answer is not clear-cut,” said Chimène Keitner, an international law professor at University of California, Davis.

“I’m confident that DOJ is also taking the claimants’ own analyses and arguments into account in its assessment of how to apply the relevant statutes and regulations,” said Keitner, who worked with DOJ as a former State Department counselor. “Unfortunately, as a rule, when the pie is smaller than those entitled to a share of it, nobody will be fully satisfied.”