JAKARTA – The US Justice Department has reached a US$1.5 million settlement with a company owned by Indonesia’s richest family for 28 violations of trading sanctions imposed on North Korea to pressure it to abandon its nuclear weapons program.
PT Bukit Muria Jaya (BMJ), a minor subsidiary of tobacco giant Djarum, has also entered into a deferred prosecution agreement with the Justice Department for allegedly conspiring to commit bank fraud in connection with the export of cigarette papers to Pyongyang.
In addition, it was compelled to sign a settlement agreement with the US Treasury Department’s Office of Foreign Assets Control (OFAC), according to a Justice Department statement issued on December 17.
Under the terms of what amounts to an 18-month probationary period, BMJ has agreed to implement an internal compliance program designed to prevent and detect violations of US sanctions laws and to make regular progress reports to the Justice Department.
The high risk, low reward nature of the offense has surprised the local Indonesian business community given the harm it does to the reputation of Djarum’s owners, the well-regarded Hartono family whose net worth is currently valued at more than $38 billion.
Apart from Djarum, a major manufacturer of kretek cigarettes, brothers Michael and Robert Hartono have a controlling stake in Bank Central Asia (BCA), Southeast Asia’s largest private bank with a market capitalization of $60 billion as well as interests in electronics and real estate.
“Their reputation is gold-plated,” says one business executive who has known the family for years. “It is certainly not a practice the brothers would have approved of given the reputational issues involved.”
Even staff in the mid-levels of Djarum’s corporate structure appeared unaware of the trading breach, which came to light three years ago. “They really didn’t know what hit them,” says one source familiar with the case. “They were caught out completely.”
The United Nations Security Council has passed about a dozen resolutions since 2006 sanctioning North Korea for developing nuclear weapons, while the US and other countries have taken their own unilateral actions against the hermit state.
Indonesia is, in fact, one of the few countries to retain cordial diplomatic relations with North Korea, each maintaining an embassy in their respective capitals since 1961 — eight years before Jakarta recognized US-backed South Korea.
That was the same year the two countries joined the 120-nation Non-Aligned Movement (NAM), ostensibly established in 1961 during the rule of founding presidents Sukarno and Kim il-sung to remain neutral from any major power rivalry.
While visiting Jakarta in 1965, North Korean leader was so impressed by a violet orchard he had seen on a tour of the Bogor Botanical Gardens that Sukarno renamed it Kimilsungnia as a symbol of the friendship between the two countries.
In 2002, Sukarno’s daughter, Megawati Sukarnoputri, traveled to Pyongyang, where she met then nominal head of state Kim Yong-nam, who returned the visit three years later for the commemoration of the 1955 Asia-African Conference in Bandung that spawned NAM.
This week’s disclosure of the North Korean trade violation comes only months after the US Trade Representative renewed all of Indonesia’s bilateral trade privileges in a clear sign of Washington’s efforts to strengthen relations with Southeast Asia’s largest state.
“Through a sophisticated and illegal multinational scheme, BMJ intentionally obfuscated the true nature of its transactions in order to sell its wares to North Korea,” said Assistant District Attorney for National Security John Demers.
“BMJ duped banks into processing payments in violation of our sanctions on North Korea. Strict enforcement of the sanctions pressures North Korea to move away from engaging in dangerous and belligerent activities, including weapons of mass destruction proliferation.”
Acting US Attorney for the District of Columbia Michael Sherwin also accused BMJ of intentionally deceiving US banks and undermining the integrity of the American banking system in order to continue doing business with North Korea.
“We want to communicate to all those persons and businesses who are contemplating engaging in similar schemes to violate US sanctions that using front companies and fraudulent invoices will not protect you. We will find you and prosecute you,” Sherwin said.
BMK admitted to knowingly selling shipments of cigarette papers to two North Korean companies, apparently through a Chinese trading concern, at a time when sanctions prevented correspondent banks in the US from processing wire transfers on behalf of North Korean customers.
The Justice Department statement said after learning one of its customers was having trouble paying for the goods, BMJ agreedto accept payment from third parties that were unrelated to the transaction.”
“Accepting these third party payments evaded the sanctions monitoring and compliance systems of US banks, inducing them into executing prohibited transactions,” it said, crediting the Federal Bureau of Investigation (FBI) and also the Hawaii-based US Indo-Pacific Command for providing “analytical support.”