British American Tobacco (BAT) has agreed a $635.2m (£512m) penalty with US authorities relating to “misconduct” in sanctions-hit North Korea..

The world’s second-largest tobacco firm, which is UK based, said it had entered a deferred prosecution agreement following an investigation relating to its activities in the isolated nation between 2007 and 2017.

BAT said it had reached a deal with the US Department of Justice and another body that had brought a separate, civil case.

That was after a subsidiary pleaded guilty to charges that it had conspired to violate US sanctions by selling tobacco products to North Korea and commit bank fraud.

The US sanctions regime is in place to choke the Communist country’s funding for nuclear and ballistic missile programmes.

North Korea is understood to have a high rate of smokers while its leader, Kim Jong Un, is frequently seen with a cigarette in his hand in photographs released by state media.

BAT, which includes the Lucky Strike and Dunhill brands in its stable, had previously made provisions for a settlement and said the agreement had no impact on its earlier guidance for 2023.

Shares ended the day 1.7% higher.

Chief executive Jack Bowles said: “On behalf of BAT, we deeply regret the misconduct arising from historical business activities that led to these settlements, and acknowledge that we fell short of the highest standards rightly expected of us.

“Adhering to rigorous compliance and ethics standards has been, and remains, a top priority for BAT.

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“In recent years we have transformed our compliance and ethics programme, which encompasses sanctions, anti-bribery, anti-corruption and anti-money laundering.

“The significant steps already taken, as well as the continued refinements to the programme that will be made as part of these settlements, will leave us even better equipped to lead a responsible and sustainable business.”

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