Proving that flirting with an OFAC sanctions violation is nothing to bat your (false) eyelashes at, on January 31, 2019, The Office of Foreign Assets Controls (OFAC) announced the first civil penalty for the year—a $996,080 fine against California-based cosmetics company, e.l.f Cosmetics Inc. (ELF).
The fine came as a result of supply chain-related oversights related to the import of 156 shipments of false eyelash sets with components containing materials sourced from North Korea. These occurred from 2012 to 2017, and were in direct contravention of Section 510.201(c) of North Korea Sanctions Regulations (NKSR).
The announcement serves as an important reminder about the necessity of due diligence, not simply in matters related to export compliance, but import compliance as well
The primary issues OFAC has in this case relate to U.S-based funds potentially ending up in the hands of the Government of North Korea (DPRK)—a breach of the integral purpose of the NKSR. ELF was also found to have had a “non-existent or inadequate” OFAC compliance program in place, something deemed especially aggravating to its case given that they operate in a high-risk region as it relates to the NKSR.
However, like many companies found in violation of an OFAC sanction or embargo, once discovered by the company, ELF self-disclosed, one of several mitigating factors OFAC took into consideration when it lessened the $996,080 fine from its statutory maximum and minimum civil monetary penalties of $40,833,633 and $2,213,510, respectively.
Compliance requires a “true” solution
While ELF claims to have prioritized the quality of the false lash goods over their place of origin (roughly 80% of the kits contained materials from North Korea), it has since committed to putting corrective measures in place. Among them include:
- Supply chain audits to verify the country of origin,
- Enhanced supplier audit process, and
- Mandatory initial and ongoing U.S. sanctions regulations training for employees in China, where the violations occurred, to name a few.
What this means to U.S. businesses
Much of the time, export and global trade compliance focuses on keeping potentially harmful goods out of the hands of those who would wish to do the U.S. (or others) harm. When it comes to OFAC compliance, it’s generally about keeping money out of the hands of those who would put those funds towards their efforts to do the same.
What the ELF example demonstrates is complying with U.S. Government sanctions regulations, OFAC included, can involve casting a much wider net. That all parts involved with the supply chain, including imports and working with foreign suppliers, is an important part of any organization’s governance, risk and compliance program.