Cosmetics Importer Settles North Korea Sanctions Violations After Prior Disclosure

A cosmetics importer will pay $996,080 to settle charges that it violated sanctions on North Korea by bringing in false eyelash kits from China that contained North Korean materials, the Office of Foreign Assets Control said in a document posted Jan. 31 to its website. ELF Cosmetics imported 156 shipments of the eyelash kits worth $4,427,019.26 from two Chinese suppliers before becoming aware of the violations and voluntarily disclosing them to OFAC in January 2017, the document said.

“Throughout the time period in which the apparent violations occurred, ELF’s OFAC compliance program was either non-existent or inadequate,” OFAC said. While the company focused on quality assurance issues, its supplier audits “failed to discover that approximately 80 percent of the false eyelash kits” contained North Korean materials. Nonetheless, OFAC determined that the “apparent violations constitute a non-egregious case” and, in light of the prior disclosure, settled with ELF for a fraction of the potential monetary penalty for the violation. The maximum penalty would have been $2,213,510 at a minimum, and up to $40,833,633.

That was partly because of mitigating factors OFAC found, including that ELF’s personnel did not have actual knowledge of the conduct that led to the violations, ELF had not been subject to OFAC penalties in the previous five years, the violations were not a significant part of ELF’s business activities, and that ELF cooperated after discovering the violations. On the other hand, OFAC found aggravating factors as well, including that ELF is a large and commercially sophisticated company yet lacked an OFAC compliance program.

ELF has terminated the contract that led to the violations, and implemented a compliance program that includes supply chain audits that verify country of origin, compliance statements on contracts with suppliers, enhanced supplier audits with verification of payment information, and outside training for key employees in the U.S. and China. ELF will also hold training for suppliers, OFAC said.

“This enforcement action highlights the risks for companies that do not conduct full-spectrum supply chain due diligence when sourcing products from overseas, particularly in a region in which [North Korea], as well as other comprehensively sanctioned countries or regions, is known to export goods,” OFAC said in the document. “OFAC encourages companies to develop, implement, and maintain a risk-based approach to sanctions compliance and to implement processes and procedures to identify and mitigate areas of risks.”