US firm e.l.f. Cosmetics fined nearly $1m for using North Korean materials

By Amanda Lim

- Last updated on GMT

OFAC found that the company was unwittingly importing false eyelash kits from two suppliers in China that used materials from North Korea.
OFAC found that the company was unwittingly importing false eyelash kits from two suppliers in China that used materials from North Korea.
Californian beauty firm e.l.f. Cosmetics Inc. fined almost a million dollars after 'unwittingly' violating the North Korea Sanctions Regulations by importing false eyelash kits that contained materials from the country.

The US Treasury department issued a statement on Jan 31 stating that e.l.f. Cosmetics has agreed to pay $996,080 to settle its “potential civil liability for 156 apparent violations” of the North Korea Sanctions Regulation (NKSR).

The affected shipments of products were valued at $4.43m.

A “non-egregious” case

Through its investigations, OFAC found that the company was unwittingly importing false eyelash kits from two suppliers in China that used materials from North Korea.

“The apparent violations may have resulted in US-origin funds coming under the control of the [North Korean] government, in direct conflict with the program objectives of the NKSR,” ​said the Office of Foreign Assets Control (OFAC).

“[e.l.f.] appears not to have exercised sufficient supply chain due diligence while sourcing products from a region that poses a high risk to the effectiveness of the NKSR,” it added.

According to the statement, e.l.f. voluntarily self-disclosed the information to OFAC.

“e.l.f. cooperated with OFAC by immediately disclosing the apparent violations, signing a tolling agreement, and submitting a complete and satisfactory response to OFAC’s request for additional information.”

Additionally, OFAC noted that the affected false eyelash kits were not a substantial part of the company’s business.

In light of this, OFAC declared it a “non-egregious case” and agreed to settle. The maximum civil penalty amount for such violations could have amounted to $40.8m.

“The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines,”​ OFAC concluded.

Making amends

According to the statement, the company’s OFAC compliance program was “either non-existent or inadequate”.

e.l.f. has since agreed to correct the lapses in its supply chain in order to minimise the risk of similar issues in the future.

The company said it plans to do so by implementing supply chain audits that verify the country of origin of goods and services and require its suppliers to sign certificates of compliance with all US export controls and trade sanctions.

The company said it would conduct an “enhanced supplier audit” to review and verify payment information and bank statements of its suppliers. In addition, e.l.f. said it provided US sanctions and regulations training for key employees in the United States and in China as well as suppliers in China.

Cautionary tale

The OFAC highlighted this case as a cautionary tale for companies.

“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 the [North Korea], as well as other comprehensively sanctioned countries or regions, is known to export goods,”​ said OFAC.

Additionally, it encouraged businesses to “develop, implement, and maintain a risk-based approach to sanctions compliance” as well as “implement processes and procedures to identify and mitigate areas of risks”

It advised companies to do so by conducting supply chain audits with country-of-origin verification, mandatory OFAC sanctions training for suppliers and frequently perform supplier audits as well

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