A US-based cosmetics company, e.l.f. Cosmetics, Inc. (ELF), has reached a USD 996,080 settlement with the US Office of Foreign Assets Control (OFAC) for importing 156 shipments of false eyelash kits containing materials sourced from North Korea in apparent violation of the North Korea Sanctions Regulations.
The materials were supplied by two of ELF’s China-based suppliers between 2012 and 2017. During this period, ELF’s sanctions compliance program was deemed by OFAC to be either non-existent or inadequate. OFAC also criticised ELF – a large and commercially sophisticated company – for failing to exercise sufficient supply chain due diligence while sourcing products from a high risk region. As a result, the company failed to discover that approximately 80% of its false eyelash kits, with a total value of USD 4,427,019.26, contained materials from North Korea.
ELF eventually discovered the apparent violations in January 2017 and immediately disclosed them to OFAC. This voluntary self-disclosure was one of a number of mitigating factors, including the non-egregious nature of the case, which ultimately led OFAC to reduce the final penalty by approximately USD 1,217,430 from the base penalty amount. OFAC also credited ELF with implementing supply chain audits with country-of-origin verification; adopting third-party sanctions compliance certificates; conducting an enhanced supplier audit; and providing mandatory sanctions training for employees and suppliers.
This enforcement action highlights the inherent risks associated with failing to perform adequate supply chain due diligence, especially in high-risk jurisdictions where sanctioned countries or regions are known to export goods. The decision will likely lead both US and non-US based companies to actively consider integrating sanctions and export control measures into existing supply chain controls designed to mitigate against modern slavery, conflict minerals and anti-corruption related risks.