OFAC REACHES SETTLEMENTS FOR NORTH KOREA AND CUBA SANCTIONS VIOLATIONS
March 9, 2019
On January 31, 2019, the Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $996,080 settlement with California-based cosmetics company, e.l.f. Cosmetics, Inc., for apparent violations of OFAC’s North Korean Sanctions Regulations. The company imported false eyelash kits that appeared to contain certain materials sourced from North Korea. Because e.l.f. Cosmetics self-reported its non-egregious violation and because the company fully and promptly cooperated in the ensuing OFAC investigation, it was able to avoid a penalty that could have reached as high as $40.8 million. However, OFAC noted that “Throughout the time period in which the apparent violations occurred, ELF’s OFAC compliance program was either non-existent or inadequate,” the result of which was failing to notice that two China-based suppliers were using materials from the DPRK.
On February 14, 2019, OFAC announced a $5.5 million civil penalty against AppliChem GmbH (“AppliChem”), of Darmstadt, Germany for sales of chemicals to Cuba between May 2012 and February 2016 in violation of the Cuban Assets Control Regulations. AppliChem had been acquired in 2012 by a U.S. business and was required to terminate business deals with Cuba. Instead, the company devised a program of fraudulent “Caribbean Procedures” to continue to ship products using third party logistics experts while hiding this from U.S.-based management. Whistleblowers contacted the parent company’s ethics hotline to reveal the violations. The U.S. parent company’s voluntary cooperation with OFAC mitigated what could have been a $20 million civil penalty.
These cases illustrate the need for supply chain due diligence programs, employee training, and attention to the applicable regulations. Please reach out to us if you have questions about how to meet these important compliance obligations.
If you have any questions, please contact Evelyn Sahr (esahr@eckertseamans.com or 202-659-6622); Drew Derco (dderco@eckertseamans.com or 202-659-6665), or Alexander Matthews (amatthews@eckertseamans.com or 202-659-6633).
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