e.l.f. Cosmetics, Inc. OFAC Settlement: $996.1K (2019)

ELF appears to have violated § 510.201(c) of the NKSR by importing 156 shipments of false eyelash kits from two suppliers located in the People's Republic of China that contained materials sourced by these suppliers from the Democratic People's Republic of Korea (DPRK). The imports occurred from on or about April 1, 2012 to on or about January 28, 2017, with a total value of $4,427,019.26.

Throughout the violation period, ELF's OFAC compliance program was either non-existent or inadequate. The company's production review efforts focused on quality assurance issues pertaining to the production process, raw materials, and end-products of the goods it purchased and/or imported. Until January 2017, ELF's compliance program and supplier audits failed to discover that approximately 80 percent of the false eyelash kits supplied by the two China-based suppliers contained materials from the DPRK.

OFAC determined that ELF voluntarily self-disclosed the apparent violations and that the apparent violations constitute a non-egregious case. The statutory maximum civil monetary penalty amount was $40,833,633, and the base civil monetary penalty amount was $2,213,510. The settlement amount of $996,080 reflects OFAC's consideration of the facts and circumstances pursuant to the General Factors under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.

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 DPRK, as well as other comprehensively sanctioned countries or regions, is known to export goods. 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. Such steps could include implementing supply chain audits with country-of-origin verification, conducting mandatory OFAC sanctions training for suppliers, and routinely and frequently performing audits of suppliers.

ELF stated the company has taken the following steps to minimize the risk of recurrence: implemented supply chain audits that verify the country of origin of goods and services used in ELF's products; adopted new procedures requiring suppliers to sign certificates of compliance stating they will comply with all U.S. export controls and trade sanctions; conducted an enhanced supplier audit that included verification of payment information related to production materials and review of supplier bank statements; engaged outside counsel to provide additional training for key employees in the United States and China regarding U.S. sanctions regulations and other relevant U.S. laws and regulations; and held mandatory training on U.S. sanctions regulations for employees and suppliers in China, with additional mandatory trainings for new employees and regular refresher training for current employees and suppliers based in China.

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