Mondo TV, S.p.a. OFAC Settlement: $538K (2024)

Mondo's business dealings with the Scientific Educational Korea Studio ("SEK"), a Government of North Korea-owned animation firm, date to the 1990s, when Mondo began subcontracting animation work to SEK for a variety of programming, including children's animation. Mondo paused the relationship in 2016 due to human rights concerns, by which point it had accumulated approximately $1,123,120 in outstanding debt owed to SEK. In July 2019, SEK and Mondo executed an agreement whereby Mondo would pay SEK in monthly installments for work completed before 2016 and for new projects SEK would undertake beginning in 2019.

Before each monthly payment, SEK issued an invoice to Mondo naming a third-party company and its bank account details for Mondo to remit payment. SEK identified two third-party companies in China and one U.S. company, along with their respective account information at several U.S. financial institutions. Mondo remitted monthly payments to these intermediaries according to SEK's instructions, appearing to believe the payments satisfied debts SEK owed to those companies.

Throughout the relationship, Mondo understood it was paying a DPRK company. Mondo's Chief Executive Officer approved and signed the 2019 agreement, which made explicit reference to North Korea, as did two additional contracts he signed with SEK for projects performed in 2019. Associated invoices, payment receipts, and emails between Mondo's management and SEK representatives frequently identified SEK, North Korea, or Pyongyang. Emails directly referenced specific payments to a named U.S. company and named U.S. financial institutions. Mondo's Chief Operations Officer and Head of Legal and Corporate Affairs personally approved all transactions. Mondo did not have a sanctions compliance policy at the time.

Between May 2019 and November 2021, Mondo initiated 18 wire transfers ultimately destined for SEK that were processed by or settled at U.S. financial institutions: 12 payments to a U.S. company's account at a U.S. bank; one U.S. dollar-denominated transfer cleared by a U.S. correspondent bank; and five transfers to a foreign company's account at a U.S. bank. These payments appear to have caused U.S. financial institutions to deal in blocked property or interests in property of the Government of North Korea and to export financial services to the DPRK, activities prohibited by §§ 510.201 and 510.206 of the North Korea Sanctions Regulations, 31 C.F.R. part 510 ("NKSR"), if engaged in by a U.S. person directly. Mondo's remittance of funds appears to have violated § 510.212 of the NKSR.

OFAC determined that Mondo did not voluntarily self-disclose the Apparent Violations and that the Apparent Violations constitute a non-egregious case. The statutory maximum civil monetary penalty applicable in this matter is $6,626,448. Under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. Part 501, app. A., the base civil monetary penalty equals the sum of the applicable schedule amount for each violation, which is $725,000. The settlement amount of $538,000 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

Non-U.S. persons remitting financial transactions from a foreign jurisdiction to U.S. companies or U.S. financial institutions may expose themselves to civil liability for sanctions violations. Such risks can occur when non-U.S. persons initiate payment, even originating in a foreign currency, to a U.S. company or U.S. financial institution intended for a sanctioned government or its instrumentalities, or other sanctioned persons. Foreign entities engaged in commercial activities with such parties should be aware of any nexus to the United States and U.S. persons and take steps to mitigate the attendant risks. Such steps may be particularly appropriate given the broad range of prohibitions attached to activities involving sanctioned governments and persons, which include restrictions on exporting goods, technology, or services, as well as virtually any dealings with blocked persons.

Among the sectors where these risks may be heightened are those in which the DPRK is known to operate. The DPRK generates revenue for the regime through otherwise legitimate commercial activities such as graphic animation and other information technology sector activities. In 2018, OFAC issued a joint advisory providing businesses with supply chain exposure to North Korea with information and tools to identify and prevent the DPRK's involvement in legitimate business arrangements. In 2022, OFAC issued a second joint advisory outlining sanctions exposure for several industries, describing the DPRK's use of IT workers to generate revenue including in the animation industry, and proposing further mitigation measures. The 2022 advisory also highlights DPRK IT workers' use of different platforms, applications, and websites to obtain development contracts, and their use of alternative payment methods to receive payment and launder funds.

The absence of a thorough and effective sanctions compliance program that accounts for U.S. sanctions risks can increase the likelihood of a potential OFAC sanctions violation. A compliance program that includes sanctions risk assessments and proper due diligence can help identify sanctions exposure associated with business partners or activities such as instrumentalities of comprehensively sanctioned jurisdictions, as well as other sanctioned parties.

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