E.l.f Cosmetics First American Company Fined for Ties to North Korean Labor

E.l.f Cosmetics First American Company Fined for Ties to North Korean Labor

The Office of Foreign Assets Control (OFAC) has claimed its first casualty — E.l.f Cosmetics has been been fined for violating the Countering America’s Adversaries Through Sanctions Act (CAATSA) as it applies to North Korean labor.

The company was found to have imported 156 shipments of false eyelash kits from two suppliers located in China, which contained materials sourced from North Korea.

The company was initially leveled a staggering $40 million penalty, but was able to knock it down to approximately $1 million after agreeing to disclose full details on the violations to OFAC, and implement measures to prevent the offense from reoccurring. The enforcement report was issued by OFAC on January 31, 2019.

Passed on August 2, 2017, CAATSA introduced serious and immediate sanctions risk to any company with supply chain links to North Korean labor, either directly or through subcontractors.

Is your company in scope of major human trafficking and slavery regulations such as those outlined in CAATSA? Download the Human Trafficking & Slavery Scoping Guide to find out.

The legislation states that “significant goods, wares, merchandise and articles mined, produced, or manufactured wholly or in part by North Korean nationals or North Korean citizens anywhere in the world are forced-labor goods prohibited from importation under the Tariff Act of 1930 (19 U.S.C. § 1307) and shall not be entitled to entry at any port of the United States and may be subject to detention, seizure and forfeiture.”

Although the cosmetics industry isn’t cited as high risk in the U.S. Department of State North Korea Sanctions & Enforcement Actions Advisory, the enforcement action demonstrated that supply chains in every sector are being watched closely. In the case of E.l.f Cosmetics, the company was sourcing goods from China, a region known to host and import goods from ventures associated with North Korean labor.

Other U.S. agencies are following OFAC’s lead. On February 4, 2019, just days after news spread about E.l.f Cosmetics’ sanctions violation fine, the Customs and Border Protection Agency (CBP) issued a Withhold and Release Form on a shipment of tuna from a Taiwanese registered boat, after receiving information that the seafood had been harvested with forced labor. This is the latest action by the CBP to enforce Section 307 of the Tariff Act of 1930, prohibiting the importation of merchandise mined, produced or manufactured by forced labor.

Companies with suppliers in China aren’t the only ones with cause for concern. With the U.S.-China trade war heating up, the U.S. will be mindful of goods sourced from any region, as Chinese exporters increasingly employ tactics similar to those North Korean companies use to disguise country of origin.

The Case for Human Trafficking & Slavery Due Diligence

The enforcement action against E.l.f Cosmetics is a typical example of how human rights violations in the supply chain can introduce a company to financial and reputational risk. Companies that don’t perform effective due diligence are especially vulnerable, an insight that can be traced directly to OFAC’s public report.

According to OFAC, E.l.f Cosmetics’ compliance program was either “non-existent or inadequate throughout the time period in which the apparent violations occurred, and appears not to have exercised sufficient supply chain due diligence.”

Find out more about how Assent can help your company mitigate risk in your supply chain with our Human Trafficking & Slavery Module.

The organization leveraged the report to encourage 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.”

In doing so, companies should approach due diligence from a broad regulatory perspective. Beyond CAATSA, they should consider disclosure-based regulations such as the UK Modern Slavery Act (UK MSA) the California Transparency in Supply Chains Act (CA-TISCA) and the new Australian Modern Slavery Act. U.S. government suppliers have further requirements to engage, such as the U.S. Federal Acquisition Regulation (FAR).

Assent Can Help

Assent’s Human Trafficking & Slavery solution helps companies examine their entire supply chain for links to forced labor through the industry standard Slavery & Trafficking Risk Template (STRT). While the template was recently updated to help identify North Korean labor in the supply chain, it also helps companies perform due diligence for a range of regulatory requirements, including the UK MSA, CA-TISCA and U.S. FAR.

For more information about how Assent can help your company identify and mitigate human trafficking and slavery risk, contact info@assentcompliance.com.