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A $1 million settlement for a company with annual revenues of $270 million is not usually enough to bat an eyelash, except when it has to do with North Korea.
The U.S. Office of Foreign Assets Control says e.l.f. Beauty imported 156 shipments of false eyelash kits, valued at $4.43 million, from two suppliers located in China, and those eyelash kits contained materials the Chinese suppliers sourced from North Korea. The eyelash kits were imported approximately from April 1, 2012 to Jan. 28, 2017.
e.l.f. Beauty has agreed to pay $996,080 to settle its "its potential civil liability for 156 apparent violations of the North Korea Sanctions Regulations."
"During a routine, self-administered audit in early 2017, we discovered two third-party suppliers utilized some materials from the Democratic People's Republic of Korea to produce certain false eyelash kits," the cosmetic company's CEO and Chairman Tarang Amin said a statement to CNBC. Amin noted his company was not aware of the origin of the materials. "These false eyelash kits represented less than 1 percent of e.l.f.'s revenue at the time."
In its statement, the Office of Foreign Assets Control, which is part of the Treasury Department, agreed the beauty company's personnel did not appear to know the material was from North Korea, noted the violations did not make up a "significant" portion of e.l.f. Beauty's business, and said the company immediately disclosed the violation.
Attorney Seth Berenzweig, managing partner of Berenzweig Leonard LLP said problems with supply chain compliance does comes up from time to time.
"But this is a sophisticated cosmetics company, and the length of time — half a decade — and the number of violations, is surprising," he said. Berenzweig was not involved in this case, but has experience in the area of corporate compliance with government regulations.
"We take great pride in doing the right thing and having strong compliance and quality assurance programs," Amin said. "In our 15-year history, we have delivered the best combination of quality, cost and speed in our industry. We are continually enhancing our quality assurance program and are committed to ensuring that all of our products are produced legally and responsibly."
Berenzweig said this is a "cautionary tale" for other retailers. "The only reason the Treasury Department went easy on [e.l.f. Beauty] was because it self-reported and agreed to put in a lot of controls in place to avoid this in the future."