OFAC Settles with Mondo TV for $538k for Violation of North Korean Sanctions
OFAC has been busy and not so busy — what do I mean?
OFAC is administering a complex set of coordinated sanctions against Russia, in close coordination with the EU and the UK. This is not a simple matter. In addition to this close coordinating responsibility, the United States and its allies are expanding the reach and bite of the sanctions to restrict Russia and other countries from mitigating the impact of the sanctions. In so doing, OFAC is pushing sanctions enforcement into new areas and relying on techniques that, up till now, had been rarely employed. For example, OFAC’s imposition of a large number of secondary sanctions against foreign financial institutions and foreign companies is unprecedented in scope and impact. For OFAC, this project is an all-hands-on-deck project that requires extensive resources, effort and dedication.
When considered in this light, the ability of OFAC to process and complete “routine” sanctions enforcement actions has been difficult. Nonetheless, OFAC just announced its third separate enforcement action for the year.
The Mondo TV case is an important reminder that foreign activities can fall under U.S. jurisdiction when the foreign entities rely on U.S. financial insotutions to make payments or receive funds in U.S. Dollars. Foreign entities have to avoid reliance on U.S. correspondent banking accounts to prevent sanctions violations. OFAC has issued warnings on this issue over the last several months to remind foreign entities that use of the U.S. financial system will result in U.S. jurisdiction for sanctions enforcement purposes.
Mondo TV first started to work with the Scientific Educational Korea (SEK) Studio in the 1990s. SEK is owned by the North Korean government. Mondo accumulated over $1.1 million in debt and in July 2018, Mondo TV agreed to pay SEK in monthly installments for work SEK completed in 2016.
SEK issued invoices to Mondo TV by substituting third parties and thier U.S. bank account details, including companies in China and the United States. Mondo TV sent the payments to intermediaries and believed that these payments to the third parties were being made to satisy SEK’s debts to these third parties.
During the period May 2019 and November 2021, Mondo completed 18 wire transfers to SEK that were processed by U.S. banks, including 12 payments to a U.S. company’s account at a U.S. bank.
Notwthstanding Mondo TV’s claimed belief in the purpose of the payments being made to satisfy SEK’s debts to the third parties, Mondo TV “understood” it was paying a North Korean company. OFAC cited the fact that Mondo’s CEO approved and signed the agreement with SEK, which specifically referred to North Korea. Emails and related documentation regularly referenced payments to North Korea and Mondo TV’s COO and Chief Legal Officer approved the payments. Modo TV sent a total of $537,939 to SEK.
Mondo did not voluntarily disclose the matter to OFAC and Mondo TV did not have a sanctions compliance policy in place. Mondo TV cooperated with the investigation by giving the agency “additional documents” and “promptly” responding to requests for information.
OFAC noted that Mondo TV “acted with reckless disregard” for U.S. sanctions laws, caused U.S. banks to deal in the property and interests in property of the North Korean government and export financial services to the country. The agency also noted that Mondo’s senior management knew it was doing business with a North Korean entity and said Mondo “harmed” U.S. foreign policy objectives by providing revenue to the North Korean government. OFAC also noted that there are “heightened” risks in dealing with any company linked to North Korea, and that companies have to understand that North Korea sometimes operates through otherwise legitimate companies in the graphic animation and information technology sectors.
