OFAC Fines Italian Animation Company for Violating North Korea Sanctions
The U.S. fined an Italian animation company $538,000 after it violated U.S. sanctions by outsourcing work to an animation studio owned by the North Korean government, the Office of Foreign Assets Control said in an enforcement release. The company, Mondo TV, illegally used U.S. banks to send money to the studio through wire transfers, OFAC said.
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Although Mondo didn’t voluntarily disclose the violations and didn’t have a sanctions compliance program in place, OFAC said the case was “non-egregious” and noted that Mondo cooperated with the agency’s investigation. In total, the company sent about $537,939 to the North Korean studio.
OFAC said Mondo first began working with the Scientific Educational Korea (SEK) Studio, which is owned by the North Korean government, in the 1990s when it subcontracted children’s animation work to SEK. Over time, Mondo “accumulated” more than $1.1 million in debt that it owed to SEK for several projects, and in July 2019 the two sides agreed that Mondo would pay SEK in monthly installments for work SEK completed before 2016, when OFAC said Mondo “paused their relationship due to human rights concerns.” The two sides also agreed they would continue working together on new projects later that year, OFAC said.
SEK’s invoices to Mondo named third-party companies and their U.S. bank account details, including companies in China and the U.S. Mondo sent the monthly payments to these “intermediaries,” OFAC said, and “appeared to believe the payments to these third-party companies were to satisfy debts SEK had to these companies.”
Between May 2019 and November 2021, Mondo initiated 18 wire transfers for payments to SEK that were processed by or settled at U.S. financial institutions, OFAC said. Those transfers included 12 payments to a U.S. company’s account at a U.S. bank, one U.S. dollar-denominated transfer that was cleared by a U.S. correspondent bank, and five transfers to a foreign company’s account at a U.S. bank.
OFAC said Mondo “understood” it was paying a North Korean company, noting Mondo’s CEO approved and signed the agreement, “which made explicit reference to North Korea.” The agency also said various invoices, payment receipts and emails between Mondo’s management and SEK officials “frequently identified” North Korea or Pyongyang, and Mondo’s chief operations officer and legal officer “personally approved” all the transactions.
“Mondo did not have a sanctions compliance policy at the time the conduct at issue occurred,” OFAC said.
The agency said it could have fined Mondo more than $6 million but settled on a lesser amount because the company provided “substantive assistance supporting broader U.S. government policy objectives” and cooperated with OFAC’s investigation by giving the agency “additional documents” and “promptly” responding to requests for information. The company also hadn’t received a penalty notice in the previous five years.
OFAC also pointed to several factors that contributed to the penalty, including that Mondo “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.
The case highlights how remittances through the U.S. financial system may expose foreign companies to sanctions risks -- even for payments “originating in a foreign currency” -- if the payment is meant for a sanctioned party, OFAC said. “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 efforts to mitigate the attendant risk.”
OFAC also stressed that those risks are “heightened” in sectors in which North Korea “is known to operate.” While the country is “broadly known” to be involved in drug trafficking, cyber hacking and other illegal activities, OFAC said “it also generates revenue for the regime through otherwise legitimate commercial activities such as graphic animation or other information technology (IT) sector activities.”
The case also shows “how 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,” OFAC said. Compliance programs “can help identify sanctions exposure associated with business partners or activities.”
Mondo didn't immediately respond to a request for comment.