OFAC penalty reversed in Epsilon Electronics case

On 26 May, the US Court of Appeals for the District of Columbia Circuit heard an appeal against a $4million penalty imposed against California audio product supplier Epsilon Electronics by the Office of Foreign Assets Control (‘OFAC’). The case concerned 39 shipments of goods. The Appeals Court found that while 34 of those shipments violated the Iranian Transactions and Sanctions Regulations (‘ITSR’), five further shipments, made in 2012, did not – and remanded the case to the District Court, and OFAC, for consideration of the monetary penalty.

The case has been regarded as remarkable by sanctions lawyers, as one of only a very few challenges to an OFAC determination.

In November 2016, WorldECR reported that in 2014, ‘OFAC made a finding that Epsilon had exported approximately $3.4 million worth of car audio and video equipment to Iran without an OFAC licence and accordingly imposed a penalty of $4 million.’

On New Year’s Eve 2014, the company filed a lawsuit against OFAC seeking a ruling from the United States District Court for the District of Columbia that the penalty imposed was unlawful and excessive, and for Writ of Mandamus to remove or reduce the penalty.

In May 2016, the court found against Epsilon. The company subsequently went to the Court of Appeal, arguing that OFAC imposed its penalty despite failing to prove that any re-exportation of its products had taken place.

Michelle Rosenberg at New York law firm Fox Rothschild writes:

‘The U.S. Court of Appeals for the D.C. Circuit remanded the case to the district court, with instructions to remand the matter to OFAC for further consideration of the alleged 2012 violations relating to the final five shipments, and calculation of the total monetary penalty imposed for all liability findings. While the court found that the government does not need to show that the goods actually ended up in Iran, the court did conclude that OFAC did not adequately explain its determination that Epsilon had reason to know that the goods would end up in Iran. Because OFAC failed to justify its conclusion that Epsilon should be held liable for the last five shipments as well as the first 34, the final liability determinations were deemed capricious and arbitrary.’

She adds: ‘The decision establishes key precedents related to trade compliance. The case shows that OFAC does not need to prove that the goods actually reached the sanctioned country in order to impose penalties. Additionally, the case shows that agency enforcement actions from OFAC can be subject to judicial review. This could lead to enhanced transparency between violators and the government imposing sanctions.’

The judgment is at:
https://www.cadc.uscourts.gov/internet/opinions.nsf/866BFABA6593F5D68525812C0050A696/$file/16-5118-1676917.pdf