In May, the US Court of Appeals for the District of Columbia issued a rare ruling reversing in part monetary penalties issued by the Department of Treasury’s Office of Foreign Assets Control (OFAC) against California-based automotive electronics supplier Epsilon Electronics Inc. (Epsilon). OFAC issued a Penalty Notice to Epsilon in July 2014 assessing total monetary penalties of US$4,073,000 from 39 exports to Dubai-based distributor Asra International Corporation LLC (Asra) between 2008 and 2012. According to the Penalty Notice, those exports to Asra violated § 560.204 of the Iranian Transactions and Sanctions Regulations (ITSR, 31 C.F.R. part 560) because they were undertaken with knowledge or reason to know that the goods were intended specifically for export to Iran.
On review, the Court affirmed OFAC’s finding of violations in 34 export transactions. In so ruling, the Court affirmed OFAC’s long-held position that the agency need not show that items ultimately arrived in Iran to establish an export with knowledge or reason to know that the items are intended for reexport to Iran. With respect to the remaining five exports which occurred subsequent to OFAC’s administrative subpoena to Epsilon, however, the Court held that the agency failed to provide a sufficient explanation for its finding of egregious violations in view of certain contrary evidence. The Court remanded the matter to the Federal District Court with instructions to direct OFAC to reconsider those violations and recalculate the overall penalty amount. While the ruling ultimately might have minimal impact on Epsilon’s penalty amount, it could bring about greater transparency in future cases in how OFAC explains its analysis and justifies penalty determinations.