OFAC announced that it assessed a $4,073,000 penalty against California-based Epsilon Electronics Inc.  Epsilon sells, among other things, audio and video equipment for cars (think of any number of MTV auto-improvement shows).  OFAC alleged that over an almost four-year period from 2008 to 2012, Epsilon sold such equipment valued at over $3.4 million to a UAE company, Asra International Corporation LLC, that “reexports most, if not all, of its products to Iran and has offices in Tehran.”  What is notable about the Epsilon penalty is the rare occurrence that OFAC described sanctions violation as “egregious.”

We have noted from time to time the confusion in OFAC enforcement announcements that describe “non-egregious” cases that appear on the facts provided to be anything but.  But now with Epsilon, we have precedent for what it takes to push OFAC over the limit.  So, what did Epsilon do to warrant the branding of an egregious offender?

Included in OFAC’s allegations were Epsilon’s attempts “to hide or purposely obfuscate its sales to Iran, when it changed a Web site to remove a photo gallery of Epsilon’s products that was labeled ‘Iran’” and “to mislead OFAC by providing false information in its subpoena responses and other letters to OFAC.”  It also doesn’t help that, as OFAC points out, Asra’s website indicated that it only distributed products to Iran (Asra’s website is curiously now under construction).

But what OFAC explicitly identified as its egregious benchmark was violations occurring after OFAC sent a cautionary letter to Epsilon in 2012.  After receiving the letter, OFAC alleged that Epsilon issued five invoices to Asra for products that Epsilon knew or had reason to know were intended for Asra’s resale in Iran.

Whatever the reason for Epsilon’s actions, even if a back-office mishap, the moral of the story is to treat OFAC’s cautioning not as a mere warning but as a pronouncement that OFAC is watching and there is a need to get your house in order.  A decision to continue with business as usual comes at a substantial risk unless a company can satisfy itself that what it is doing does not violate U.S. law.  That may be a tall order when OFAC has already informed you that it suspects violations have occurred.

A debate over OFAC’s adjectival use of “egregious” and “non-egregious” is not a matter of semantics.  Epsilon sold over $3.4 million worth of merchandise and now will be forced to pay that amount and over half a million more to the U.S. Government.  So, when OFAC gives you a yellow light, it’s best to slow down rather than speed up because OFAC has traffic cameras everywhere and your ticket will be in the mail.

Clif adds:  Another thing that accounts for OFAC’s fury and the mega-fine is that Epsilon had the temerity to challenge OFAC and file a response challenging OFAC’s Pre-Penalty Notice.  OFAC rejected Epsilon’s arguments summarily in the Penalty Notice, declining to reduce the proposed penalty by even a nickel.   Suffice it to say, OFAC was not amused by the extra work involved in responding to Epsilon’s objections.

The scarcely concealed ire by OFAC obscures an important issue.  What is at issue here are subwoofers and amplifiers used to pimp out cars in Iran, something that no doubt irks the mullahs and the Iranian government (presumably even more than it irks OFAC) as young Iranians cruise down the street blaring “Swagga Like Us.”   Whatever one may think of such behavior, one thing is certain: playing loud music in a car will not under any circumstances enrich uranium or detonate a nuclear device. Certainly Epsilon deserved a fine here but OFAC should have imposed one more in accord with subwoofers than centrifuges