[FULL TEXT IN ORIGINAL PDF]

…

We first consider whether OFAC properly found Epsilon liable for thirty-nine violations of section 560.204 of the Iranian Transactions and Sanctions Regulations. In addressing that issue, we face a threshold question of regulatory interpretation. To hold a party liable for a breach of section 560.204, must OFAC prove that goods shipped by that party actually arrived in Iranian territory? Or can liability rest solely on a showing that the party shipped goods to a third party, with reason to know that the recipient specifically intended to reexport them to Iran?

…

We have explained that an exporter may be found liable under section 560.204 if it ships goods from the United States to a third country, with reason to know that those goods are specifically intended for reexport to Iran, even if the goods never arrive in Iran. OFAC found that Epsilon made thirty-nine such shipments, in each case with the requisite reason to know. We now consider whether the agency's determinations were arbitrary and capricious. This case turns on OFAC's factual determination that Epsilon's conduct contravened section 560.204, and so the central question in the arbitrary-and-capricious analysis is whether substantial evidence supported that determination. See Safe Extensions, Inc. v. FAA, 509 F.3d 593, 604 (D.C. Cir. 2007).

…

Record evidence tends to show that Asra International distributed exclusively in Iran as late as December 2011. Specifically, Asra International's English-language website presented Asra International ("Dubai Asra") as an affiliate of the Asra Electronic Trading Company of Tehran ("Tehran Asra").9 The website's "Contact Us" page, under the heading "Asra International Corporation L.L.C.," listed only two addresses: one for Asra International Corporation in Dubai, United Arab Emirates, and one for Asra Electronic Trading Company in Tehran, Iran. The same website's "About Us" page, again under the "Asra International Corporation" heading, announced that "Asra Trading Company revels in its 10 long years of experience on Iran's car audio & video market," having established "the broadest car audio & video systems distribution and sales network in Iran, supported by 150 of Iran's most reputable sales agents in different cities." A.A. 85. The marketing copy made several references to Asra's success in "the country," implying that the company served only a single country, Iran; indeed, no other countries were mentioned on this page. See id. Finally, the website's "Dealers" tab displayed a long list of sales agents, all located in Iran. OFAC could reasonably infer from this website that Dubai Asra distributed only in Iran, by reexporting goods to Tehran Asra, which then transported those goods to dealers throughout the country.

Epsilon had reason to know these facts, which were available on Asra's public, English-language website. There is also direct evidence that Epsilon had actual knowledge of Asra's website and its contents. Specifically, Epsilon copied images found there to its own website, displaying them in a photo gallery labeled "Iran" as recently as 2012.10 Thus, in addition to demonstrating Epsilon's awareness of Asra's website, these photos suggest that Epsilon actually knew of Dubai Asra's distribution in Iran. Further evidence that Epsilon knew of Dubai Asra and Tehran Asra's connection came in the form of a 2008 freight manifest, recording a shipment from Epsilon's address directly to Tehran Asra's address.

…

We cannot say the same, however, for the final five shipments…. Certain evidence in the record indicated that Epsilon did not have reason to know its last five shipments were intended for reexport to Iran…. OFAC failed to explain adequately why it discounted that evidence. We do not hold that OFAC could not have imposed liability for the last five shipments. That is, we do not opine on whether the record contained substantial evidence supporting a determination of liability for these shipments. See State Farm, 463 U.S. at 52. We hold instead that the agency did not explain why its conclusion about the first thirty-four shipments held for the last five as well, in light of the countervailing evidence presented….

The countervailing evidence in question consists of several email conversations between Epsilon's sales team and Dubai Asra manager Shahriar Hashemi. These emails covered the period between September 2011 and July 2012, the time frame when the last five shipments were sent. Epsilon explained that these emails "contemplate[d] [Epsilon] products being sold out of the Asra store in Dubai."

…

[FULL TEXT IN ORIGINAL PDF]