ENFORCEMENT INFORMATION FOR SEPTEMBER 13, 2018
Epsilon Electronics, Inc. Settles Potential Civil Liability for Alleged Violations of the Iranian Transactions and Sanctions Regulations and Related Claims. Epsilon Electronics Inc. ("Epsilon"), located in Montebello, California, also doing business as Power Acoustik Electronics, Sound Stream, Kole Audio, and Precision Audio, has agreed to pay $1,500,000 to settle liability arising from OFAC’s discovery of alleged violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (the "ITSR").[1] On July 21, 2014, OFAC issued Epsilon a Penalty Notice alleging that, from on or about August 26, 2008 to May 22, 2012, Epsilon had violated § 560.204 of the ITSR when it issued 39 invoices for sales to Asra International LLC, a/k/a Asra Electronic Trading Co., a company that Epsilon knew or had reason to know that distributed most, if not all, of its products to Iran (the "Alleged Violations").[2]
Epsilon challenged OFAC’s Penalty Notice in the U.S. District Court for the District of Columbia ("D.C. District Court"), which issued an order granting summary judgment in favor of OFAC. See Epsilon Electronics, Inc., v. U.S. Department of the Treasury, Office of Foreign Assets Control, 168 F. Supp. 3d 131 (D.D.C. 2016). Epsilon appealed this order to the U.S. Court of Appeals for the District of Columbia ("D.C. Circuit"), which affirmed in part and reversed in part the D.C. District Court’s order, remanding the case to the D.C. District Court with instructions to remand the case to OFAC for further consideration. See Epsilon Electronics, Inc., v. U.S. Department of the Treasury, Office of Foreign Assets Control, 857 F.3d 913 (D.C. Cir. 2017).
This settlement amount reflects OFAC’s further consideration of the case, in light of the D.C. Circuit’s decision and pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.
OFAC considered the following to be aggravating factors: (1) the Alleged Violations constituted or resulted in a systematic pattern of conduct; (2) Epsilon exported goods valued at $2,823,000 or more; and (3) Epsilon had no compliance program at the time of the Alleged Violations.
OFAC considered the following to be mitigating factors: (1) Epsilon has not received a Penalty Notice or a Finding of Violation in the five years preceding the transactions that gave rise to the Alleged Violations; (2) Epsilon is a small business; and (3) Epsilon provided some cooperation to OFAC, including entering into an agreement to toll the statute of limitations for one year.
OFAC and Epsilon have agreed to settle the civil liability arising from the Alleged Violations, including the issuance of the prior Penalty Notice and the subsequent litigation in the D.C. District Court and the D.C. Circuit. OFAC also notes that, following litigation of the Alleged Violations, Epsilon took additional remedial actions to address the conduct that led to the Alleged Violations, including terminating its relationship with Asra International LLC and instituting an OFAC sanctions compliance program.
For more information regarding OFAC regulations, please go to: www.treasury.gov/ofac.
[1] On October 22, 2012, OFAC changed the heading of 31 C.F.R. part 560 from the Iranian Transactions Regulations to the ITSR, amended the renamed ITSR, and reissued them in their entirety. See 77 Fed. Reg. 64,664 (Oct. 22, 2012). For the sake of clarity, all references herein to the ITSR shall mean the regulations in 31 C.F.R. part 560 in effect at the time of the activity, regardless of whether such activity occurred before or after the regulations were renamed.
[2] See Release of OFAC Enforcement Information, July 25, 2014, https://www.treasury.gov/resource- center/sanctions/OFAC-Enforcement/Pages/20140725.aspx.
1) This updated enforcement action extract was issued subsequent to the partial reversal of OFAC's initial penalty in Epsilon Electronics, Inc. v. U.S. Dep't of the Treasury, 857 F.3d 913 (D.C. Cir. 2017).
2) The settlement does not appear to contain any substantive legal determinations that were not already apparent from the 2014 enforcement action notice. Note that the reduction in the penalty amount from the original $4,073,000, to the $1.5m ultimately paid was the result of the challenges to OFAC's initial determination, since the DC Circuit only remanded to OFAC a small fraction of the overall number of violations. The reduction in penalty is best explained by the fact that, given that Epsilon decided to sue OFAC in 2014 instead of settle, the initial penalty assessed was well in excess of what OFAC would have agreed to in the context of a settlement. The original assessment was the full base penalty, as calculated in the pre-penalty notice.
2) See Civil Enforcement Information - Epsilon Electronics Inc. (1 of 2 (2014)) for substantive comment on the case pre-settlement.