Epsilon Elecs., Inc. v. U.S. Dep't of the Treasury

• Decision Date: 07 March 2016
• Docket Number: Civil Action No. 14-2220 (RBW)
• Citation: 168 F.Supp.3d 131
• Parties: Epsilon Electronics, Inc., Plaintiff, v. United States Department of the Treasury, Office of Foreign Assets Control, et al., Defendants.
• Court: U.S. District Court — District of Columbia

168 F.Supp.3d 131

Epsilon Electronics, Inc., Plaintiff,

v.United States Department of the Treasury, Office of Foreign Assets Control, et al., Defendants.

Civil Action No. 14-2220 (RBW)

United States District Court, District of Columbia.

Signed March 7, 2016

Teresa N. Taylor, Akrivis Law Group, PLLC, Washington, DC, for Plaintiff.

Caroline J. Anderson, Benjamin Leon Berwick, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION

REGGIE B. WALTON

, United States District Judge

The plaintiff, Epsilon Electronics, Inc., seeks judicial review of the decision of the Office of Foreign Assets Control (“OFAC”), a division of the United States Department of the Treasury (“Treasury”), to impose a civil monetary penalty of $4,073,000 against the plaintiff, following the plaintiff's alleged exportation of goods to Iran in contravention of United States economic sanctions. Complaint (“Compl.”) ¶¶ 8, 22–27, 55. Currently pending before the Court are the parties' cross-motions for summary judgment. Upon careful consideration of the parties' submissions, the Court concludes that the defendants' motion for summary judgment must be granted, and the plaintiff's cross-motion for summary judgment must be denied.¹

I. BACKGROUND

A. The Iran Sanctions Program and OFAC's Regulatory Authority

The United States imposes economic sanctions against foreign nations pursuant to the Trading With the Enemy Act, as amended by the International Emergency Economic Powers Act (“IEEPA”), 50 U.S.C. §§ 1701

–07 (2012). The IEEPA authorizes the President to declare a national emergency “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.” 50 U.S.C. § 1701(a). Under this statute, the President may

investigate, block during the pendency of an investigation, regulate, direct and compel, ify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States ....

50 U.S.C. § 1702(a)(1)(B)

; see generally Regan v. Wald, 468 U.S. 222, 227–28, 104 S.Ct. 3026, 82 L.Ed.2d 171 (1984) (discussing the President's authority under the Trading With the Enemy Act and the IEEPA).

The first economic sanctions against Iran were imposed in 1979, see Exec. Order No. 12170, 44 Fed. Reg. 65,729 (Nov. 14, 1979)

, and the current scheme of sanctions against Iran is embodied primarily in the Iranian Transactions and Sanctions Regulations (“Regulations”), 31 C.F.R. pt. 560 (2014). Most relevant to this case, the Regulations prohibit

the exportation, reexportation, sale, or supply, directly or indirectly from the United States, or by a United States person, wherever located, of any goods, technology, or services to Iran or the Government of Iran ... including the exportation, reexportation, sale, or supply of any goods, technology, or services to a person in a third country undertaken with the knowledge or reason to know that:

(a) Such goods, technology, or services are intended specifically for supply, transshipment, or reexportation, directly or indirectly, to Iran or the Government of Iran; or

(b) Such goods, technology, or services are intended specifically for use in the production of, for commingling with, or for incorporation into goods, technology, or services to be directly or indirectly supplied, transshipped, or reexported exclusively or predominantly to Iran or the Government of Iran.

31 C.F.R. § 560.204

. The Regulations also provide that “no United States person, wherever located, may engage in any transaction or dealing in or related to ... [g]oods, technology, or services for exportation, reexportation, sale or supply, directly or indirectly, to Iran or the Government of Iran.” Id.§ 560.206(a)(2).

The Regulations set forth the procedure OFAC utilizes to adjudicate cases involving alleged violations of the Regulations. Id.§§ 560.703, .704; see also id. pt. 501, App. A, § V.A (describing OFAC's civil penalty process). The IEEPA authorizes civil penalties for violations of the Regulations. 50 U.S.C. § 1705(b)

. And when determining a penalty against a violator, OFAC considers the General Factors listed in its economic sanctions enforcement guidelines. 31 C.F.R. pt. 501, App. A, § III. The amount of the penalty depends in part on whether OFAC determines that the violation is egregious or nonegregious. See id.§ V.B.

B. OFAC's Determinations Regarding the Plaintiff

OFAC learned that in 2008, an entity named Power Acoustik Electronics, Inc. (“Power Acoustik”) sent a shipment to an address in Tehran, Iran, see AR-0001 (airway bill), which prompted OFAC to issue a subpoena to Power Acoustik, see AR-0724 (internal OFAC memorandum describing factual background). In response to the subpoena, Power Acoustik informed OFAC that it had no knowledge of the shipment. AR-0002–03. OFAC closed that investigation with the issuance of a cautionary letter dated January 26, 2012, with OFAC informing Power Acoustik that the Regulations “prohibit virtually all direct or indirect commercial financial or trade transactions with Iran by U.S. persons or within the United States unless authorized by OFAC or exempted by statute,” that the 2008 shipment to Iran “appears to have violated the [Regulations],” and that OFAC could “tak[e] further action in the future should additional information warrant renewed attention.” AR-0006. The cautionary letter also warned that “each violation of the [Regulations] is subject to a civil penalty of up to the greater of $250,000 or twice the value of each underlying transaction,” and that “Power Acoustik's compliance history with regard to economic sanctions administered by OFAC, including any patterns of noncompliance, will be considered if further matters come to OFAC's attention.” Id.

Separately, OFAC also learned that between September 2010 and October 2011, the plaintiff, doing business as Power Acoustik, had received wire transfers totaling more than $1.1 million “from the Commercial Bank of Dubai, P.S.C., which appear[ed] to be on behalf of Asra International Corporation, LLC,” and that these payments “may have been for products destined for Iran.” See AR-0072 (December 2011 administrative subpoena to Union Bank, N.A.). OFAC subsequently issued a subpoena to the plaintiff seeking records relating to its transactions with Asra International Corporation, LLC (“Asra International”). AR-0316. The plaintiff's response to the subpoena included documents regarding 41 sales of audio and video equipment to Asra International spanning the period August 2008 to May 2012, and totaling $3,407,491. See AR-0312–13 (the plaintiff's response to subpoena listing shipments to Asra International); AR-0722 (internal agency memorandum describing sales of car audio and video equipment). OFAC found that five of those transactions post-dated the January 26, 2012 cautionary letter OFAC issued to Power Acoustik. See AR-0313 (describing documentation for shipments to Asra International in March and June 2012); AR-0727 (internal agency memorandum discussing base penalty calculation based on number of “nonegregious” and “egregious” violations).

OFAC did not find any direct evidence that the plaintiff's shipments to Asra International in Dubai subsequently made their way into Iran, AR-0726; however, OFAC did locate an English-language website for Asra International which indicated, in OFAC's determination, that Asra International, and an affiliated entity named Asra Electronic Trading Co., distributed car audio and video products in Iran, see, e.g., AR-0007 (“About Us” web page discussing “Asra Trading Company['s]” “10 long years of experience [i]n Iran's car audio & video market”); AR-0009 (“Contact Us” web page listing an address in Dubai, United Arab Emirates, for Asra International Corporation L.L.C., and an address in Tehran, Iran, for Asra Electornic [sic] Trading Co.); AR-0010–16 (web pages listing addresses for dealers located in Iran). OFAC also discovered that the address on the airway bill for the 2008 shipment from Power Acoustik to Iran was the same address in Tehran listed on Asra International's “Contact Us” web page. AR-0724; compare AR-0001 (airway bill) with AR-0009 (“Contact Us” web page).

OFAC further determined, from a gallery of photographs on the Asra International website, that Asra International distributed “Sound Stream” products in Iran, and that “Sound Stream” is one of the plaintiff's business brands. See AR-0019–68 (photographs of Sound Stream products on the Asra International website); AR-0721 (internal agency memorandum describing the plaintiff as a “closely-held car electronics company in California” that “operates under multiple names, including ... Sound Stream”). OFAC also located a web page for Sound Stream that appeared to display some of the same photographs OFAC found on the Asra International website. AR-0723 (internal agency memorandum describing Sound Stream's archived website).

In light of the evidence it had collected, OFAC issued a pre-penalty notice that set forth its findings, concluding that the plaintiff had violated the Regulations, and listing a “base penalty” of $4,073,000, based on 34 nonegregious violations, i.e., transactions that took place prior to the January 26, 2012 cautionary letter from OFAC to Power Acoustik, and five egregious violations, i.e., transactions that took place after the cautionary letter. See AR-0737–38 (charts attached to OFAC's pre-penalty notice detailing dates and penalties for each violation). The pre-penalty notice informed the plaintiff that it had a right to respond in writing within 30 days. AR-073...