Epsilon Electronics, Inc. v. United States Department of Treasury, 052617 FEDDC, 16-5118

Docket Nº:16-5118
Opinion Judge:Griffith, Circuit Judge
Party Name:Epsilon Electronics, Inc., Appellant v. United States Department of the Treasury, Office of Foreign Assets Control, et al., Appellees
Attorney:Teresa N. Taylor argued the cause and filed the briefs for appellant. Eric S. Volkman was on the brief for amicus curiae JPM Legal Advisors Worldwide Limited in support of appellant. Lewis S. Yelin, Attorney, U.S. Department of Justice, argued the cause for appellees. With him on the brief were B...
Judge Panel:Before: Rogers and Griffith, Circuit Judges, and Silberman, Senior Circuit Judge. SILBERMAN, Senior Circuit Judge, concurring in part and dissenting in part:
Case Date:May 26, 2017
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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Epsilon Electronics, Inc., Appellant

v.

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

No. 16-5118

United States Court of Appeals, District of Columbia Circuit

May 26, 2017

          Argued November 9, 2016

         Appeal from the United States District Court for the District of Columbia (No. 1:14-cv-02220)

          Teresa N. Taylor argued the cause and filed the briefs for appellant.

          Eric S. Volkman was on the brief for amicus curiae JPM Legal Advisors Worldwide Limited in support of appellant.

          Lewis S. Yelin, Attorney, U.S. Department of Justice, argued the cause for appellees. With him on the brief were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, and Douglas N. Letter and Sharon Swingle, Attorneys.

          Before: Rogers and Griffith, Circuit Judges, and Silberman, Senior Circuit Judge.

          OPINION

          Griffith, Circuit Judge

         In 1995, President Clinton imposed trade sanctions against Iran that are enforced by the Office of Foreign Assets Control within the Department of the Treasury. OFAC is authorized to impose civil penalties against any person who exports goods to a third party who it has reason to know intends to send them to Iran. The principal question raised by this appeal is whether OFAC must also show that the goods actually ended up in Iran. We agree with the agency that the government need not make that showing and affirm the district court on that ground. But we also conclude that OFAC did not adequately explain parts of its determination that the exporter here had reason to know that its shipments would be sent on to Iran.

         I

         When the President identifies an "unusual and extraordinary threat" to the American economy, national security, or foreign policy that originates from abroad, see 50 U.S.C. § 1701, the International Emergency Economic Powers Act authorizes him to declare a national emergency and address the threat by regulating foreign commerce, see id. § 1702. In 1995, President Clinton determined that Iran's "support for international terrorism, its efforts to undermine the Middle East peace process, and its efforts to acquire weapons of mass destruction" represented a national emergency, see Iranian Transactions Regulations, 77 Fed. Reg. 64, 664, 64, 664 (Oct. 22, 2012), and, invoking his authority under the Act, imposed comprehensive trade sanctions on Iran by executive order, see Exec. Order No. 12, 959, 60 Fed. Reg. 24, 757, § 1 (May 6, 1995).

         OFAC implemented the President's executive order in September 1995 by promulgating the Iranian Transactions and Sanctions Regulations, see 60 Fed. Reg. 47, 061 (Sept. 11, 1995), which are now codified, as amended, at 31 C.F.R. pt. 560. Among other prohibitions, the regulations forbid "the exportation, reexportation, sale, or supply, directly or indirectly . . . of any goods, technology, or services to Iran" by United States individuals and businesses, including exportation to a third country with "knowledge or reason to know" that the goods are "intended specifically" for reexportation to Iran. See 31 C.F.R. § 560.204.

         The agency has invoked that prohibition against appellant Epsilon Electronics, a California-based wholesaler of sound systems, video players, and other accessories for cars. The company's wares can be found across the globe, from Latin America to Africa and the Middle East. Asra International Corporation, a distributor based in Dubai, has been one of Epsilon's trading partners. Between 2008 and 2012, Epsilon sent thirty-nine shipments of consumer goods to Asra, valued at about $3.4 million.

         OFAC began investigating Epsilon in 2011, when the agency learned about a 2008 shipment from Epsilon's California headquarters to an address in Tehran, Iran. In response to an administrative subpoena, Epsilon's president denied knowledge of the shipment and suggested that a lower- level employee had sent the package without the company's knowledge.

         Later in 2011, OFAC also learned that Epsilon had received multiple wire transfers from a Dubai bank, made on behalf of Asra International. The agency examined Asra's website, which touted the company's success in the Iranian market, contained a directory of dealers who were all located in Iran, and displayed photos from trade shows in various Iranian cities. Some of these photos also appeared on Epsilon's website. OFAC suspected that the company's shipments to Asra were "destined for Iran, " and opened a second investigation on Epsilon in December 2011. The agency issued an administrative subpoena to Epsilon's bank, seeking information about the company's transactions with Asra.

         In the meantime, OFAC decided to close its investigation of the 2008 shipment. In January 2012, the agency sent Epsilon a letter explaining that the shipment appeared to have violated OFAC regulations, and warning that those regulations "prohibit virtually all" American trade with Iran. Appellant's App. [A.A.] 94. OFAC explained that it would not penalize Epsilon for the shipment but that the agency could take this apparent violation into account in any future case.

         But OFAC did not close its parallel investigation of Epsilon's dealings with Asra. In May 2012, the agency sent Epsilon another administrative subpoena, requesting further details on the company's transactions with Asra and with Iran. Epsilon responded that it had no dealings with Iran and that none of its shipments to Asra were intended for Iran. The company submitted invoices chronicling thirty-four shipments to Asra.

         Between February and May 2012, while OFAC's investigation continued, Epsilon sent Asra five more shipments. During this period, Epsilon managers corresponded by email with an Asra manager, Shahriar Hashemi, who described plans to launch a Dubai retail store under "Asra's flag." A.A. 118. The emails record Hashemi and Epsilon negotiating several orders, and show Hashemi mentioning plans for his showroom, complaining about another Dubai shop selling Epsilon products, worrying about whether Epsilon products could endure Dubai's heat, and anticipating sales to African and Central Asian customers. An Epsilon manager promised Hashemi that the Dubai retail market was "all yours." See A.A. 119.

         In May 2014, OFAC tentatively concluded that all thirty-nine of Epsilon's shipments to Asra violated 31 C.F.R. § 560.204 because each was made with knowledge, or reason to know, that Asra intended to reexport the goods to Iran. The agency sent Epsilon a Prepenalty Notice, declaring its intent to impose a civil monetary penalty of $4, 073, 000, subject to Epsilon's response. OFAC arrived at that dollar amount by applying its penalty guidelines, which required the agency to determine whether any of the violations were voluntarily disclosed and whether any were "egregious." See generally 31 C.F.R. pt. 501, App. A. OFAC found that none of Epsilon's violations was voluntarily disclosed, and that the last five shipments, made after Epsilon received OFAC's January 2012 cautionary letter, were egregious. Though the agency has authority to depart upward or downward from the guideline penalty, it decided not to do so after balancing the aggravating and mitigating factors.

          In July 2014, OFAC issued a final Penalty Notice, formally imposing a $4, 073, 000 civil penalty. The agency had not been persuaded by Epsilon's response to the Prepenalty Notice, which again denied any knowledge or reason to know that Asra distributed Epsilon's products in Iran. The Penalty Notice explained that "multiple facts tend to show that the goods exported to Asra were sent to Iran and that Epsilon knew or had reason to know that the goods were intended specifically for supply, transshipment, or reexportation, directly or indirectly, to Iran." Although the Notice recited much of the evidence against Epsilon, it never mentioned the emails between Epsilon management and Hashemi.

         The issuance of the Penalty Notice was final agency action. See 31 C.F.R. § 560.704. In December 2014, Epsilon sued OFAC in district court. Epsilon's complaint sought declaratory and injunctive relief against enforcement of the civil penalty. On March 7, 2016, the district court granted summary judgment in favor of the government. See Epsilon Elecs., Inc. v. U.S. Dep't of Treasury, 168 F.Supp.3d 131, 147 (D.D.C. 2016).1

         Epsilon timely appealed. We have jurisdiction under 28 U.S.C. § ; 1291, and review de novo the district court's entry of summary judgment in favor of the government. Islamic Am. Relief Agency v. Gonzales (IARA), 477 F.3d 728, 732 (D.C. Cir. 2007). As the Administrative Procedure Act requires, our review is "highly deferential" to the agency, meaning we may set aside OFAC's action "only if it is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." IARA, 477 F.3d at 732...

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