## Facts

- Federal sanctions regulations barred U.S. persons from exporting goods directly or indirectly to Iran, including exports through third countries when the exporter had “knowledge or reason to know” the goods were intended for Iran.
- Epsilon Electronics, Inc., a U.S. car audio/video equipment company, made 39 shipments (about $3.4 million) from 2008–2012 to Asra International, a Dubai-based firm.
- OFAC learned of Epsilon’s activity after a 2008 shipment was sent directly from Epsilon in California to an address in Tehran, Iran.
- After an enforcement investigation, OFAC issued a 2014 penalty notice finding Epsilon violated the regulations by exporting to Asra with reason to know Asra would reexport to Iran, and imposed a $4,073,000 civil penalty tied to all 39 shipments.
- OFAC relied primarily on circumstantial evidence, including Asra’s Iran-focused marketing materials, the Tehran shipment, and communications indicating focus on the Iranian market.
- Epsilon sued under the APA to set aside the penalty, arguing the regulations required proof the goods reached Iran, the “reason to know” finding lacked evidentiary support, and the penalty was arbitrary and capricious.

## Issues

1. Whether the regulations require proof that exported goods actually reached Iran, or instead permit liability when the exporter had “knowledge or reason to know” the goods were intended for Iran.
2. Whether OFAC adequately supported and explained, under APA standards, its “reason to know” determination for all shipments.
3. Whether the civil penalty determination was arbitrary, capricious, or contrary to law.

## Decision

- The court held OFAC need not prove the goods actually arrived in Iran to establish a violation; it is enough to show an export to a third country with “knowledge or reason to know” the goods were intended for Iran.
- The court affirmed OFAC’s violation findings for 34 shipments made between August 2008 and March 2011, concluding the record supported the inference that Epsilon had reason to know of an Iran destination.
- The court reversed as to five shipments in 2012 and remanded because OFAC did not adequately explain why earlier inferences still applied given evidence of changed circumstances and Epsilon’s claimed compliance adjustments.
- Because not all violations were sustained, the matter was remanded for OFAC to reconsider the penalty amount consistent with the narrowed set of affirmed violations.

## Legal Principles

- Under the Iranian sanctions regulations, liability may be based on exporting to an intermediary in a third country when the exporter had “knowledge or reason to know” the goods were intended for Iran; proof of actual delivery to Iran is not required.
- “Reason to know” may be established through circumstantial evidence, including marketing materials identifying Iran as a market, prior direct shipments to Iran, and internal communications reflecting awareness of Iran-related distribution.
- Under the APA, an agency must consider relevant record evidence and provide a reasoned explanation establishing a rational connection between facts found and conclusions reached; when conduct spans multiple time periods, the agency must explain why earlier inferences remain valid if later circumstances differ.
- When a court sustains only part of an agency’s violations, remand is appropriate for reevaluation of remaining determinations and recalculation of any penalty premised on the full set of alleged violations.

## Conclusion

The D.C. Circuit sustained OFAC’s interpretation that sanctions violations can be proven without tracing goods into Iran and upheld most “reason to know” findings based on circumstantial evidence, but required remand where OFAC did not adequately explain the basis for extending those inferences to later shipments and for recalculating the penalty accordingly.


Epsilon Elecs., Inc. v. U.S. Dep't of the Treasury, 857 F.3d 913 (D.C. Cir. 2017)