Epsilon Electronics, Inc. v. United States Department of the Treasury, Office of Foreign Assets Control, 168 F. Supp. 3d 131

Background

Epsilon Electronics (doing business as Power Acoustik/Sound Stream) sold car audio/video equipment to Asra International in Dubai between 2008–2012; OFAC investigated whether shipments were destined for Iran in violation of Iran sanctions (31 C.F.R. pt. 560).
OFAC’s investigation found website evidence tying Asra to distribution in Iran, an airway bill matching an Iranian address, and payments routed through Commercial Bank of Dubai; Epsilon’s records showed 41 sales to Asra totaling ~$3.4 million.
OFAC issued a pre-penalty notice treating 34 transactions as nonegregious (pre-cautionary letter) and 5 as egregious (post-cautionary letter) and proposed a base penalty of $4,073,000; Epsilon responded and denied knowledge goods went to Iran.
OFAC issued a final penalty notice in July 2014 sustaining the $4,073,000 civil penalty; Epsilon sued under the APA and asserted Fifth and Eighth Amendment challenges.
The district court reviewed the administrative record under the APA’s deferential standard and upheld OFAC’s factual findings, egregiousness determination, mitigation weighting, and forfeiture proportionality.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether OFAC reasonably found Epsilon had "reason to know" Asra distributed predominantly in Iran (transshipment rule)	Epsilon: Asra UAE and Asra Iran are distinct; no evidence shipments actually reached Iran; guidance supports ‘‘inventory exception’’.	OFAC: website, dealer listings, photos, and airway-bill link showed Asra’s Iran distribution and gave Epsilon reason to know.	Court: Affirmed OFAC; record evidence sufficed to impute reason to know.
Whether five post‑caution transactions could be deemed “egregious” and penalized at statutory max per transaction	Epsilon: Transactions were de minimis in value; imposition of $250,000 each is arbitrary.	OFAC: Guidelines direct use of statutory maximum for egregious cases that were not self‑disclosed; emphasis on willfulness/awareness.	Court: Affirmed OFAC’s application of guidelines and statutory maxima as not arbitrary.
Whether OFAC failed adequately to consider mitigating factors or violated procedural due process	Epsilon: OFAC underweighted cooperation, small‑business status; pre‑penalty notice and subpoenas were insufficient for meaningful response.	OFAC: Identified mitigating and aggravating factors and balanced them; provided subpoenas, pre‑penalty notice, and opportunity to respond in writing.	Court: Affirmed OFAC’s weighting (net zero adjustment) and held process provided adequate notice and opportunity to be heard.
Whether the $4,073,000 penalty violates the Eighth Amendment or is arbitrary under the APA (disparate treatment)	Epsilon: Fine is grossly disproportionate and risks bankruptcy; cites a smaller OFAC penalty in a different case (Blue Robin).	OFAC: Penalty is ~1/3 of the statutory maximum, justified by $3.4M in trade benefiting Iran; Blue Robin facts differ materially.	Court: Fine not grossly disproportionate; OFAC’s sanctioning consistent with precedent and reasoned differences from Blue Robin.

Key Cases Cited

Regan v. Wald, 468 U.S. 222 (discussing executive authority under Trading With the Enemy Act and IEEPA)
Camp v. Pitts, 411 U.S. 138 (court reviews agency action on administrative record without de novo factfinding)
Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402 (administrative decisions must consider relevant factors; standard for arbitrary and capricious review)
Holy Land Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156 (deferential review of OFAC decisions in national security/foreign affairs context)
Auer v. Robbins, 519 U.S. 452 (deference to agency’s interpretation of its own regulations)
United States v. Bajakajian, 524 U.S. 321 (Eighth Amendment excessive fines proportionality principle)
Pharaon v. Bd. of Governors, 135 F.3d 148 (review of agency sanctions and standard for overturning sanctions)