On May 26, 2017, in Epsilon Electronics v. US Department of the Treasury, a split panel of the DC Circuit Court of Appeals partially upheld and partially remanded to the district court a determination by the Treasury Department’s Office of Foreign Assets Control (OFAC) to impose a penalty of over $4 million against Epsilon for violating the Iranian Transaction and Sanctions Regulations, 31 CFR Part 560 (ITSR). (See this link for a summary of the May 2016 district court decision granting summary judgment in favor of OFAC.)
The case, which has been watched with interest by U.S. companies whose products can be found in Iran, considered the meaning and application of an OFAC regulation prohibiting the transshipment of U.S. goods to Iran through third countries. The relevant regulation prohibits U.S. persons from exporting “goods, technology or services to Iran,” including exports to third countries with “knowledge or reason to know” that the exports are “intended specifically” for shipment to Iran. 31 CFR § 560.204.
The transshipment provision is a critical component of the U.S. sanctions program. U.S. sanctions against Iran are far more significant than sanctions that most other countries in the world maintain on Iran, with virtually all trade between the United States and Iran being prohibited by the U.S. government. Thus, companies in the United States that must comply with U.S. sanctions on Iran frequently interact with non-U.S. firms that are not similarly restricted under their local law in their dealings with Iran. For U.S. exporters, this may include trade with wholesalers or distributors in third countries who also do business in Iran. Continue Reading