Admittedly, I’m late to the party on this, but as you likely already know the D.C. Circuit has issued its decision in the Epsilon Electronics v. U.S. Department of the Treasury litigation that I have spent so much time writing on over the past two years. There is a lot to unpack from that decision–and I will likely try to get to all of it in future posts–however, today’s post concerns an interesting point that the D.C. Circuit made in its opinion which is not getting as much attention as it (in my opinion) deserves. That distinction relates to when liability for an attempt to violate the Iranian Transactions and Sanctions Regulations (“ITSR”) can be found.
The Epsilon decision made clear that an item need not physically end up in Iran in order for there to be a violation of 31 C.F.R. § 560.204 for a prohibited reexport of U.S.-origin goods to Iran. The Court held that the prohibited export occurs at the time that item(s) are placed in transit with knowledge or reason to know that they are destined for Iran. What was perhaps more interesting, however, was the way that the Court dealt with Epsilon’s suggestion that such an interpretation–that the prohibited export occurs at the time that the items are placed in transit–would render the “attempt” prohibition of 31 C.F.R. § 560.203(a) superfluous. The Court, while sidestepping an invitation to define attempt liability for § 560.204 violations, noted that all that was required for a § 560.203(a) violation was a substantial step towards commission of the proscribed act and the requisite mental state. The Court then went on to offer an example of a merchant who signs a sales contract with an Iranian business, but has not yet put any goods in transit for export, perhaps being liable for an attempt to violate § 560.204–and therefore would have violated § 560.203(a)–but without having actually violated § 560.204.
In doing so, the Court cited a decision from a 2014 criminal case, United States v. Hite, 769 F.3d 1154 (D.C. Cir. 2014). What’s curious about the D.C. Circuit’s reliance on Hite, is that it was specific to the the concept of attempt in federal criminal law. Indeed, the Court in Hite noted that the general meaning of “attempt” in federal criminal law was an action constituting a “substantial step” towards commission of a crime and performed with the requisite criminal intent. See, e.g., Braxton v. United States, 500 U.S. 344, 349, 111 S.Ct. 1854, 114 L.Ed.2d 385 (1991) (“For Braxton to be guilty of an attempted killing under 18 U.S.C. § 1114, he must have taken a substantial step towards that crime, and must also have had the requisite mens rea.”).
This concept of a “substantial steps” test is also referred to in the Model Penal Code, and is used to clarify or simplify the analysis as to whether a crime has been attempted for purposes of determining criminal liability. In other words, the test assists in making a determination as to whether certain conduct was substantial enough to lead to criminal liability for an attempted crime versus conduct that was merely carried out in preparation for a crime. This test has two parts: 1) the party has undertaken an act or omission constituting a substantial step in a course of conduct planned to culminate in a commission of the crime; and 2) where the party’s actions are strongly corroborative of the actor’s criminal purpose.
What’s puzzling about relying upon a substantial steps analysis in finding an attempted violation of the ITSR is that a violation of ITSR does not require a finding of mens rea, as–like all most OFAC prohibitions–liability is determined on a strict liability basis. Thus, unless there is a finding as to willfullness–thereby criminalizing the sanctions violations–a sanctions civil violation does not require a finding as to mens rea. It’s notable that Epsilon’s conduct was addressed through the imposition of a civil penalty, not a criminal fine, therefore there was no prosecution of Epsilon or concomitant finding as to willfullness.
The D.C. Circuit’s application of a “substantial steps” test for a finding of a civil violation for an attempt to violate the ITSR, may have just provided a means rea requirement to attempt under § 560.203. Although the opinion discussed utilization of the substantial steps test in regards to finding attempt liability in relation to a violation of § 560.204–which has a mens rea/knowledge requirement–the opinion did not state that such a test was exclusive to 560.204 or other prohibitions which have such mens rea requirements. Rather, it merely stated “…we note that attempt liability requires only a ‘substantial step’ toward commission of the proscribed act (plus the requiste mental state).” While one can make the argument that the substantial step test can still apply in relation to strict liability crimes, as the requisite mental states is no particular mental state–that seems to not jibe with traditional notions of attempt liability or what the Circuit said in Hite. Moreover, my limited research on that point has also not found any authority to support that argument.
This then raises the question: did the D.C. Circuit usurp the ability of OFAC to determine attempted violations of ITSR regulations under 560.203(a) on a strict liability basis? Can they do that? I’m fairly confident the answer is no on both accounts. I haven’t done exhaustive research on the second point, but my gut is that it cannot, given that the statutory authority for the ITSR–The International Emergency Economic Powers Act–does not impose any mens rea requirements for civil violations of prohibitions imposed pursuant to its authority. As to the first point, I don’t think that’s what the necessarily intended to do. However, it does seem that their raising a substantial steps test for attempt liability under the ITSR sufficiently muddies the waters enough so that this issue will arise again in future OFAC enforcement cases.
While the Epsilon decision is being heralded by some as a victory for OFAC, and others as a victory for Epsilon, it is clear that it has provided at least some hope to those seeking to defend themselves against, or otherwise challenge, OFAC enforcement actions. It is also certain that this case will be cited and relied upon in future challenges. It’s my belief that at some point in those challenges, the courts will have to address what exactly the D.C. Circuit was trying to get at in relation to attempt liability and Footnote 4 of the decision.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or firstname.lastname@example.org