Legally Armed: January 2018

By Teresa G. Ficaretta, Esq. & Johanna Reeves, Esq.

16th Annual Firearms Import/Export Conference—Getting Better Every Year

The F.A.I.R. Trade Group and National Shooting Sports Foundation (NSSF) exceeded all expectations with the 16th Annual Firearms Import/Export Conference. The conference was held August 2-4, 2017, at the Grand Hyatt in Washington, DC, and was attended by over 300 industry members, attorneys, consultants and government representatives.

I. August 2 Optional Add-on Sessions

Two optional add-on sessions were offered to attendees. The first session, “The Ins and Outs of Export Documentation” was presented by NSSF consultant Kim Pritula. The second session, “ITAR Agreements, How to Prepare Applications, Amendments, and Implement Approvals” was presented by attorneys Johanna Reeves and Katherine Heubert, both from the law firm Reeves & Dola, LLP. The seminar structure of these sessions provided registrants a valuable opportunity to dive into compliance fundamentals in a smaller-group atmosphere. Both sessions received high praise from attendees, and conference representatives have confirmed next-year’s conference will include optional add-on sessions again, although the topics have not yet been decided.

II. August 3 Presentations

Federal Search Warrants and Regulatory Site Visits—Know the Difference

The first full day of the session began with the presentation, “Federal Search Warrants and Regulatory Site Visits–Know the Difference.” The presenters were attorneys Jeff Beatrice, from the DC office of Bradley Arant Boult Cummings, and Teresa Ficaretta from the DC law firm Reeves & Dola. Mr. Beatrice outlined the tools federal agencies use in conducting criminal investigations, including interviews, grand jury subpoenas and criminal search warrants. He gave tips for conduct during execution of a search warrant and recommendations for answering questions and putting things in writing. Ms. Ficaretta gave a presentation on ATF regulatory compliance inspections, covering ATF’s authority to conduct warrantless inspections, how to prepare for an inspection and what to expect when ATF representatives arrive at the licensed premises. She also outlined sanctions ATF may impose on licensees who fail to conduct their businesses in compliance with the law.

Chemical Facility Anti-Terrorism Standards

The second presenter was Ms. Kelly Murray, Deputy Branch Chief, Compliance, from the Department of Homeland Security (DHS). Ms. Murray gave an overview of the requirements of the Chemical Facility Anti-Terrorism Standards (CFATS) that apply to certain “chemicals of interest.” The purpose of the CFATS program is to prevent an attack on a chemical facility that could cause death and injury. Ms. Murray explained that the term “chemicals of interest” is defined in implementing regulations to include certain compounds used in the manufacture of firearms and ammunition. Such chemicals include potassium nitrate, sodium nitrate, aluminum powder, RDX, HMX and PETN. She also explained that only threshold quantities of chemicals of interest are subject to CFATS, and certain other exemptions apply. If a facility is in possession of threshold quantities of the chemicals, then the facility must provide information to DHS so a risk assessment may be conducted.

Significantly, Ms. Murray pointed out that chemicals incorporated into articles are not subject to CFATS. Accordingly, propellant powder incorporated into complete rounds of ammunition is not subject to CFATS. Primers made with chemicals of interest are likewise exempt. Ms. Murray also indicated that facilities are excluded from the statute if they are owned by the Department of Defense.

Ms. Murray advised that DHS has authority to fine a facility if it fails to notify the agency it is in possession of threshold quantities of chemicals of interest. The agency also has the authority to issue an order to cease operations for a facility’s failure to comply with the law and regulations.

During a question and answer session Ms. Murray clarified that smokeless powder and black powder are not reportable as chemicals of interest.

This is the first Import/Export conference representatives from CFATS have attended, and attendees appreciated the information provided by the enthusiastic and knowledgeable DHS representative.

Foreign Military Sales Programs

Michael Slack from the U.S. Department of Defense, Defense Security Cooperation Agency, provided an invaluable and intriguing overview of the Foreign Military Sales (FMS) Program. Mr. Slack walked through the role of the FMS program in supporting the foreign policy of the United States through government-to-government sales of defense articles and defense services. He explained how FMS sales are made, the role of Congress and the conditions imposed on foreign partners. He also explained the differences between FMS and direct commercial sales.

The United States government provides a wide range of services and training to help U.S. exporters market their products abroad. Important information is available at http://export.gov/.

Lunch with Keynote Speaker Kevin Wolf

The conference keynote speaker was Kevin Wolf, former Assistant Secretary of Commerce for Export Administration in the Department of Commerce and now a partner with Akin, Gump, Strauss, Hauer & Feld. Mr. Wolf, always an entertaining and informative speaker, gave attendees an update on the status of Export Control Reform, which began during the Obama Administration.

Bureau of Alcohol, Tobacco, Firearms and Explosives—Panel

Marvin Richardson, Assistant Director for Enforcement Programs and Services, lead an hour-long panel made up of officials from the ATF Office of Enforcement Programs and Services. The ATF officials provided important updates from their respective offices as follows: Curtis Gilbert, Deputy Assistant Director of Enforcement Programs and Services, Andy Graham, Deputy Assistant Director of Field Operations, Krissy Carlson, Chief of the Firearms and Explosives Industry Division, Earl Griffith, Chief of the Firearms and Ammunition Technology Division, Alphonso Hughes, Chief of the National Firearms Act Division, Gary Taylor, Chief of the Firearms and Explosives Services Division and Andrew Lange, Chief of the Office of Regulatory Affairs.

ATF has always provided significant support to this conference. Indeed, the agency worked with the F.A.I.R. Trade Group back in 2002 to bring together government and industry representatives to publicly discuss issues and challenges specific to munitions imports. Although the agency no longer sponsors the conference, it continues to be a critical part. This year, ATF brought close to 50 of its officials and employees to the conference, who remained available to attendees throughout the entire day, and made up the majority of the conference round tables, which took place in the afternoon of August 2.

Field Operations

Standard Operating Procedures (SOPs) for DOD contractors. ATF is in the process of developing such SOPs, but the target date for release is not known.

The ATF Major Inspection Team (MIT) consists of 30 Industry Operations Investigators specially trained to conduct inspections of large-volume manufacturers, importers and dealers. The goal behind the MIT is to yield faster inspections with less disruption to the industry member. In 2016, ATF deployed four MITs. The number of MIT inspections have increased in 2017 to six, as of the date of the conference.

The current number of Industry Operations Investigators throughout the entire country is 790, but 48 more are expected to come on board in 2018. On the date of the conference, ATF field divisions had 162 active inspections of federal firearms licensees. According to ATF, the results indicate a high level of compliance.

Office of Regulatory Affairs

The new Executive Orders on reducing regulations and controlling regulatory costs impose significant barriers to ATF’s ability to amend the regulations. This includes the F.A.I.R. Trade Group petition to change the Form 9 from an application to a notice. While ATF views the F.A.I.R. petition positively, its ability to move forward on the rulemaking is hampered significantly by President Trump’s Executive Order 13771 (Jan. 30, 2017), which requires removal of two regulations for each new regulation.

eRegulation project: Available at https://regulations.atf.gov, project will link ATF regulations to related published information, including rulings, open letters, Federal Register publications and a regulation timeline showing recent revisions.

Firearms and Ammunition Technology Division

Six new Firearms Enforcement Officers (FEOs) have been hired and trained, bringing the total number of FEOs to 12. The increase has resulted in a reduction in processing time for firearms classifications to 30 to 90 days.

The processing time for most marking variances is now 30 days.

In 2017 to date, the Firearms Industry Services Branch has processed 250 firearms classifications.

National Firearms Act Division

This new Division, established in April 2017, is made up of two branches: the NFA Industry Processing Branch, headed by Amy Stely, is responsible for industry forms processing and has 29 employees. The second branch, the NFA Government Support Branch, has nine employees and is headed by David Howell. This branch processes special (occupational) tax applications, Form 10 processing, exemption applications under section 479.33 and industry expedite requests for government and law enforcement. The Government Support Branch also provides expert testimony in ATF cases.

The Division is currently evaluating business processes with the goal of streamlining those processes. So far, the review has resulted in new processes for data entry so that the process now takes 72 hours instead of two to three months.

There is still a backlog of Form 4 transfer and registration applications received before the effective date of ATF Rul 41F. To address the backlog, the Division has adopted new processes for applications to transfer firearms to trusts, and employees are working overtime each week. The goal of the Division is to reduce Form 4 processing from nine months to six months.

Firearms and Explosives Services Division—Imports

The current processing time for the Form 6 permit application is 13 to 15 days.

Current staffing levels in the Imports Branch: 6 Specialists and 6 Legal Instruments Examiners.

Form 6 import permit application currently under review, and a new revised version should be available soon.

In light of the recent Office of Foreign Assets Control sanctions imposed on the Russian firearms manufacturer Molot-Oruzhie, OOO, ATF will be providing guidance in the near future.

Firearms and Explosives Industry Division

Newest release of the State Laws and Published Ordinances publication, 32nd edition, is only available electronically on ATF’s website at www.atf.gov/firearms/state-laws-and-published-ordinances-firearms-32nd-edition.

A new Federal Firearms Regulations Reference Guide will be published soon, exact date to be determined.

ATF will publish new rulings on marking of firearms with synthetic frames, electronic storage of Forms 4473.

Round Table Sessions

For the last several years, since F.A.I.R. and NSSF first introduced the round tables to the conference agenda, the feedback has been extraordinarily positive. These sessions allow attendees to speak informally with representatives from federal agencies and outside experts. This year, F.A.I.R. and NSSF offered 25 tables with representatives from the Department of Homeland Security, Department of Commerce, Census, State Department, Customs, Treasury-OFAC, Alcohol and Tobacco Tax and Trade Bureau and ATF, as well as tables with outside experts on ITAR agreements, federal search warrants and regulatory site visits.

IV. August 4 Presentations

Panel on Prohibited and Embargoed Countries

The second full day of the conference began with an informative panel discussion titled “Prohibited and Embargoed Countries, the Government’s Perspective.” The panel was chaired by Johanna Reeves from Reeves & Dola, LLP, and the panelists were William Argue from Homeland Security Investigations; Elizabeth Cannon, a federal prosecutor from the Department of Justice, Export Control and Sanctions Section; and Steve Goodman, a Special Agent from the Counter-Proliferation Investigations Unit of Homeland Security Investigations.

Ms. Reeves opened the panel by stating that the goal of prohibiting exports of defense articles and defense services to prohibited and embargoed countries is to safeguard national security so this sensitive equipment may not be used against the U.S. She noted that globalization makes this a difficult goal. Panelists agreed that our export controls integrate with national security policies. Ms. Cannon noted there is no shortage of export cases involving the Export Administration Regulations and the International Traffic in Arms Regulations. Despite a high volume of prosecutions, she noted that defense articles continue to leave the country illegally. She noted how important it is for federal prosecutors to work with the licensing agencies and the intelligence community.

Mr. Goodman noted that export investigations are complex and working with members of industry is essential. He assured attendees that when they receive a visit from an investigator this does not mean they did something wrong. Mr. Goodman emphasized the importance of gathering information from industry members to prevent and deter illegal exports.

Ms. Reeves asked panelists to list potential red flags industry members should look for to identify potential unlawful exports. Mr. Argue emphasized the importance of knowing your customer and ensuring sellers know where their products are going. This is the case even if the products are being purchased for domestic use. Mr. Goodman stated that cash payments are suspicious, as are requests to ship products quickly. He also said multiple e-mails requesting the same products from different parts of the world bear further inquiry. Any inconsistencies from usual sale transactions should be viewed with caution.

All panelists urged industry members to contact federal investigators if there are any suspicious attempts to purchase their products. They recommended contacting the ICE tip line at 866-DHS-2-ICE. There is also an HSI tip form available online.

Update on State Department/DDTC IT Modernization

Kimberly Hancher from the Department of State Directorate of Defense Trade Controls (DDTC) provided an update on the State’s IT modernization project. She announced that the new Defense Export Control & Compliance System (DECCS) is up and running and will be handling commodity jurisdiction requests. DECCS will soon take over case tracking from the current MARY system and will eventually replace the DTrade system currently used for most licenses. The modernization process will improve security for State and users and include a dashboard to track the status of all license submissions.

State Department Export Licensing and Agreements

The final segment was on compliance under the International Traffic in Arms Regulations. The presenters, Tom Trotto, Drew Bayliss and Don Fanning, were all licensing officers from Licensing Division 6 at the U.S. Department of State, Directorate of Defense Trade Controls. Their presentation included an overview of DDTC and other federal agency stakeholders in export controls, export license application preparation and common critical errors with the license application forms or support documentation, DDTC policies on denying licenses or returning licenses without action (the dreaded “RWA”) and important pointers on how to avoid license denials and RWAs.

Conclusion

The 16th Annual Import/Export Conference provided members of the firearms industry with invaluable information about regulatory compliance. Unmatched in industry expertise, this pinnacle event in the firearms and ammunition industries continues to be the only conference strictly focused on import and export trades brought to the industry by the industry. Each year the conference gets better, and we look forward to attending again next year.

The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.