Industry News: V18N2

By Robert M. Hausman

Kerry Signs U.N. Arms Trade Treaty

The United States Secretary of State, John Kerry, has signed the U.N. Arms Trade Treaty (ATT) regulating the $70 billion global trade in conventional arms, which will attempt to violate the Constitutional rights of Americans.

“The Obama administration is once again demonstrating its contempt for our fundamental, individual Right to Keep and Bear Arms,” said Chris W. Cox, executive director of the NRA’s Institute for Legislative Action. “This treaty threatens individual firearm ownership with an invasive registration scheme. The NRA will continue working with the United States Senate to oppose ratification of the ATT.”

Among the NRA arguments against the treaty are that it undermines American sovereignty and that it disregards the Second Amendment. A bipartisan majority of the U.S. Senate is already on record in opposition to ratification of the ATT.

Notably, the ATT includes “small arms and light weapons” within its scope, which covers firearms owned by law-abiding citizens. Further, the treaty urges recordkeeping of end users, directing importing countries to provide information to an exporting country regarding arms transfers, including “end use or end user documentation” for a “minimum of ten years.” Each country is to “take measures, pursuant to its national laws, to regulate brokering taking place under its jurisdiction for conventional arms.” Data kept on the end users of imported firearms is a de-facto registry of law-abiding firearms owners, which is a violation of federal law. Even worse, the ATT could be construed to require such a registry to be made available to foreign governments. Fortunately, it has no force of law unless the Senate ratifies it.

NFATCA Statement on ATF Notice of Proposed Rulemaking

The National Firearms Act Trade & Collectors Association, has issued the following (excerpted by the author) statement on ATF’s proposed rulemaking regarding acquisition of NFA firearms by entities.

“Many are livid over the fact that it appears as though NFATCA caused or asked for the changes discussed in the Executive Action presented by Vice President Joe Biden in a draft Notice of Proposed Rule Making (NPRM). The NFATCA shares the anger and venom of the firearms community in response to these proposed actions and rule-making efforts. Be clear: We did not ask for what the White House is trying to deliver. Let’s take a look at how we got to this point.

“The NFATCA began in the Bush administration and enjoyed the benefit of working with an ATF that was willing to engage in constructive dialogue. That cooperative environment actually worked for many years, until our current President was elected and subsequently re-elected. Our cooperative resources within ATF still existed, but they became increasingly reluctant to engage in productive activity with us.

“The NFATCA began its efforts to eliminate the Chief Law Enforcement Officer (CLEO) signature requirement on several NFA forms over nine years ago. In 2009, ATF was reluctant to engage in a dialogue to address this issue and others that were considered to be important to the NFA and firearms communities. Although we had previously engaged in a productive and collaborative work environment, ATF’s hesitance forced us to retain counsel to file a formal petition to attempt to achieve meaningful discourse.

“Once the petition was formally delivered, ATF began working with us on advancing the CLEO signature removal issue. We went through several rounds of clarification and patiently observed the effort moving back and forth between ATF and DOJ over a period of years.

“In early 2011, and again in 2012, ATF clearly demonstrated their intention to remove the CLEO signature requirement in RIN 1140-AA43, though they still had not consulted with us regarding the trust/corporate items. We awaited the formal rule-making process to begin. On August 28, 2013, the RIN was changed without notice. In addition, a lengthy draft of a proposed NPRM was released.

“Our petition acknowledged the understanding that ATF was concerned about prohibited persons skirting background checks by utilizing trusts and corporate entities to purchase firearms. We had been warning people for years that ATF was going to shut down the “trust loophole” regarding unqualified people obtaining weapons, and that NFATCA was trying to mitigate the damage and get rid of the antiquated CLEO signature requirement as part of this negotiation.

“We sounded this clarion because ATF had clearly indicated that they wanted to discontinue it. NFATCA didn’t make this a problem or bring it to ATF’s attention; the people abusing the system did. ATF was already aware of it because they had such a massive increase in trust transfers, and they read the Internet boards, following the way people bragged about getting NFA weapons anonymously and advising each other how to do so. ATF is engaged with cases of prohibited persons who have acquired weapons through trusts and corporations without background checks. Some may point to the fact there have not been any violent crimes as a result of the loophole, but prohibited persons in possession of firearms is a crime in itself. ATF was in the untenable position of approving those transfers to prohibited persons. Something was absolutely going to change.

“Class 3 dealers formed the method of using trusts back in 1993-1994, after consulting with lawyers and ATF counsel to circumvent local law enforcement who refused to sign off on purchases, in order to help the collectors in Dade County and Houston in particular.

“The dealers who engaged in discussions with ATF at the time made all of this possible, and for fifteen years this method worked very well. It was the Internet braggarts who created a problem for the general public, and now they’ve burned the bridge. Dealers’ sales are going to hurt due to the actions of a few individuals who have unlawfully cheated the system. The abusers of the trust situation set off ATF’s radar. If there is anger that should be displayed, it should be towards the people who abused the system and brought all of this to the attention of ATF and the Executive Branch.

“While the NFATCA has acknowledged in our petition that there is concern regarding prohibited persons receiving firearms without background checks via trusts and corporations, the draft NPRM does not reflect any discussions or negotiations we had with the Federal Government. We did not support nor advocate for the efforts of the Executive Branch that were recently published as the proposed NPRM. The proposed NPRM is being used as a political expedient to address areas of negligible concern. The Executive Branch proposals unduly burden the law-abiding public, will restrain lawful commerce and bury an already overwhelmed agency with an administrative infrastructure that will not serve the public’s safety.

“The NFATCA supports the elimination of the CLEO signature requirement. The NFATCA is willing to engage with DOJ/ATF and the Executive Branch to investigate reasonable, effective and manageable approaches to preventing prohibited persons from acquiring firearms. We cannot and will not support the NPRM in its current form. Unfortunately, it does not appear as though ATF, the DOJ or this administration wishes to enter into a constructive dialogue. As a result, the NFATCA will adopt a much more aggressive stance.

“We are currently soliciting resources to mount an offensive on multiple fronts:

• A legal review and dissection of the draft NPRM,
• Soliciting information regarding the costs of such an effort that would prohibit that level of spending,
• A legal counter-offensive to the draft NPRM via petition or other suitable means,
• Solicitation of Congressional inquiry,
• Creation of a massive grassroots effort to combat the NPRM, should it actually be published in the Federal Register.”

NRA Joins ACLU in Opposing NSA Records Collection

The National Rifle Association plan to press members of Congress in the coming weeks to block the National Security Agency’s controversial program collecting records of Americans’ phone calls, arguing that the surveillance efforts can be used as a “backdoor” to construct a national gun registry.

“We will be up there and we will be making our feelings known,” David Keene, a member of the NRA’s executive board who served until this spring as the group’s president, told NBC News. “Our members are concerned about this. This metadata can be used to construct a list” of every gun owner.

Keene’s comments signaled a new determination by the gun lobby to take up opposition to the NSA surveillance efforts as a political cause, joining with civil liberties groups and others on the left who have been lobbying against the program for months, and potentially complicating the Obama administration’s efforts to preserve the phone surveillance program.

The comments came as NRA board members gathered in Arlington, Va., for a quarterly meeting and to celebrate the latest political coup: Defeat of two state senators in Colorado — including the state Senate president — in a special recall election as payback for the lawmakers’ support of gun control measures.

Board members also will hear a report on the NRA’s surprise decision to file a friend-of-the- court brief on behalf of an ACLU lawsuit to halt the NSA collection program as an unconstitutional violation of American privacy rights.

Laura Murphy, legislative director for the ACLU in Washington, claims credit for recruiting the NRA to join efforts to stop the program and said its participation will have a big impact. “We’ve got momentum going,” she said. “They (the NRA) have got access to all the Republicans.”

Murphy said a recently declassified FBI training manual on how agents can use their authorities under the Foreign Intelligence Surveillance Act in the course of terrorism and espionage cases helped sway the NRA leadership.

The manual instructs agents how they can use the Patriot Act to collect a wide range of “sensitive records” – including “firearms sales.”

Although there was nothing especially secret about using the Patriot Act to obtain such records — all business records, including firearms sales, are routinely subpoenaed during federal law enforcement investigations — the fact that they were specifically highlighted in the manual made a big impact with the NRA, Murphy said. “They were surprised,” she said.

Keene, the NRA leader, said the FBI training manual was especially disturbing because other federal laws require the destruction of records of gun purchases after they are used for a federally-mandated background check. And it showed how federal agents can stretch their legal authorities to collect data on gun owners.

Under the so-called NSA “metadata” program, first disclosed last June by ex-contractor Edward Snowden, the agency has collected tens of millions of records on the time, duration and destination of every phone call in the country as part of a wide-ranging and highly-classified surveillance effort aimed at supposedly identifying potential terrorist threats. The agency has received the records from phone companies under secret orders by the Foreign Intelligence Surveillance Court (FISC) based on a provision of the U.S. Patriot Act that allows the FBI to collect “business records” deemed relevant to “terrorist” investigations.

In its friend of the court brief filed September 4, the NRA argued that the NSA collection of all phone records, as well as other agency collection efforts revealed by Snowden, threatens NRA members’ First Amendment rights.

“Under the programs revealed so far, the government may already possess information about everyone who has called the NRA by phone, emailed the NRA or visited the NRA’s website,” it wrote in the brief. In addition, the brief states, the mass phone collection would make it easier for the government to create a nationwide “registry” of all gun owners. “For example, a person whose phone records show a pattern of repeated calls to gun stores, shooting ranges, and the NRA, is considerably more likely to be a gun owner than a person who makes no such calls. If phone records are combined with other information, far more detailed profiles could be assembled,” it said.

Ruger Finalizes Purchase Of N.C. Facility

Sturm, Ruger & Co. has announced that it has finalized the purchase of a 220,000-square-foot-facility in Mayodan, N.C. This will represent the company’s first major expansion in more than 25 years. Production at the new facility is expected to begin during the first quarter of 2014.

ATF’s Proposed New NFA Rule

ATF states that since existing regulations do not require the identification of responsible persons of a legal entity, the proposed rule, if finalized, would provide public safety benefits by enabling ATF to identify and perform background checks on such persons.

Currently, if the seller of an NFA firearm is a licensee, the officer or trustee must complete Form 4473. If it turns out that one of the officers or trustees is prohibited, then one of the other officers or trustees may pick up the firearm and complete the Form 4473. If the seller is not a licensee, then no form is completed. Once the firearm is picked up by the officer or trustee, then it becomes corporate or trust property and can be possessed by any of the officers or trustees.

In Texas, ATF became aware of a situation in which the member of an LLC was an illegal alien, living in the U.S. under an assumed name, and had a felony warrant outstanding. At that time, the LLC had 19 firearms registered to it and ATF lacked the necessary information to conduct any background checks to determine whether the member was a prohibited person.

In Tennessee, as a result of information provided by a FFL, ATF became aware of applications submitted to transfer two NFA firearms to a trust in which one of the trustees was a convicted felon. If there had been no referral, ATF would not have known of the need to conduct any background checks for the trust members to determine if any were prohibited persons. The proposed rule will make the requirements for background checks the same for certain legal entities as they are now for individuals. ATF estimates the cost increase per entity of complying with the proposed rule to be $293.93.

ATF Costs Related to New NFA Proposed Rule

Buried within the ATF proposal to require background checks and chief law enforcement officer (CLEO) letters for entities applying to make or receive an NFA firearm are some interesting estimates of costs to applicants and to ATF itself.

To submit information for each of an entity’s responsible persons to ATF in order for ATF to ensure such persons are not prohibited from possessing NFA firearms, ATF estimates a total cost of $14.9 million annually.

This figure would cover the costs of (1) legal entities to gather, procure, and submit such information to ATF; (2) for ATF to process the information and conduct a background check on responsible persons; and (3) local and state agencies possibly to review the information, and conduct their own background checks.

In calendar year 2012, ATF received 84,435 applications that were either ATF Forms 1, 4, or 5. Of these, 40,700 applications were for unlicensed legal entities (e.g. corporations, companies and trusts) to make or receive an NFA firearm; 29,448 were for individuals to make or receive an NFA firearm; and 14,287 were for government agencies or qualified FFLs to make or receive an NFA firearm.

Cost of Completion of Responsible Person Form

Under the proposed rule detailed in FB’s last issue, a legal entity would be required to complete the following steps in addition to completing the applicable Form 1, 4, or 5 before it is permitted to make or receive an NFA firearm:

(1) Complete and submit proposed Form 5320.23 for each responsible person; (2) Submit fingerprints, photographs, and CLEO certificate for each responsible person; and (3) Submit a copy of the documentation that establishes the legal existence of the legal entity.

ATF estimates the time for each responsible person to complete Form 5320.23 to be 10 minutes. Based on an estimate of 2 responsible persons per legal entity and 40,700 entities, the estimated annual cost of proposed Form 5320.23 is $417,854.

Cost of Photographs

ATF estimates the cost of the photographs is $8.00 (cost based on the average of the costs determined for seven large retailers); and the time needed to procure photographs is 50 minutes. (ATF personnel apparently went out and canvassed retailers to determine this figure).

Under the proposed rule, legal entities would incur costs for obtaining and submitting photographs. Based on an estimate of two responsible persons per entity and 40,700 entities, the estimated total cost for legal entities to obtain and submit photographs is $2,740,467.

Cost of Fingerprints

ATF has reviewed various fingerprinting services. Presently, ATF is only able to accept fingerprints on hard-copy fingerprint cards. Thus, the cost estimate is based on submission of two fingerprint cards for each responsible person. The estimated cost of the fingerprints is $24 (based on the average of the costs determined for seven fingerprint services); and the estimated time needed to procure the fingerprints is 60 minutes.

Each responsible person of a legal entity would be required to obtain and submit fingerprints to ATF. Based on an estimate of two responsible persons per entity and 40,700 entities, the estimated cost for legal entities to obtain and submit fingerprints is $4,460,720.

Estimated Cost for CLEO Certification

ATF estimates that the time needed for a responsible person to procure the CLEO certificate is 100 minutes (70 minutes travel time and 30 minutes review time with the CLEO). Based on an estimate of 2 responsible persons per legal entity and 40,700 entities, the estimated cost for legal entities to obtain CLEO certification is $4,178,533.

Cost to Establish Existence of Legal Entity

A legal entity applying to make or receive an NFA firearm would provide ATF with documentation evidencing its existence and validity under the proposed rule. Currently, legal entities are not required to do so.

ATF estimates this documentary evidence will require the submission of 15-pages of photo-copied material without notarization. The cost of the copied documentation is $1.50, based on 10-cents per page cost while the time needed is 5 minutes. Assuming 40,700 entities would provide ATF this documentation each year, the estimated annual cost to submit the documentation is $165,513.

Legal Entity Responsible Person ID Info Costs

The total estimated new cost of the proposals for legal entities to provide to ATF identification information for each of its responsible persons is $11,963,087 annually.

To restate, the cost estimates of the time for an entity to comply with the proposed rule’s requirements are: Completion of Form 5320.23, procure photographs, procure fingerprints, obtain CLEO certificate, and copy attachments: $9,297,237.

Additionally, the estimated entity’s costs for paying for the photographs, fingerprints and providing documentation of a legal entity is an additional $2,665,850. The grand total comes to $11,963,087.

Costs to ATF of the New Proposed Rule

ATF, of course, currently incurs costs to process forms, fingerprint cards, photographs, and to conduct and review background checks. Currently, ATF incurs these costs for the 29,448 applications for individuals to make or receive NFA firearms. Under the proposed rule, ATF estimates:

• ATF’s cost for the FBI to process a set of fingerprints is $14.50.
• The cost for an examiner at ATF’s NFA Branch to conduct and review the results of a background check is $7.70 (15-minutes at $30.80 per hour): and
• The cost to print the new 5320.23 forms is one cent per form.

Thus, based on an estimate of two responsible persons per legal entity and 40,700 entities, the estimated cost for ATF to process forms, fingerprint cards, photographs, and to conduct and review background checks for applications for legal entities to make or receive NFA firearms is $1,807,894 annually.

Cost to State & Local Agencies

The cost of a responsible person to obtain a CLEO certificate may increase costs to state and local agencies as they review the information provided, conduct their own background checks and determine whether to complete the certificate.

Based on an estimate of two responsible persons per entity and 40,700 entities, ATF estimates the cost to state and local agencies at $1,253,560.

The author publishes two of the small arms industry’s most widely read trade newsletters. The International Firearms Trade covers the world firearms scene, and The New Firearms Business covers the domestic market. He may be reached at: FirearmsB@aol.com.