How Can a U.S. Company Import U.S.-Origin Military Surplus Firearms?

In continuation of my previous “Legally Armed” column, “How U.S. Foreign Policy and National Security Concerns Impact International Trade,” Small Arms Review, Vol. 23 No. 1 (January 2019), I thought I would delve into the complex issue of the barriers that prevent private companies from importing U.S.-origin firearms back into the United States for commercial sale. This is a surprisingly complex area where law and politics intersect with international trade and the commercial market of military surplus firearms.

There is a tremendous amount of interest among history buffs and firearms enthusiasts in the weapons of World War II and other international conflicts in which the United States was involved. Some examples include the M1 Garand, the M1 Carbine and the 1911 pistol. At the end of these conflicts, much of the most desirable materiel may have been left overseas or given to foreign governments. However, since 2013 private entities have been prohibited from importing these pieces of history back into the United States for sale to the public. This Obama-era block to private industry remains in place because of lack of action on the part of both the Republican-controlled Congress and President Trump.

How can such a prohibition exist? We are talking about U.S.-made products, so why can’t a private importer bring these back into the United States for the domestic collectors’ market if the foreign government doesn’t want them anymore?

As many readers may be painfully aware, there is an intricate process that must be followed to import any article of U.S. origin. Further, surplus military articles are subject to very high government scrutiny for foreign policy implications and the potential impact on public safety. Inevitably, political motivations also find a way into the discussion.

A. Overview of Applicable U.S. Export Laws

First, we must briefly review the U.S. laws governing the original sale and export to the foreign party. In general terms, U.S. law is structured to prevent firearms and other defense articles from being exported unless the foreign recipient promises it will not transfer, dispose or change end-use without prior permission from the U.S. Government. This restriction on transfers, change in end-use or destination applies to firearms obtained through U.S. Government Foreign Military Sales Programs, Grants (Military Assistance Program or Excess Defense Article) and Direct Commercial Sales (DCS), even when the foreign party wants to sell the firearms to a private U.S. entity many years later for import back into the United States.

Arms Export Control Act (AECA). “In furtherance of world peace and the security and foreign policy of the United States,” the Arms Export Control Act (AECA) grants the president the authority to control the export and import of classified and unclassified defense articles and defense services and to provide foreign policy guidance to persons of the United States involved in the export and import of such articles and services. The AECA restricts retransfers of U.S.-origin defense articles by requiring foreign recipients of U.S.-origin defense articles, whether by sale or lease, to request permission from the State Department before it resells, retransfers or re-exports such articles.

Foreign Assistance Act (FAA). The FAA governs defense articles provided to foreign countries on a grant basis. Like the AECA, the FAA places end-use restrictions on foreign recipients of weapons and gives a right of first refusal to the U.S. Government for any weapon a foreign government wants to sell. The FAA also requires the U.S. Government receive the net proceeds from any sale of defense articles provided as aid to a foreign country, unless the State Department waives this requirement.

Also pertinent to our discussion is Executive Order 13637 (“EO 13637”), under which the president delegated to various agencies the functions conferred under the AECA. Under Section 38 of the AECA (Control of Arms Exports and Imports), the functions related to exports, temporary imports and brokering of defense articles and services are delegated to the Secretary of State, who in turn delegated down to the Deputy Assistant Secretary for Political-Military Affairs (PM). The PM oversees the Directorate of Defense Trade Controls (DDTC) and the Office of Regional Security and Arms Transfers (PM/RSAT). DDTC administers the International Traffic in Arms Regulations (ITAR), the registration and licensing regulations governing exports, temporary imports and brokering of defense articles and defense services.

The AECA functions related to permanent imports of defense articles and services are delegated to the Attorney General. The Attorney General in turn has delegated administration of the permanent import regulations in 27 C.F.R. Chapter II, Part 447 to the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). However, EO 13637 makes clear that “[i]n carrying out such functions, the Attorney General shall be guided by the views of the Secretary of State on matters affecting world peace, and the external security and foreign policy of the United States.”

The process for a private entity to bring U.S.-origin military surplus back into the United States consists of two steps: (1) the foreign owner must obtain approval to transfer the firearms to the U.S. importer; and (2) the importer must obtain approval to enter the firearms into the commerce of the United States. You may be thinking, “It’s only two steps, so how hard can it be?” Let me show you.

B. Step One: Obtain Approval for Transfer to U.S. Importer

The first hurdle an importer faces to bringing U.S.-origin military surplus firearms back into the United States is obtaining approval from the Department of State for the transfer from the foreign owner to the U.S. importer. As mentioned above, U.S. Government approval is required before a foreign end-user can transfer, sell, dispose of or change end use of any U.S. origin defense article. This rule applies even when the proposed transferee is a U.S. company interested in bringing the firearms back into the United States.

The transfer approval process begins with the foreign government owner submitting a retransfer request to the State Department, not the U.S. importer. The Bureau of Political-Military Affairs handles all retransfer requests, and the responsibility is divided as follows: (i) for exports undertaken under a foreign military or government-to-government sales program, the retransfer requests should be submitted to PM-RSAT; (ii) for exports that were direct commercial sales, retransfer requests should be submitted to DDTC.

The process for obtaining State Department approval for retransfers of U.S.-origin firearms is anything but easy. Often, the private importer cannot even get the process started because so little is known about how the firearms got to the foreign government in the first place. This is especially true for the curio or relic firearms because so much time has passed since the original export. Regardless, this history is vital to determine what retransfer restrictions attached to the firearms (remember the retransfer restrictions are created at the time of export). Without knowing the terms of the original export, it is virtually impossible to know how to go about obtaining the retransfer approval. In fact, without sufficient evidence to the contrary, for example a bill of sale, conveyance document or export license, the State Department will presume undocumented firearms to be of Grant origin.

All retransfer requests undergo an extensive interagency review prior to being recommended for approval or denial to the Assistant Secretary for Political-Military Affairs or the Under Secretary for Arms Control and International Security. This whole process can take years, and there is no guarantee that the State Department will ultimately approve the retransfer.

C. Step Two: Get ATF Approval for Permanent Import into the Commerce of the United States

If the State Department finally does approve the retransfer, the process then turns to the U.S. importer, who must prepare the Application and Permit for Importation of Firearms, Ammunition and Defense Articles, also known as the “ATF Form 6.”

Generally, the Gun Control Act of 1968 prohibits importation of surplus military firearms unless the import is for government or law enforcement end-users. ATF defines a surplus military firearm as any firearm that belonged to a regular or irregular (e.g., militia) military force at any time. See Firearms-Guides-Importation & Verification of Firearms, Ammunition and Implements of War–Surplus Military (available at atf.gov/firearms/firearms-guides-importation-verification-firearms-ammunition-and-implements-war-surplus, last visited Dec. 14, 2018).

Curio or relic firearms, however, are exempt from this prohibition. To qualify for the curio or relic designation, a firearm must fall into one of the following three categories: (1) manufactured at least 50 years prior to the current date (this does not include replicas); (2) certified by the curator of a municipal, State, or Federal museum which exhibits firearms to be curios or relics of museum interest; or (3) derive a substantial part of its monetary value because the firearm is novel, rare, bizarre or associated with some historical figure, period or event. This last category requires proof of qualification by evidence of present value and that like firearms are not available except as collectors’ items or that the value of like firearms available in ordinary commercial channels is substantially less.

ATF stated policy has been to return without action any application to import U.S. origin curio or relic military surplus firearms unless the application includes a copy of the State Department retransfer authorization given to the foreign supplier. But is ATF obligated to approve an import permit for U.S.-origin firearms once the State Department has approved the retransfer? As at least one case illustrates (discussed below), State Department transfer authorization does not guarantee the importer will be able to enter the firearms into the commerce of the United States for resale.

D. Notable Cases and Recent Developments

To illustrate the difficulties in importing U.S.-origin firearms, let us review a case that gained significant media and political attention a few years ago: the case of the Korean M1 Garands and M1 carbines, which the United States sold to the South Korean government for use in the Korean War. Both types of rifles are over 50 years old and obsolete to the South Korean Government, but can bring in revenue if sold to United States importers because of the significant market of U.S. collectors and firearms enthusiasts. Because of the age of their manufacture, these M1 Garands and carbines qualify as “curio or relic.”

While George W. Bush was still president, the South Korean government submitted to the State Department a request to transfer a total of 857,470 rifles (87,310 M1 Garands and 770,160 M1 carbines) to U.S. importers. This request went through an interagency review process, but it was not until May 2009 that the State Department granted approval for the South Korean government to transfer the M1 Garands and carbines. Soon after the approval, the new Obama Administration expressed concerns, including trepidation that transferring the M1 carbines into the United States, particularly in the stated quantities, posed a significant law enforcement and public safety risk. These concerns ultimately led to the State Department rescinding its May 2009 decision to allow South Korea to transfer the M1 firearms.

In 2012, however, there appeared to be a break in the case. On January 18, the Korea Times reported that according to Lee Sun-chul, the Korean deputy defense minister for force and resources management, the U.S. Government had agreed to allow the importation of 86,000 M1 Garand rifles from Seoul. The article cited to an approval letter from the United States, dated September 2, 2011. 600,000 M1 carbines were rejected for import, reportedly because of detachable high capacity magazines.

The prospective import of 86,000 Garands was put on hold indefinitely on August 29, 2013, when President Obama announced a new policy of prohibiting commercial re-importation of U.S.-origin surplus military firearms that the United States supplied to foreign governments, either as direct commercial sales or through foreign military sales or military assistance programs. With no action from President Trump to revoke this policy, the prohibition remains in effect.

It is important to point out that the administrative blocks to the import industry from bringing in military surplus firearms back into the United States do not affect the ability of the Civilian Marksmanship Program (CMP) from obtaining surplus firearms, such as the M1 Garand or 1911 pistols. The CMP is able to acquire U.S. surplus military firearms, including those from overseas, from the U.S. Army. The CMP then refurbishes the firearms and sells them at retail to the public participating in competitive shooting programs. U.S. citizens can purchase these firearms from the CMP, provided they are not prohibited from owning a firearm under the GCA and they are a member of an affiliated club.

On April 7, 2017, Gina Johnson, General Manager of the CMP South operations in Alabama, announced the CMP would be acquiring 86,000 M1 Garands, which the U.S. Army was due to receive back from the Philippines Government. It is unclear when these firearms will be imported, if they have not already been shipped to the United States.

On the legislative front, there have been repeated stabs at passing the “Collectible Firearms Protection Act,” although none successful. The bill would amend the AECA to allow the importation of certain curio and relic firearms into the United States by a licensed importer without the requirement of an authorization from the Department of State upon certification to the Department of Justice that such firearms are lawfully possessed under the laws of the exporting country.

The first introduction was in 2009 by Rep. Cynthia Lummis (R-WY), then again in 2011, 2013 and 2015. The most recent attempt was by Rep. Doug Collins (R-GA) in 2017; each time the bill stalled in committee. What is even more telling is the number of co-sponsors. In 2011 there were 142 co-sponsors. In 2013, the number was only 38, and in 2017 only 3 co-sponsors joined.

So as we near the start of a new Congress, where Democrats will once again control the House, the Collectible Firearms Protection Act is likely a dead issue. In the remaining two years of President Trump’s first term, it is possible he may take action to lift the prohibition against private industry from importing U.S.-origin military surplus firearms. Until then, at least this part of the market is out of reach.

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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.

About the Author

Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, DC (reevesdola.com). For more than 15 years she has dedicated her practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Since 2011, Johanna has served as Executive Director for the Firearms and Ammunition Import/Export Roundtable (F.A.I.R.) Trade Group (fairtradegroup.org). She has also served as a member of the Defense Trade Advisory Group (DTAG) since 2016. Johanna can be reached at jreeves@reevesdola.com or 202-715-9941.

A Word to the Wise— Don’t Forget About OFAC!

Oh, who? OFAC. It is the Office of Foreign Assets Control, a small but extremely powerful agency in the U.S. Department of the Treasury charged with administering and enforcing the economic and trade sanctions of the United States. OFAC’s mission is based on U.S. foreign policy and national security goals against certain foreign countries and regimes, terrorists, international narcotics traffickers, weapons proliferators and other threats to the national security, foreign policy or economy of the United States. Its primary statutory authorities are the International Emergency Economic Powers Act (IEEPA), Trading with the Enemy Act (TWEA) and the United Nations Participation Act (UNPA). These laws are implemented principally through presidential executive orders and OFAC regulations, codified at 31 C.F.R. Ch. V. In certain instances, Congress may legislate certain sanctions. This is true for the sanctions against Cuba, Iran, Venezuela and Russia. Most recently, Congress passed the Countering America’s Adversaries Through Sanctions Act (CAATSA), which imposes new sanctions on Iran, Russia and North Korea.

All too often, U.S. companies engaged in international trade focus on the export license requirements and restrictions of the U.S. Departments of State and Commerce, but fail to appreciate the swift and harsh repercussions that can come about, usually first in the form of blocked or frozen funds or enforcement penalties, when U.S. sanctions are violated. It is important to remember that OFAC sanctions apply regardless of whether an export license has been obtained from either the U.S. Department of Commerce or the U.S. Department of State.

A. U.S. Sanctions—What Are They and Who Is Subject?

OFAC implements approximately 30 sanctions programs, which range from comprehensive to limited, through blocking (freezing) assets and implementing trade restrictions. Because the sanctions are imposed, modified or lifted depending upon the foreign policy and national security objectives of the U.S. Government, each program has different levels of restrictions and can vary significantly depending on the target.

1. Comprehensive Sanctions

The comprehensive sanctions, so termed because of their broad scope of coverage and geographic orientation, generally prohibit the following activities: direct and indirect exports and imports of goods, technology, services, trade brokering, financing or facilitation, as well as any attempt to evade or avoid the sanctions. These restrictions apply to most goods, technology and services; although there are certain limited exceptions. North Korea, Iran, Syria and Cuba are examples of comprehensive sanctions.

2. Limited Sanctions

OFAC also implements limited sanctions that target individuals and companies owned or controlled by, or acting on behalf of certain regimes, as well as individuals, groups and entities, that engage in certain activity, such as terrorists and narcotics traffickers, so-designated under sanctions programs that are not country-specific. These sanctions are “list-based,” meaning the targeted entities and individuals are listed on any one of OFAC’s sanctions lists, such as the Specially Designated Nationals and Blocked Persons List (“SDN List”), the Non-SDN Iran Sanctions Act List and the Sectoral Sanctions Identifications List (“SSI List”), implemented pursuant to the Russian-Ukraine Sanctions. These sanctions generally prohibit transferring, paying, exporting, withdrawing or otherwise dealing in blocked property.

The SDN List is the largest list of sanctioned and blocked persons that OFAC maintains. It contains over 5800 entries, including individuals, entities, vessels and aircraft designated or identified as blocked under a particular sanctions program. All property and interests in property of a SDN that comes under U.S. jurisdiction is immediately blocked or frozen, which imposes an across-the-board prohibition against transfers or transactions of any kind involving the property. When a corporation, including a bank, blocks a prohibited payment it must report the action to OFAC within 10 days.

OFAC defines “property” in sweeping terms to include anything of value. This includes money, checks, drafts, debts, obligations, notes, warehouse receipts, bills of sale, evidences of title, contracts, negotiable instruments, trade acceptance, goods, wares, merchandise and anything else real, personal or mixed, intellectual property and intangible assets. “Property interest” is defined as any interest whatsoever, direct or indirect.

OFAC offers a Sanctions List Search application to the public that enables searches against all the OFAC lists. This tool is available at sanctionssearch.ofac.treas.gov. The sanctions lists are updated frequently, so it is critical that U.S. companies and individuals wishing to engage in international business check the transaction parties against the OFAC lists early and often. Many of the individuals and entities named on the list are known to move from country to country and may end up in unexpected locations. Furthermore, OFAC’s sanctions programs are constantly changing, so it should be checked frequently and before each new international transaction.

It is important to note there are several U.S. Government lists in addition to the OFAC lists that U.S. persons should check before proceeding with any transaction involving the export, reexport or import of goods, services or technical data, to ensure no parties are debarred or require special licensing. These lists are maintained by other federal agencies, including the U.S. Departments of Commerce and State. The Consolidated Screening List (CSL) is a list of parties for which the U.S. Government maintains restrictions on exports, reexports or transfers of items. The CSL is accessible at build.export.gov/main/ecr/eg_main_023148, and there is a CSL search engine, downloadable CSL files and other tools to aid industry in conducting party screening.

3. The 50% Rule

U.S. persons are prohibited from dealing with SDNs wherever they are located and all SDN assets are blocked. In addition, entities that a person on the SDN List owns (defined as a direct or indirect ownership interest of 50% or more in the aggregate) are also blocked, regardless of whether that entity is separately named on the SDN List. This is known as the 50% Rule and can be quite daunting from a compliance and due diligence perspective.

For example, under the Ukraine Related Sanctions Regulations (examined more closely below), OFAC regulations at 31 C.F.R. § 589.406 state: “[a] person whose property and interests in property are blocked pursuant to §589.201 has an interest in all property and interests in property of an entity in which it owns, directly or indirectly, a 50 percent or greater interest. The property and interests in property of such an entity, therefore, are blocked, and such an entity is a person whose property and interests in property are blocked pursuant to §589.201, regardless of whether the name of the entity is incorporated into OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List).“

OFAC’s 50% Rule speaks only to ownership, not to control. Consequently, transactions with a company in which a sanctioned entity owns 50% or more interest are prohibited in the same way as transactions directly with the sanctioned entity, regardless of whether that company itself is listed on any of OFAC’s lists. According to its Frequently Asked Question No. 40, “OFAC urges persons considering a potential transaction to conduct appropriate due diligence on entities that are party to or involved with the transaction or with which account relationships are maintained in order to determine relevant ownership stakes.” This means that U.S. exporters and importers should conduct thorough due diligence to determine whether the 50% rule applies to any party to a transaction.

B. OFAC Jurisdiction

OFAC has sweeping jurisdiction over U.S. persons and persons subject to U.S. jurisdiction. This includes U.S. citizens and permanent resident aliens (“green card” holders) whether in the United States or abroad, entities organized and formed under U.S. law, including foreign branches, and any individual or entity physically located in the United States at the time of the activity, regardless of nationality. Under certain sanctions programs (Iran and Cuba), entities owned or controlled by a U.S. person and established or maintained outside the United States are also subject to OFAC’s jurisdiction.

OFAC sanctions also prohibit the facilitation of foreign trade with targets of U.S. sanctions. The facilitation prohibitions prevent U.S. persons from undermining sanctions through indirect support and apply to approving, financing, guaranteeing or otherwise assisting foreign trade with a sanctions target, changing policies or procedures to permit foreign affiliates to engage in activities with a sanctions target that previously required U.S. approval and even referring declined business opportunities to a foreign party.

C. The Ukraine/Russia-Related Sanctions Program

In 2014, President Obama issued four Executive Orders in response to the Russian Federation’s actions against Ukraine. These Executive Orders had a significant impact on the firearms and ammunition export/import industries. It started with EO 13660 (March 6, 2014), which declared a national emergency to deal with the threat posed by the actions and policies of certain persons who had undermined democratic processes and institutions in Ukraine, as well as threatening peace, security, stability, sovereignty and territorial integrity of Ukraine.

The scope of the Russian sanctions were subsequently expanded by EO 13661 (March 16, 2014), 13662 (March 20, 2018) by adding persons/entities to the SDN or prohibiting transactions with certain Russian sectors. Kalashnikov Concern was one such entity added to the SDN List on July 16, 2014, pursuant to EO 13662.

These sanctions, known as the “Sectoral Sanctions,” were introduced in EO 13662 and are implemented through Directives. They impose prohibitions on U.S. persons for certain specified transactions with entities identified in the Sectoral Sanctions Identification List (“SSI List”). Under Directive 3, which applies to the defense and related materiel sector of the Russian Federation economy, U.S. persons are prohibited from transacting in, providing financing for and other dealings in new debt of longer than 30 days maturity of persons determined to be subject to this Directive, their property or their interests in property. OFAC also applies the 50% Rule to entities on the SSI List. All other activities with these persons or involving their property or interests in property are permitted, provided such activities are not otherwise prohibited pursuant to Executive Orders 13660, 13661 or 13662 or any other sanctions program implemented by the Office of Foreign Assets Control.

In December 2014, the President issued and EO 13685, which prohibits U.S. persons from exporting or importing any goods, services or technology to or from the Crimean region of Ukraine or from undertaking new investment in the Crimea region.

D. OFAC Compliance and Enforcement

OFAC may learn about violations in a number of ways, including self-disclosures, blocked and rejected property reports, current investigations, referrals from other U.S. agencies as well as foreign government agencies, informants, disgruntled employees, public interest watch dog groups, competitors and other publicly available information.

The penalties for violating OFAC sanctions are substantial and depend on the sanctions program. Treasury imposes civil penalties, while criminal cases are prosecuted by the Department of Justice. Under IEEPA, civil penalties can be up to $250,000 per violation or twice the transaction value, whichever is greater, but OFAC must adjust penalties upward pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalty Inflation Adjustment Act Improvements Act of 2015.

It is also important to note that OFAC violations are subject to strict liability. This means that OFAC only has to prove a violation occurred. OFAC does not have to prove the U.S. person intentionally or knowingly violated the sanctions. In addition, OFAC violations also lead to denial or debarment of export privileges under the International Traffic in Arms Regulations.

In evaluating whether to impose civil penalties, OFAC looks at the characteristics of the violation, including whether the violation was willful or reckless, what was the harm to the sanctions program, the extent of remediation and the awareness of the conduct. OFAC also takes into consideration the characteristics of the violator, including the presence of an effective compliance program, cooperation with OFAC, previous enforcement actions and steps to ensure future compliance/deter similar actions. OFAC publishes a base civil penalty calculation matrix which takes into consideration (1) whether there was a voluntary self-disclosures; and (2) whether the violation was egregious.

OFAC’s responses to violations can range from a no-action letter, a cautionary letter, a finding of a violation or a civil penalty. Violations may also result in referrals to the Department of Justice for criminal enforcement, blocked funds and seized goods, license revocation, as well as negative publicity or loss of business.

E. Illustrative Enforcement Case—JPMorgan Chase

In October 2018, JPMorgan Chase Bank, N.A. (“JPMorgan”), settled potential civil liability for apparent violations of multiple sanctions programs, including the Cuban Assets Control Regulations, the Iranian Transactions and Sanctions Regulations and the Weapons of Mass Destruction Proliferators Sanctions Regulations. The cost of the settlement to JPMorgan was $5,263,171. It should be noted, (1) the settlement amount does not include the amount paid in attorney’s fees to negotiate the settlement; and (2) the total base penalty amount for the violations was $7,797,290, but the amount was reduced in part because JPMorgan voluntarily self-disclosed the apparent violations, which OFAC also found to be non-egregious case.

OFAC took into consideration several facts and circumstances, some of which were aggravating factors, and others were mitigating. Among the aggravating factors, OFAC determined JPMorgan appears to have acted with reckless disregard for its sanctions compliance obligations when it failed to screen participating entities in particular settlement transactions even though the bank had the necessary information to enable screening. Further, OFAC found JPMorgan engaged in a pattern of conduct in missing red flags and other warning signs on several occasions, including two separate occasions in 2011 when the bank received express notification from its client regarding OFAC-sanctioned entities participating in a settlement mechanism.

Included in the mitigating factors was the fact that JPMorgan cooperated with OFAC’s investigation of the apparent violations, including by entering into a retroactive tolling agreement (and multiple extensions thereof) to toll the statute of limitations. Also, the bank took several steps as part of a risk-based sanctions compliance program to prevent similar apparent violations in the future.

Among other things, this case exemplifies the significant risks when a U.S. person fails to take adequate steps to ensure transactions in which it engages or processes are compliant with OFAC sanctions, and the aggravating factor when a U.S. person has actual knowledge or reason to know, prior to the transaction being effected, of an SDN’s past, present or future interest in such a transaction. Likewise, the case also underscores the importance of a compliance program and the mitigating weight proactive measures may have if properly implemented in the wake of discovering violations.

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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.

About the author

Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, DC (reevesdola.com). For more than 15 years she has dedicated her practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Since 2011, Johanna has served as Executive Director for the Firearms and Ammunition Import/Export Roundtable (F.A.I.R.) Trade Group (http://fairtradegroup.org). She has also served as a member of the Defense Trade Advisory Group (DTAG) since 2016. Johanna can be reached at jreeves@reevesdola.com or 202-715-9941.

Firearms importers and exporters were afforded the opportunity of raising their concerns with international regulation of the firearms industry during the recent United Nations arms conference held last summer.

The industry addressed U.N. delegates through remarks made by our Firearms Attorney, who represents the import/export community’s two main trade organizations – the National Firearms Act Trade & Collectors Association (NFATCA) and the F.A.I.R. Trade Group. The U.N.’s ‘Conference to Review Progress Made in the Implementation of the Programme of Action to Prevent, Combat, and Eradicate the Illicit Trade in Small Arms and Light Weapons in All Its Aspects’ has raised great concern on the part of industry as an attempt by the world body to institute global controls on its activities and those of its consumers.

“Our membership is concerned with the enactment of overly broad international regulatory programs that unnecessarily and adversely impact the legal trade in small arms and light weapons instead of focusing on reducing the illicit trade in small arms and light weapons,” our Firearms Attorney said. In addressing the ‘blanket approach’ taken by the U.N. to encompass all firearms in its regulatory scheme, our Firearms Attorney added that “the definitions currently utilized by the international community when referring to small arms and light weapons do not adequately distinguish between civilian and military firearms. Any policy that is considered should generally be aimed toward fully automatic military firearms.”

Noting that he himself is a registered broker, our Firearms Attorney urged that consideration of the world body of the definition of an “arms broker” not be as stringent as that in the U.S.

“The ITAR (International Traffic in Arms Regulations), the regulatory regime in the U.S., was recently amended,” our Firearms Attorney noted, “to change the definition of brokering activities to include one or more predicate acts. By making it clear that simply one act, such as the financing of a defense article, constitutes brokering under U.S. law, and further, by these same regulations, stating that foreign persons ‘subject to U.S. jurisdiction’ are captured by brokering, you can see that a wide variety of people and conduct can be subject to regulation.”

Our Firearms Attorney argued that such a model is not necessary at the international level nor cost effective in attempting to curtail potential core problems in the small arms trade. He recommended that future U.N. work in this area be narrowly tailored to specific problem areas.

Multi-Jurisdictional Overlap

Our Firearms Attorney also addressed another potential problem area with U.N. regulation of brokering: multi-jurisdictional overlap.

Mentioning that current U.S. law extends U.S. jurisdiction very broadly in regard to brokering, our Firearms Attorney said, “If nations extend their jurisdictions in an overbroad manner, brokers will not be able to conduct transactions due to the sheer number of countries claiming jurisdiction over the broker’s conduct. A broker should only be subject to the jurisdiction of the nation of which he is a national or the nation in which he is truly conducting brokering business.”

Our Firearms Attorney also offered the industry’s view on the topic of establishing brokering norms. Before such norms can be established, he advised, there must be effective import and export regimes established in each nation involved in the shipment, transportation and receipt of firearms.

“Currently, too many nations have weak or non-existent import and export laws,” he said. “Addressing this issue before pursuing further brokering norms is key to the success of eliminating the illicit trade in small arms and light weapons.”

“While some believe that brokers are the primary force behind the movement of firearms, in most cases they are merely the facilitators of sales transactions between two interested parties already governed by the laws of the sending and receiving states. Therefore, brokering norms should be focused on who is able to facilitate a transaction instead of how the firearms themselves are being moved. The movement of the firearms is typically handled by the underlying parties to the transaction and is associated with a particular state. Because of this, placing the burden on brokers through the use of brokering norms will not be effective if the underlying import and export controls of each individual state are the source of the regulatory concern.

“When the preliminary step of improving the import and export regimes in each nation is accomplished, then brokering norms may be considered,” our Firearms Attorney continued. He went on to call for “reasonable” brokering norms that do not interrupt or interfere with the legal trade. “This necessitates that the definition of a brokering transaction be narrowly tailored to ensure that a transaction is defined as an actual transaction rather than, for example, the mere discussion of a possible future transaction.”

The Group of Government Experts within the U.N. will hold a fall meeting on the subject of brokering. Our Firearms Attorney closed by asking that they first consider the issue of establishing effective import and export norms within individual states before recommending international brokering norms.

The subject of international regulation of marking and tracing of firearms was addressed in remarks prepared by Richard Patterson of the Sporting Arms & Ammunition Manufacturer’s Institute (SAAMI) as read by attorney Thomas Mason who is active in the World Forum on the Future of Sport Shooting Activities.

SAAMI views the idea of marking the bullet and/or the case with a serial number (as has been advanced at the U.N.) “flawed” as it would not be possible to “ensure every number on every cartridge matched every number on every box” using the industry’s current production programs. It was added ammunition makers could not afford the capital investment required to make the idea workable.

The idea of marking cartridge headstamps with lot numbers has also been advanced. However, it was noted that ammo makers can sell parts of a lot to as many as 500 customers, each of whom break down their shipment to smaller quantities and sell to their own customers. In the end, small boxes of ammunition, though all marked with the same lot number, can be in thousands of different hands, making the marking exercise worthless as a law enforcement tool.

The UN Small Arms Conference ended after nine days on July 7th in deadlock with no formal conclusions or recommendations. In the final analysis, the complexity of the issue and the concerns of firearms owners as well as those expressed by the U.S. government representative (against a world-wide gun regulatory regime as well as the holding of future conferences on the issues of regulation) prevailed. No recommendations on ammunition, civilian possession or future UN meetings, or for that matter any other subjects, were adopted. The failure of this five-year program to impact the legitimate firearms industry, and the 2nd Amendment rights of U.S. citizens was total according to an analysis by the National Rifle Association of America. However, anti-gun non-governmental organizations as well as some governments served notice they would not give up and would present all of their issues to the UN General Assembly this fall.

Micro-Stamping Bill Advances in California

In another note on serializing, at press-time, the California Senate had approved AB 352, which, if passed by the Assembly, will require all manufacturers selling firearms in the state to micro-stamp the arm’s make, model and serial number on the firing pin’s tip.

Manufacturers argue the technology, owned exclusively by Hitachi Digital Imaging, is expensive and would add approximately $150 to the cost of every firearm sold in the state. To make matters worse, the Senate added last-minute language allowing the state to mandate serialization of all ammunition (including shotgun shells) “at a future date.”

Independent research performed by George G. Krivosta of the Suffolk County Crime Laboratory, Hauppauge, New York in the Winter 2006 edition of the AFTE Journal published by the Association of Firearm and Toolmark Examiners demonstrates how easy it is to remove the micro-stamp from the tip of a firing pin, using a power drill and hand-held grinding stone. Krivosta completely removed identifying numbers without removing enough material to render firing pins incapable of firing a round.

“The layman,” Krivosta writes, “believes that two bullets fired from the same gun are identical, down to the last striation. However, the trained firearms examiner knows that is far from reality.”

“The layman might also take as gospel that if you could find a way to place a number onto the tip of a firing pin, then you could certainly read it in the impression. Not until this research was performed and many test fires examined from a firing pin that had a known recognizable pattern, did it become apparent how much change could take place, and why matching firing pin impressions can be so challenging. This research has shown that implementing this technology will be much more complicated than simply burning a serial number on a few parts and dropping them into firearms being manufactured,” Krivosta noted.

“After multiple firings, the information becomes increasingly harder to read on the cartridges. The technical term for what happens is “peening” – the gradual and inevitable smoothing of raised surfaces from continued impacts. It’s the same process that flattens the heads of hammers and chisels.”

Krivosta also notes several firearms variables which would make the microstamp partially or totally illegible: Headstamping on rimfire and centerfire casings can interfere with the impression’s transfer; the hardness of centerfire cases necessary to handle their high pressures make impressions on anything other than primers difficult. Krivosta’s research says the option of tagging other areas have the same problems due to the movement of shell casings during the firing process. Tagging other areas might help identify individual firearm components, but would do nothing to tie ammunition to firearms, effectively defeating the purpose of the process.

FATS, Inc. to be Acquired by Meggitt

Firearms Training Systems, Inc. (OTCBB: FATS) executed a definitive merger agreement with Meggitt-USA, Inc., the U.S. subsidiary of Meggitt PLC, on August 23, 2006.

In the merger, the holders of FATS’ Class A Common Stock will receive cash in the amount of $1.08 per share for each outstanding share owned immediately before the effective time of the merger. The merger is expected to be completed in the fourth quarter.

“A strategic merger with Meggitt significantly advances our continued strategy of expanding our worldwide customer base, leveraging our strategic partnerships, and otherwise growing beyond our historical roots as a small arms training company to lead the industry in virtual training solutions,” said Ronavan Mohling, President and Chief Executive Officer of FATS. “Combining Meggitt’s strong development and commercialization capabilities in the aerospace and defense industries with FATS’ cutting edge technology in the virtual training solutions market, creates an excellent opportunity to leverage the significant strengths of both companies.”

The Meggitt group designs and makes high performance components and systems for aerospace and defense with capabilities in sensors, engine condition monitoring, avionics, air data systems, fire-proof cabling, ignition, environmental and fluid control, brakes and wheels and anti-skid systems, aerial and ground targetry, countermeasures and ammunition-handling. The group’s specialist capability is also deployed in the medical, mainstream industrial, test-engineering and transportation markets. At the end of its 2005 fiscal year, Meggitt PLC reported revenues of approximately $1.16 billion. North America accounts for just over half of Meggitt PLC’s sales. Meggitt-USA is the U.S. subsidiary of Meggitt PLC.

Georgia CWPs Now Qualify as NICS Alternative

On July 1, 2006 Georgia’s Concealed Weapons Permit (CWP) again qualified as an alternative to a National Instant Criminal Background Check System (NICS) check.

In 1998, the Bureau of Alcohol, Tobacco, Firearms & Explosives (ATF) sent an Open Letter to Georgia FFL-holders advising them that the Georgia CWP would qualify as an alternative to the background check required under the Brady Law. ATF’s recognition of these permits as a Brady alternative was based on the fact that Georgia met statutory and regulatory requirements for the exception permitted under the Brady Law.

In March 2004, ATF began a review of all states that had permits that qualified as NICS check alternatives to determine if they still qualified. In May 2005, ATF informed Georgia’s officials that the state no longer met the qualifications.

Georgia initially was not able to adequately address the deficiencies of the Georgia CWP in meeting the statutory and regulatory requirements for qualifying as a NICS alternative. Thus, on Oct. 17, 2005, ATF sent an Open Letter to Georgia FFLs stating that effective Oct. 19, 2005, the CWP no longer qualified as a NICS check alternative.

Georgia has since passed legislation, which took effect July 1, 2006, which addresses the CSP’s shortcomings in qualifying as a NICS alternative. Accordingly, the permit again qualifies.

Georgia retailers should note that if a firearms buyer presents a Georgia CWP, no NICS check is necessary. However, the required information about the permit must be recorded in question 23 of the ATF Form 4473, Firearms Transaction Record. For questions call ATF’s Operations Branch, Tel: (304) 616-4200.

KY Permits Qualify as NICS Alternative

Kentucky FFLs should note that effective July 12, 2006, state Carry Concealed Deadly Weapon Licenses (CCDWL) issued on or after July 12, 2006 qualify as an alternative to a National Instant Criminal Background Check System (NICS) check.

In 1998, the Bureau of Alcohol, Tobacco, Firearms & Explosives (ATF) sent an Open Letter to all Kentucky FFLs stating Kentucky concealed weapons permits issued after Nov. 30, 1998, would not qualify as an alternative to the NICS check requirement. Kentucky recently passed a law, which took effect July 12, 2006, that changes the way CCDWLs are issued. The state asked ATF to review if the CCDWL now met the statutory and regulatory requirements for the NICS exception. ATF’s subsequent review found that based on the new law, any CCDWL issued on or after July 12, 2006, does meet the requirements.

As of July 12, 2006, when a firearms buyer presents the retailer with a Kentucky CCDWL issued on or after July 12, 2006, no NICS check is necessary. However, the required information about the license must be recorded in question 23 of the ATF Form 4473.

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 also offers FFL-mailing lists to firms interested in direct marketing efforts to the industry. He may be reached at: FirearmsB@aol.com.