Fifteenth Annual Import/Export Conference Provides Outstanding Guidance on Regulatory Compliance
By Teresa G. Ficaretta, Esq. and Johanna Reeves, Esq.
This article appeared in Small Arms Review in January 2017. Legally Armed: V21N1
The F.A.I.R. Trade Group and National Shooting Sports Foundation (NSSF) put together an outstanding program for the firearms and defense industries at the fifteenth annual Import/Export Conference. The conference was held on August 1-3, in Washington, DC, and was attended by approximately 300 industry members, attorneys, and consultants.
Add-On Sessions Sell Out
Two optional add-on sessions were given this year on August 1, 2016. The sessions, one on the firearms and ammunition excise tax and the other on international sales and marketing and the export process, both sold out several weeks before the date of the conference.
Firearms and Ammunition Excise Tax
The first add-on session was titled “Excise Tax Fundamentals.” Teresa Ficaretta, partner with Reeves & Dola, LLP, and Anthony Gledhill, Chief Counsel with the Alcohol and Tobacco Tax and Trade Bureau (TTB), provided an overview of the Internal Revenue Code provisions governing firearms and ammunition excise tax, implementing regulations, and rulings. A lively group of manufacturers and importers asked questions throughout the session and expressed appreciation that this topic was added to the conference. It has been a number of years since TTB participated in firearms industry conferences, and Mr. Gledhill’s entertaining presentation received positive reviews. He graciously came back for Day two to participate in the Round Table discussions and had standing room only for all four sessions.
International Sales & Marketing and the Export Process
The second add-on session, titled “International Sales & Marketing and the Export Process,” was provided by Kim Pritula of KMP Global Consulting, LLC. With the bulk of the conference focused on regulatory compliance, this presentation provided attendees with information on another important areas of export business specifically targeted to the unique overseas firearms and ammunition markets. Ms. Pritula provided information and guidance on international firearm markets, where and how to obtain market information, and basic marketing plans. The presentation also included hands-on details of the overall export process, structuring the sales transaction, and logistics. The audience included compliance professionals interested in learning the sales side of exporting firearms, as well as representatives from small and mid-sized companies interested in expanding their businesses into overseas markets. The presentation was well received by the audience as indicated by the level of participation and questions during the session. Ms. Pritula is an experienced presenter whose training sessions are always popular with conference attendees.
Day Two of the Conference
Foreign Corrupt Practices Act
The second day of the conference kicked off with a keynote presentation given by Special Agent Ren McEachern from the Federal Bureau of Investigation (FBI). Special Agent McEachern spoke on the Foreign Corrupt Practices Act (FCPA) and anti-bribery enforcement. He explained the history and purpose of the FCPA and reviewed the elements of a FCPA bribery violation, which prohibits individuals and businesses from bribing foreign government officials in order to obtain or retain business. He went over common red flags and emphasized the fact that bribery is not limited to cash, but can include other types of goods and services. Finally, Special Agent McEachern addressed whistleblower programs administered by the Securities and Exchange Commission (which pays rewards to whistleblowers) and the FBI and emphasized the fact that companies should manage their international programs to avoid having whistleblowers bring bribery issues to federal regulators.
The information Special Agent McEachern presented was new to many members of the firearms and defense industries, and is particularly relevant as the industry moves into emerging markets abroad. Special Agent McEachern’s presentation was one of the most informative and energetic of the conference, and we hope to see him return next year.
Electronic Filing of Form 6As under the Automated Commercial Environment (ACE)
Desiree Dickinson from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and Robert Schott from AirSchott gave an overview of the progress the federal government has made in automating the customs entry process for firearms, ammunition, and other defense articles. Ms. Dickinson announced that Customs began a pilot program in 2015 allowing importers to file entry documents through ACE, eliminating the need for the importer or broker to submit a hard copy of the Form 6A to Customs and Border Protection (CBP). Ms. Dickinson stated that a Presidential directive requires that automated entries for all imports and exports must be up and running by December, 2016. She stated that at present the only ATF form eligible for electronic submission through ACE is the Form 6A, submitted to Customs to secure release of firearms, ammunition, and other defense articles on the United States Munitions Imports List. Ms. Dickinson emphasized that licensed importers must still file a hard copy of the Form 6A with ATF.
Bob Schott, who has been a Customs broker since 1973, emphasized the fact that change comes slowly to government paper processing, particularly in the area of imports and exports. He indicated that his company participated in ATF’s pilot program for electronic submission of Forms 6A and successfully submitted over 500 entries for ATF-regulated products. Mr. Schott gave accolades to ATF for the agency’s collaboration with the industry during the pilot project. He emphasized the fact that the software used by Customs brokers for entry is essential, as not all software will interface with ACE.
ACE Transition – The View from CBP and Census
The final speakers of the morning were from CBP and Census. Robert Rawls from CBP provided tips on ensuring entry of goods occurs without unnecessary delays. David Garcia, a Special Agent from CBP gave an entertaining talk about criminal enforcement challenges at the border. Eric Gauthier from Census gave a live demonstration of how to create export filings in ACE, and Wendy Peebles, also from Census, provided an overview of the ACE export reports functionality deployed on June 27, 2015.
Lunch with Remarks on the UN Arms Trade Treaty
Attendees were provided with an on-site lunch followed by remarks from Rick Patterson, Executive Director of the Sporting Arms and Ammunition Manufacturers’ Institute. Mr. Patterson spoke on recent developments within the United Nations, especially the infamous Programme of Action and the Arms Trade Treaty.
Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) Panel
Many ATF representatives attended the conference, participating in an “ATF Update” in the afternoon and the round table sessions in the afternoon. Assistant Director of Enforcement Programs and Services, Marvin Richardson, headed up the ATF panel and provided his very positive outlook on collaboration with members of the industry. Mr. Richardson advised that ATF’s eForms project continues to be stalled by a lack of funding and competing agency priorities. He promised to continue to push officials at ATF and the Department of Justice to fund this essential project. Mr. Richardson’s openness and honesty are always appreciated by members of the regulated industries.
Deputy Assistant Director Andrew Graham provided information on field inspections of federal firearms and explosives licensees and permittees. He noted that his goal is to ensure consistency in compliance in the field. Mr. Graham stated that with 658 Industry Operations Investigators in the field and 31 more to be hired in 2017 the agency still has a hard time inspecting over 130,000 federal firearms licensees and 10,000 explosives licensees. Mr. Graham also announced the creation of a special inspection team, called the “Major Inspection Team” that ATF deploys for large-scale inspections of licensees. He noted that the team, which consists of 10-12 investigators from a number of field divisions, is sent to conduct inspections when there are significant amounts of inventory and records to inspect. Mr. Graham noted that sending a larger number of investigators results in a shorter inspection period and less disruption in business.
Round Table Sessions
Round table sessions with government regulators and other subject-matter experts continue to be popular with attendees, and this year’s session was no exception. A total of 20 tables were staffed with ATF representatives, Homeland Security/Immigration & Customs Enforcement, Commerce Department/Export Enforcement, State/Directorate of Defense Trade Controls, Customs/Imports and Outbound, Tax & Trade Bureau/FAET, Treasury/OFAC, FBI, and experts on ITAR agreements. Table separation and acoustics were much improved this year, and most tables were at capacity for all four sessions. Many attendees prefer asking company-specific questions in the informal round table sessions and it appears the sessions are here to stay.
Alphonso Hughes, Chief of the Firearms and Explosives Services Division (FESD), announced a number of changes in the structure of his division. Mr. Hughes announced that the division will be split into two separate divisions, primarily due to the increase in size of the National Firearms Act Branch (NFA Branch). He announced that he will be the Chief of the new National Firearms Act Division and Gary Taylor, currently Assistant Chief of FESD, will become the Chief of FESD. This means that Mr. Taylor will be responsible for the Imports Branch, the Federal Firearms Licensing Center, and the Federal Explosives Licensing Center. The changes to FESD will be effective on October 1, 2016.
Mr. Hughes also announced that David Howell is the newly appointed Chief of the NFA Branch. Mr. Hughes announced that the NFA Branch had received, as of the date of the conference, 469,000 NFA applications. He announced that the week before the conference the branch received 126,000 applications. Much of the backlog is due to changes in the regulations resulting from ATF-41F, which was effective on July 13, 2016. As readers may recall, this change in the regulations requires all “responsible persons” of trusts, corporations, and other business entities to submit photographs and fingerprints so a FBI background can be conducted in association with a Form 4 transfer application. Firearms enthusiasts have submitted transfer applications in record numbers before July 13, 2016, to avoid this requirement. The NFA Branch is currently staffed with 24 Legal Instruments Examiners and has 3 Supervisory Examiners. There are 7 vacant examiner positions that ATF hopes to fill soon.
Mr. Hughes advised that the processing time for Form 4 transfer applications likely will expand from 5 months to 8-9 months because of the backlog. He stated that the Branch will aim to keep processing times for most tax-free transfer forms (Forms 3 and 5) at 30 days.
On the imports side, Mr. Hughes announced that the Branch has 7 examiners and 5 specialists, and a vacant section chief position will soon be advertised. He noted that the Federal Firearms Licensing Center has 20 examiners and 2 specialists, while the Federal Explosives Licensing Center has 10 examiners and 1 specialist.
Krissy Carlson, Chief of the Firearms and Explosives Industry Division, reminded attendees that a new Form 4473 has been published in the Federal Register for comment. She also announced that the division has been working with members of the defense industry to address legal requirements for manufacture of certain destructive devices for the Department of Defense.
Andrew Lange, Chief of the Office of Regulatory Affairs, provided information on ATF 29P, published in the Federal Register on May 4, 2016, soliciting comments on silencer markings, and ATF 24P, published on May 26, 2016, soliciting comment on a requirement that licensed dealers certify compliance with secure gun storage requirements of the law. Chief Lange also indicated that a working group is making progress on the petition submitted by the F.A.I.R. Trade Group, which requested the Form 9 be changed from a pre-export application to a post-export notification.
The last ATF official to address the conference was Earl Griffith, Chief of the Firearms and Ammunition Technology Division. Mr. Griffith announced the hiring of 6 new Firearms Enforcement Officers, resulting in a reduction in the firearms classification backlog by 60 percent. Mr. Griffith stated that most firearms classifications are now being completed in 2-3 months. He announced that a new Industry Operations Investigator has been brought in to assume responsibility for firearms marking variance applications. The Division has received 860 marking variance applications this year and anticipates having 1000 or more for the year. With new staffing Mr. Griffith stated that variances should be processed in 2-3 weeks.
Day Three of the Conference
Day Three of the conference kicked off with an enforcement panel from Customs and Border Protection (CBP), the Commerce Department, and Homeland Security Investigations. Robert Rawls, Chief of the Outbound Enforcement and Policy Branch, CBP, started off with information on CBP’s outbound enforcement policies. Chief Rawls noted that CBP uses risk-management to target inspections of outbound cargo. He outlined best practices for avoiding delays in exports and announced that CBP is working on automating the DSP-61 temporary import license and DSP-73 temporary export license. Chief Rawls also announced that the Form 9 export license will be automated soon.
Bill Higgins, Assistant Special Agent in Charge, Department of Commerce, Office of Export Enforcement, Boston Field Division, gave a presentation on Commerce Department export controls and enforcement priorities. He gave attendees pointers on avoiding problems with exports subject to the Export Administration Regulations.
John Ward is the Homeland Security Investigations (HSI) liaison to the Department of State’s Directorate of Defense Trade Controls and gave a presentation on HSI criminal investigations. Special Agent Ward explained the role of HSI in international firearms smuggling investigations and reviewed violations of the Arms Export Control Act, Gun Control Act, money laundering provisions, and other violations of federal law considered in the course of a smuggling investigation. He noted a number of best practices for importers and exporters to follow to avoid such violations.
Practical Exercise in Due Diligence and Compliance
Johanna Reeves, founding partner of Reeves & Dola, LLP, and Jim Bartlett, partner with Full Circle Compliance, BV, gave an encore presentation after their practical exercise at the 2015 conference received rave reviews. This years’ practical exercise was styled, “The Good, the Bad and the Ugly (A Tale of Two Firearms Dealers).” The scenario involved Goody Guns and Badazz Firearms, two licensed firearms dealers. Both dealers are approached by a Somali citizen living in Dubai about purchasing 10,000 semiautomatic rifles. Facts given in the hypothetical indicated the would-be purchaser was working as a secret arms supplier for Iran. The fictional transactions involved employees of the two licensees conducting some level of due diligence with very different results. Ms. Reeves and Mr. Bartlett provided a brief overview of federal law and then moved on to address the decisions made by the people involved and the potential federal violations they committed. It is always useful to discuss the interaction of the law and facts, and the exercise demonstrated a number of pitfalls for firearms businesses to avoid.
State Department, Directorate of Defense Trade Controls
The final presentation of the day came from the Department of State, Directorate of Defense Trade Controls. Ms. Karen McNeilly provided information on changes in information technology that will take place in the near future with Department of State’s licensing systems.
Julio Santiago, a licensing officer with the Directorate of Defense Trade Controls, presented an overview of license preparation. He reviewed supporting documentation required for different license types and outlined common problems with different blocks on the DSP-5 export license application. He also addressed renewal/replacement licenses amendments to licenses, and proviso reconsiderations.
The fifteenth annual Import/Export conference was the biggest since the first conference was held in 2002. The conference is sponsored by non-profit industry associations and is dedicated to providing meaningful compliance information for attendees. The 2016 conference exceeded those goals by offering one of the most comprehensive learning experiences available to members of the firearms and defense industries. Industry members should mark their calendars for next year’s conference scheduled for August 1-3, 2017, in Washington, DC.