DDTC Issues Guidance on ITAR Registration

DDTC

On Friday July 22, 2016, the Directorate of Defense Trade Controls (“DDTC”) released a letter issuing guidance on the requirement of firearm manufacturers and gunsmiths to register with DDTC under the International Traffic in Arms Regulations (“ITAR”).

There has been constant discussion on the internet regarding whether an individual who has obtained a federal firearms license (“FFL”) is required to register for ITAR. Some of the Industry Operations Inspectors (“IOIs”) have taken it upon themselves to inform Type 07 FFLs that they must register for ITAR without any guidance from DDTC. There are certain instances where an FFL does not need to register for ITAR.

22 C.F.R. § 122.1 discusses the registration requirements for ITAR.

(a) Any person who engages in the United States in the business of manufacturing or exporting or temporarily importing defense articles, or furnishing defense services, is required to register with the Directorate of Defense Trade Controls under § 122.2. For the purpose of this subchapter, engaging in such a business requires only one occasion of manufacturing or exporting or temporarily importing a defense article or furnishing a defense service. A manufacturer who does not engage in exporting must nevertheless register.

The crux of the registration for ITAR (for most FFLs) lies within the definition of manufacturing. DDTC has not promulgated a definition for manufacturing which is the source of a lot of confusion and misinformation.

Screen Shot 2016-07-25 at 12.54.02 PM.png

DDTC’s letter states that individuals who “do not actually manufacture ITAR-controlled firearms (including by engaging in the activities described below, which DDTC has found in specific cases to constitute manufacturing) need not register with DDTC – even if they have an FFL from ATF.” This is because the requirements for obtaining an FFL are separate and distinct of the requirements for registering under ITAR.

As DDTC does not have a definition for the term “manufacturing”, it relies on “the ordinary, contemporary, common meaning of the term.”

DDTC’s guidance is only in relation to “domestic (U.S.) activities involving firearms (as defined in Category I(j)(1) of the United States Munitions List (USML) (22 CFR § 121.1)) and related ammunition that are .50 caliber (12.7 mm) or smaller – i.e., firearms in Category I, paragraphs (a) and (b), related items in paragraphs (e)-(h), and ammunition in Category III(a) for those firearms. Activities involving items elsewhere on the USML, including Category I, paragraphs (c) and (d), are not included in the scope of this guidance.”

DDTC has found that the following instances do not require registration.

a)  Occasional assembly of firearm parts and kits that do not require cutting, drilling, or machining;

b)  Firearm repairs involving one-for-one drop-in replacement parts that do not require any cutting, drilling, or machining for installation;

c)  Repairs involving replacement parts that do not improve the accuracy, caliber, or other aspects of firearm operation;

d)  Hydrographic paint or Cerakote application or bluing treatments for a firearm;

e)  Attachment of accessories to a completed firearm without drilling, cutting, or machining—such as attaching a scope, sling, or light to existing mounts or hooks, or attaching a flash suppressor, sound suppressor, muzzle brake, or similar item to a pre- threaded muzzle;

f)  Cosmetic additions and alterations (including engraving) that do not improve the accuracy, caliber, or other aspects of firearm operation beyond its original capabilities;

g)  Machining new dovetails or drilling and tapping new holes for the installation of sights which do not improve the accuracy or operation of the firearm beyond its original capabilities; and

h)  Manual loading or reloading of ammunition of .50 caliber or smaller.

The guidance goes on to clarify that “[a]ctivities limited to the domestic sale or resale of firearms, the occasional assembly of firearms without drilling, cutting, or machining, and/or specific gunsmithing activities that do not improve the accuracy, caliber, or operations of the firearm beyond its original capabilities (as described above) are not manufacturing within the context of the ITAR. If you are not manufacturing, exporting, temporarily importing or brokering defense articles or services, you are not required to register with DDTC.”

Which then begs the question, what does DDTC require the registration under ITAR for?

DDTC states that if you are engaged in any of the following you are required to register for under ITAR.

a)  Use of any special tooling or equipment upgrading in order to improve the capability of assembled or repaired firearms;

b)  Modifications to a firearm that change round capacity;

c)  The production of firearm parts (including, but not limited to, barrels, stocks, cylinders, breech mechanisms, triggers, silencers, or suppressors);

d)  The systemized production of ammunition, including the automated loading or reloading of ammunition;

e)  The machining or cutting of firearms, e.g., threading of muzzles or muzzle brake installation requiring machining, that results in an enhanced capability;

f)  Rechambering firearms through machining, cutting, or drilling;

g)  Chambering, cutting, or threading barrel blanks; and

h)  Blueprinting firearms by machining the barrel.

Of particular interest is the guidance that now offering barrel threading services will result in an FFL being required to register for ITAR. This will certainly put a financial burden on the smaller gunsmiths who are threading barrels as registration for ITAR is $2,250 a year.

tenon_threading

Additionally, the penalties for violating ITAR are significant and able to be applied retroactively. Penalties for each violation of ITAR can result in up to $1,000,000 in fines and 20 years imprisonment. 22 U.S.C. § 2778(c)

DDTC does allow for voluntary disclosures of violations.

“The Department may consider a voluntary disclosure as a mitigating factor in determining the administrative penalties, if any, that should be imposed. Failure to report a violation may result in circumstances detrimental to U.S. national security and foreign policy interests, and will be an adverse factor in determining the appropriate disposition of such violations.” 22 C.F.R. § 127.12.

Lastly, DDTC does have a mechanism for an individual or company to inquire whether the activity they are engaging in requires registration under ITAR. This is an area that myself and Attorney Joshua Prince have experience in. It is certainly advised that a determination from DDTC is sought prior to engaging in the activity (if it is unknown or questionable whether it would require registration under ITAR) in order to mitigate any potential penalties.

 

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32 Comments

Filed under ATF, Firearms Law, Uncategorized

32 responses to “DDTC Issues Guidance on ITAR Registration

  1. Tench Cox

    You completely left out the part about “Engaging in the business”, of producing said restricted items, being a key requirement and component of being forced to register.

    From this article, I see anyone who owns a Dillon progressive reloader, as now being required to register with ITAR, and determining that threading a barrel is the same as building a TANK for export is just insanity, its high time that congress investigate this power grab, and separate manufacturers who never export a real item of war, from those who do.

    This is clearly gun control being enacted against the entire firearms industry, only because the State Department CAN do so, with no legal oversight by Congress.

    Further, what about them making actions which were clearly legal before this determination, and now making them illegal with no action by the very bodies who make the laws?

    IS this any different than the EPA ordering people to comply with environmental regulations with no due process? Something that they have clearly been forced to stop doing by the courts?

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  2. Tench Cox

    No, I read that paragraph, clearly there is a difference between manfacturing and “engaging in the business” of manufacturing, I can be an 07/SOT and manufacture items and still not “engage in the business” by actually selling the products I manufacture, hence, my basis for not registering for ITAR, even though I am an 07/SOT.

    This ruling takes that even further by inferring that if you do any of these actions, with or without an 07/SOT, you are required to register with ITAR, even though if I remember correctly, you can do gunsmithing work, and not be an FFL.

    They are attempting to regulate common actions, only because the end product may be used in a weapon, if a company produces common machine screws, and they are used in production of a new firearm, does the screw manufacturer then have to register with ITAR because one component has showed up in a firearm?

    I know a machine shop that does not actually manufacture are items on the ITAR weapons list, yet they registered with ITAR, because they work on components that do go into ITAR controlled items.

    This is like saying Butler Creek has to be registered with ITAR because someone put a flip up scope cover on a controlled night vision device.

    And yes, Tench Cox is nom de plume, as I do have reasons not to use my real identity in questioning and replying to this article.

    Thank you.

    Like

    • Wetzel Masters

      Nom de plume indeed.

      “Who are the militia? are they not ourselves. Is it feared, then, that we shall turn our arms each man against his own bosom. Congress have no power to disarm the militia. Their swords, and every other terrible implement of the soldier, are the birthright of an American.”

      Like

  3. Tench Cox

    Sorry for the typo in the fourth paragraph from the end, “does not actually manufacture ANY items on the ITAR weapons list”.

    Like

  4. JD Bailey

    Hoping this can be answered. Say a guy wants to be legit now and register with ITAR. However, he should have been registered for 5 years now or whatever. Will they know this and make you pay for those 5 years, or is that only when they catch you? Say the answer to that question is yes. What could be done to avoid that, new FFL or would an entirely new business be required?

    I can see paying the tax going forward, whatever…but no way 99% of guys could afford to drop $10k or whatever in back taxes.

    Like

    • There is a way to make a voluntary disclosure that you violated ITAR. As for the penalties…well that remains to be seen. As I put in the blog post, they usually look favorably on voluntary disclosures and in determining whether to use those to mitigate fines you may otherwise be subject to.

      Like

      • Jew with a Gun

        Voluntary disclosure is not a guarantee against penalties. There is a sort of nightmare scenario here where the State Dept decides not to be lenient and just fines a bunch of people out of existence for a retroactive violation. Of course, this would inevitably be litigated, but I’m not sure you’d win.

        Like

      • Regarding Part 122.1 b Exemptions.. Registration is not required for (4)persons who engage only in the fabrication of articles for experimental or scientific purpose including research and development.
        Would not this exemption apply to the limited fabrication say of a post 86 firearm, rewating or dewating ,repairs to guns requiring drilling or milling ?

        Like

  5. Thank you for a great article, it was very interesting and informative.

    Like

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  7. Hi. I’m a former client of you guys, you made my trust. My business makes picatinny rails, trigger parts, and installs lasers in stocks. According to this guidance I should be registered with the DDTC. (I don’t even have an FFL, because it is not required for the work I do). I’m just curious if these laws will be enforced. I don’t want to pay if my competitors aren’t paying.

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  9. Jon

    Hello, I was just wondering how this might affect small E-Commerce retailers who sell products like magazine extenders, extended slide releases, spring kits, magazine plates, grips from companies like Magpul, Stag arms Rifle accessories etc etc. We do “manufacture” grip plugs and other similar items that would apply to the firearms described in § 121.9 of the USML, but we don’t outfit firearms at my company professionally or otherwise.

    Thank you for any and all help!

    Like

  10. Josh

    Do you guys forsee any legal action taking place? It’s pretty silly to be taxed for something you never use.

    Like

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  12. Jonathan

    I’ve been reloading ammo for over 20 years
    Now some international bullshit directly hits my wallet!?

    What’s next? Gotta have a license to work on my own car, cut my own lawn and brew my own beer?

    What happened to taxation without representation?

    Like

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  14. Jack

    This is a scary over reach of power affecting individuals that will never Import or Export defense related articles. We need jobs and business in this country for the little guy. I equate this with throwing an American out of a job and stealing from his wife and children along with stepping on what little rights they have left.

    Like

  15. cspboardmember

    well written and informative. thanks

    Like

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  17. Jason

    Now when performing the duties of a gunsmith (cutting, threading, drilling etc) a gunsmith charges the customer for LABOR only. How can ITAR (International Traffic in Arms Regulations) have any say about US labor? Nothing new is produced only modified and the modified firearm has already been produced by a company with their ITAR certification. The ATF recognizes this difference that is why there is a 001 and 007 firearms license. Who is right, the ATF or ITAR because they are contradicting each other with the ruling… and then which one of their rules would hold up in court?

    Like

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  19. The big question I’m not seeing, is when does this take effect? Has it already gone into effect just by being published? There is no instruction on this matter. Do we have the three month standard period or is it in effect as of July 22nd , 2016? Does anybody know for sure? This in effect puts me out of my livelihood for 35 years. No way could I pay said fines for 35 years retroactively. No one could absorb that kinda penalty. I know this is an end run around gun control. Why are we silent when the unelected officials decide on a whim to steal our freedoms and rights guaranteed by the constitution.

    Like

  20. I run a small gunsmithing shop as a side business, and specifically opted for a Type 01 license in order to avoid dealing with ITAR. While I’m frustrated that this decision has the potential to shut down my business, I’m more concerned by the political overreach and lack of process. I contacted my national legislators and my governor for some sort of action. What other steps would be wise? A few have recommended a class-action suit, but I don’t know the first thing about them.

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  22. T

    My reading of the letter of guidance concludes that it applies to those “in the business of manufacturing.” It would seem that a person who is not in the business of manufacturing firearms, would not be required to register with ITAR. This letter, therefor, does not seem to require an individual machining 80% lowers to register with ITAR as long as the resultant product is used for personal consumption and is never transferred or sold.

    Thoughts?

    Like

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  24. Peter

    I as a layman think the crux of the matter is in the wording of the first paragraph and what the legal definition of ” defense articles and defense services” is or is not!

    (a) Any person who engages in the United States in the business of manufacturing or exporting or temporarily importing defense articles, or furnishing defense services, is required to register with the Directorate of Defense Trade Controls under § 122.2. For the purpose of this subchapter, engaging in such a business requires only one occasion of manufacturing or exporting or temporarily importing a defense article or furnishing a defense service. A manufacturer who does not engage in exporting must nevertheless register.

    Like

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