International Legal Affairs: Volume 6, Number 4
What Is OFAC, the SDN, and Why Can’t Russian Arms Be Imported Into The U.S.?
On July 17, 2014, the Obama administration announced additional sanctions against eight Russian defense technology entities on the basis of their involvement in the Ukrainian conflict. Reports within the United States are claiming this action as a new ban on the import of the popular Saiga and AK-type firearms from Russia. How did this occur, and is the action really a defacto ban on U.S. imports?
First, the basics: The action was undertaken by OFAC, a department within the Treasury Department. The OFAC, or the Office of Foreign Assets Control, administers and enforces economic and trade sanctions based upon U.S. foreign policy and national security goals against targeted foreign countries terrorists, narcotics traffickers, and those engaged in the proliferation of weapons of mass destruction. The list of the targeted bad guys is known as the SDN, or the Specially Designated Nationals list. A copy of the SDN may be found online at www.treasury.gov/ofac/downloads/t11sdn.pdf.
All U.S. persons and companies must comply with OFAC regulations. Specifically, the regulations act to block parties from the U.S. banking system. OFAC-issued regulations apply not only to U.S. banks, their domestic branches, agencies, and international banking facilities, but also to their foreign branches, and often to overseas offices and subsidiaries.
In general, the regulations require banks to block accounts and other property of specified countries, entities, and individuals. Banks are also tasked with rejecting unlicensed trade and financial transactions with SDN specified countries, entities, and individuals.
As one might imagine, the scope of the regulations are only effective to the extent that U.S. banks (or those banks with a U.S. presence) are involved in a transaction. A Russian bank with no presence within the United States would not be subject to the OFAC restrictions. Similarly, North Korea has been on the SDN for quite some time, yet still manages to evade the OFAC restrictions by using alternate means of moving monetary assets. OFAC restrictions can be effective, to the extent that the targeted parties rely or use the U.S banking system.
So… how does that apply to an import ban on Russian made firearms? Contrary to internet lore, the Executive Order (EO) was not directed by the Obama administration to the Department of Justice and the Bureau of Alcohol, Tobacco, Firearms, and Explosives. ATF did not, and is not, the implementing agency banning the import of Russian arms. Instead, the EO was directed to OFAC. In announcing actions implementing Executive Order 13662, the Treasury Department released the following statement:
“In response to Russia’s continued attempts to destabilize eastern Ukraine and its ongoing occupation of Crimea, the U.S. Department of the Treasury today imposed a broad-based package of sanctions on entities in the financial services, energy, and arms or related materiel sectors of Russia, and on those undermining Ukraine’s sovereignty or misappropriating Ukrainian property. More specifically, Treasury designated eight Russian arms firms, which are responsible for the production of a range of materiel that includes small arms, mortar shells, and tanks… By designating firms in the arms or related materiel sector, Treasury has cut these firms off from the U.S. financial system and the U.S. economy.”
In executing the Executive Order, OFAC designated eight Russian companies to the SDN. Two of the eight companies bear note. Kalashnikov Concern (also known as the Izmash Arsenal) and KBP Instrument Design Bureau (also known as the Tula Arsenal) were actively involved in exporting small arms to the United Stated. In describing Kalashnikov Concern and the KBP Instrument Design Bureau, OFAC writes:
“Kalashnikov Concern produces a number of military weapons, including multiple grades and versions of assault rifles, grenade launchers, sniper rifles, military shotguns, and aircraft cannons. Kalashnikov Concern is the largest firearms producer in Russia and is a subsidiary of Russia’s State Corporation of Russian Technologies (Rostec).”
“KBP Instrument Design Bureau is a research and production center that creates precision-guided weapons. KBP Instrument Design Bureau develops antitank missile systems and assault armaments, weapon systems for main battle tanks and lightly armored vehicles, guided artillery projectiles and guided missile systems, short-range air defense systems, gun armament and associated ammunition, combat small arms, and hunting/sporting guns.”
As noted within the company descriptions, these two companies manufacture more than just small arms. Please also bear in mind that six other countries were also named – Russian companies that manufacture rockets, surface to air missiles, armored fighting vehicles, tanks, and avionics. While it appears convenient that this action specifically prohibits the import of the Saiga-12 shotgun into the United States, the larger socio-political effects appear to be directly targeted at ending conflict within Crimea and Ukraine.
Now what? Transactions by U.S. persons or persons within the United States involving the entities designated today under E.O. 13661 are generally prohibited. Imports from Kalashnikov Concern and KBP Instrument Design Bureau cannot currently be pursued. However, the Executive Order does not ban all Russian arms imports. The EO only bans those imports from the named eight entities. Surplus Russian arms presumably could still be imported into the U.S., as well as arms made within Russia by companies not placed on the SDN list.
Being placed on the SDN is not always permanent. There are examples of parties being removed from the SDN, usually upon proof of compliance with U.S. foreign policy and national security goals. In the event that the Ukrainian conflict is resolved to the satisfaction of the U.S., it is entirely possible that the eight named entities could be removed from the SDN. If this were to occur, imports of Saia-12 shotguns and other firearms made in Tula and Izmash could again flow into the U.S.
You own a Saiga-12. Now what? There are no restrictions on possessing a Saiga-12 or any other Russian made firearm that was lawfully imported into the Unites States. OFAC actually addresses this issue on their website, within the Frequently Asked Questions section:
“If I own a Kalashnikov product, is that product blocked by sanctions? Am I able to resell a Kalashnikov product at a gun show or other secondary market?”
“If a U.S. person is in possession of a Kalashnikov Concern product that was bought and fully paid for prior to the date of designation (i.e., no payment remains due to Kalashnikov Concern), then that product is not blocked and OFAC sanctions would not prohibit the U.S. person from keeping or selling the product in the secondary market, so long as Kalashnikov Concern has no interest in the transaction.
New transactions by U.S. persons with Kalashnikov Concern are prohibited, however, and any property in which Kalashnikov Concern has an interest is blocked pursuant to OFAC’s designation of Kalashnikov Concern on July 16, 2014. If a U.S. person has an inventory of Kalashnikov Concern products in which Kalashnikov Concern has an interest (for example, the products are not fully paid for or are being sold on consignment), we advise that U.S. person to contact OFAC for further guidance on handling of the inventory.” (See treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx)
All Saiga-12 shotguns imported and purchased lawfully within the United States should not be subject to the OFAC restrictions.
While it appears that the import ban on Russian arms was politically motivated, the ban was enacted by ATF, and was probably not motivated by arms control advocates within the United States. Rather, the primary motivation appears to be a legitimate attempt to end the conflict within Ukraine. More importantly, the action is reversible, and could be revoked upon resolution of the Ukrainian conflict. Finally, the U.S. firearms market abhors a vacuum. New firearm designs will be developed to fill the vacuum created by the Obama administration.
The guidance provided within this article was correct and current at the time it was written. Policies and regulations change frequently. The preceding article is not intended as legal advice, and should not be taken as legal advice. If the reader has specific legal questions, seek competent legal counsel.
Mr. Wong is a Washington licensed attorney. He regularly provides legal counsel to the firearm and defense industry via his law firm, The Firearms Law Group. Mr. Wong also maintains Hurricane Butterfly, an import/export company that assists U.S. firearm manufacturers and foreign buyers wade through the regulatory morass of U.S. import/export regulations. He may be contacted via email at jmwong@FirearmsLawGroup.com.