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ATF PUBLISHES ALARMING DETAILS
ON THE INSPECTION PROCESS FOR DOD CONTRACTORS
On October 20, 2017, ATF posted on its website a document titled, "Department of Defense Contractor Inspections: ATF Inspection Process." This document, dated October 18, 2017, describes a procedure for ATF field divisions to conduct warrantless compliance inspections of contractors who are licensed under federal law to engage in the business of manufacturing, importing, or dealing in firearms or explosives. The procedure raises significant questions of the authority under the law for ATF, a federal law enforcement agency, to inspect without a warrant the records detailed in the publication. It is important that DOD contractors who are federal firearms licensees ("FFLs") carefully review this process with legal counsel and consider the potential consequences. The full document is available on ATF's website.
ATF'S AUTHORITY TO INSPECT LICENSEES
The Gun Control Act, 18 U.S.C. § 923(g)(1), grants ATF the authority to inspect the business premises of licensed manufacturers, importers, dealers, and collectors of firearms in very
specific scenarios. Included in ATF's inspection powers is the ability to inspect the licensee's inventory and records without reasonable cause or warrant in three specific instances: (1) in the course of a reasonable inquiry during the course of a criminal investigation of a person or persons other than the licensee; (2) when the inspection may be required for determining the disposition of one or more particular firearm in the course of a bona fide criminal investigation; (3) for ensuring compliance with the GCA record keeping requirements, either (a) at any time
with respect to records relating to a firearm involved in a criminal investigation that is traced to the licensee; or (b) not more than once during any 12-month period (also known as the annual compliance inspection). The latter compliance inspection presumably is the statutory basis for the inspection process outlined in ATF's publication.
Prior to 1986, there were no limits on the number of compliance inspections ATF conducted. However, due to Congressional concern over ATF harassing licensees by spending unlimited time examining records at a licensee's premises without any reason to suspect violation, the GCA was amended by the Firearms Owners Protection Act (FOPA). See Stephen P. Halbrook, Firearms Law Deskbook §§ 3:4 and 3:5 (2017-18 ed.).
Pursuant to FOPA, we now have the following limitations on warrantless inspections:
- Business hours: The GCA requires compliance inspections be conducted during the licensee's business hours. Although not defined in the statute, "business hours" is generally interpreted as the hours of operation indicated on the Form 7 Application for Federal Firearms License.
- Inspection at Place of Business: ATF may conduct warrantless compliance inspections only at the business premises identified on the Form 7 license application, as well as places of storage. If a licensed premises is only a part of a larger building, ATF may inspect only the licensed part. If a licensee conducts business temporarily at a gun show or other similar event in the same state, ATF may inspect the records and firearms inventory located at the gun show or other temporary location.
- Inspection of Required Records and Inventory: ATF's authority to conduct warrantless inspections under the GCA is limited to examining records required by ATF's regulations, and firearms and ammunition stored at the licensed premises or a separate storage facility. The required records include:
- Record of acquisitions and dispositions;
- Form 4473 Firearms Transaction Record;
- Form 6 Application and Permit for Importation of Firearms, Ammunition and Defense Articles;
- Form 6A Release and Receipt of Imported Firearms, Ammunition and Implements of War;
- ATF Form 3310.11 Federal Firearms Licensee Firearms Inventory Theft/Loss Report;
- ATF Form 3310.4 Report of Multiple Handgun Sale;
- ATF Form 5300.11 Annual Firearms Manufacturing and Exportation Report;
- ATF Form 3310.6 Interstate Firearms Shipment Theft/Loss Report; and
- Marking variances.
During a warrantless compliance inspection under the GCA, ATF is not entitled
to inspect records that are not required to be kept under the regulations, including emails, other types of correspondence, lists of suppliers, customer lists, or commercial records, such as invoices, bills of lading, and records of production. Section 923(g)(1)(A) of the GCA (18 U.S.C. 923(g)(1)(A)) clearly states, "[s]uch importers, manufacturers, and dealers shall not be required to submit to the Attorney General reports and information with respect to such records and the contents thereof, except as expressly required by this section."). See also Teresa G. Ficaretta, Esq. & Johanna E. Reeves, Esq., Compliance Inspections Under the Gun Control Act - Know ATF's Limitations and Boundaries, Small Arms Review, Vol. 19, No. 10, at 16, 17 (Dec. 2015). However, it is important to note that in instances when the licensee has not yet recorded an acquisition or disposition of a firearm because it is within the seven-day window, the licensee may present a commercial sales invoice or similar document to show either the acquisition or disposition and refute any presumption of a lost firearm and subsequent Report of Violation for failure to report a theft or loss of a firearm. See Halbrook § 3:11.
If the licensee is a Special (Occupational) Taxpayer,
ATF will also inspect records required under the National Firearms Act (NFA), including registration and transfer forms and Special Tax Registration and Returns. Like the GCA, the NFA grants
ATF the authority to enter a licensed premises and places of storage during business hours to examine records required to be kept under the NFA. However, NFA compliance inspections are not subject to the same frequency limitations as GCA inspections, and
ATF is authorized to conduct warrantless NFA inspections as often as necessary
. Similarly, ATF inspections under the explosives regulations are not limited to one annual compliance inspection. That said, warrantless inspections of SOTs and explosive licensees are limited to those records required under ATF regulations in 27 C.F.R. Pts. 479 (NFA) and 555 (explosives).
ATF'S DEFENSE CONTRACTOR INSPECTION PROCESS
ATF presents the October 18, 2017 document as a "
discussion of ATF's compliance inspection process...
intended to help Federal firearms or explosives licensees who are DOD contractors prepare for and participate in an ATF compliance inspection, and it should help minimize any intrusion and on-site complications during such inspections
." The document is broken into five parts ranging from the pre-inspection preparation stage to the closing conference with ATF, and outlines the documents and information ATF Industry Operations Investigators should have access during a warrantless compliance inspection.
Pre-Inspection:
During the pre-Inspection period leading up to the on-site inspection, the guidance explains licensee should provide the following documents to the Industry Operations Investigator ("IOI") will review the following:
- Licensee business operations, including products and current licenses and permits
- Copies of U.S. government contracts (both primary and secondary contractor information)
- Any issued variances
- Any other documents relating to the licensee's operations.
- Name and contact information of the Defense Contract Management Agency (DCMA) point of contact (quality assurance representative or administrative contracting officer), if any.
- DOD security protocols and procedures, including requirements for safety training and access to the facility.
Opening Conference:
During the opening conference, the IOI will come to the licensee's business during business hours, or at an agreed upon time, and will review the following:
- Corporate structure and list of responsible persons and employee possessors.
- All Federal Firearms Licenses (FFL) and Explosive licenses/permits (FEL), Special (Occupational) Tax stamps (SOT), and any other licenses or permits.
- Terms of the DOD contract the licensee services.
- Any variances held.
- Specifics on business operations including: (1) information on U.S. Government sales; (2) direct commercial sales (including to foreign governments); (3) manufacturing and/or importing activities; (4) subcontractors; and (5) shipping procedures.
- Facility tour, including location of records and storage facilities.
- Plat plan and table of distances (if FEL).
- Other supplemental records, including: (i) DOD magazine information; (ii) DODIC numbers; (iii) safety data cards; (iv) State Department Directorate of Defense Trade Controls registration information; (v) purchase orders; (vi) shipping documents; (vii) bills of lading; (viii) invoice shipping documents; (ix) DD250 - Material Inspection and Receiving Reports; (x) documentation that Certified Statements of Use were provided to suppliers; and (xi) "other records."
Records/Inventory/Storage Review:
This portion is broken into firearms and explosives, and outlines the types of records and information the IOI will review for each.
For Firearms:
- Acquisition and Disposition records.
- The annual National Firearms Act (NFA) exemption letter, if manufacturing for the U.S. Government.
- Physical inventory inspection, part of which will distinguish between DOD exempt products/storage and commercial products.
- Documentation to confirm items exempt under Title 27, CFR Parts 478.141 and 555.141.
- Applicable variances for residual completed munitions that are not part of U.S. Government contracts and are not marked, registered, or stored properly.
- Importer Forms 6 and 6A.
- NFA Forms 2, 3, 5, and 9.
For non-exempt explosives:
- Acquisition and Disposition records.
- Physical inventory inspection.
- Inspection of explosive storage magazines and process buildings.
- Verification of commercial markings and markings pertaining to a DOD contract.
- Applicable variances for residual completed munitions that are not part of U.S. Government contracts and are not marked, registered, or stored properly.
DOES THE DOD CONTRACTOR INSPECTION PROCESS EXCEED ATF'S WARRANTLESS INSPECTION AUTHORITY?
Many of the documents and information points ATF seeks to review during an inspection are directly related to DOD contracts and performance thereunder, activities that fall under the purview of the
Defense Contract Management Agency (DCMA), a component of the
Department of Defense authorized to work directly with Defense suppliers to help ensure that DoD, Federal, and allied government supplies and services are delivered on time, at projected cost, and meet all performance requirements. DCMA directly contributes to the military readiness of the United States and its allies, and helps preserve the nation's freedom. Among other responsibilities, DCMA "monitors DOD contractors' performance and management systems to ensure that cost, product performance, and delivery schedules are in compliance with the terms and conditions of the DOD contracts a company is fulfilling."
As stated previously, ATF does not have the authority during a warrantless compliance inspection to review records not required under its regulations in 27 C.F.R. Pts. 478, 479 or 555. A review of the DOD compliance inspection process reveals that ATF includes documents and information that is well outside the scope of any of its regulations.
It may be tempting to think it economical to piggy back ATF inspections on DCMA inspections. However, it is important to remember that ATF's authority to conduct warrantless inspections is different from the authority granted to DCMA. Compliance inspections will have consequences if they reveal inaccurate or incomplete records, discrepancies, or missing firearms. ATF's responses in such situations can range from a report of violations, warning conference, license revocation, and criminal prosecution. The warrantless ATF inspection process for DOD contractors should cause concern and trigger critical questions. For example, what is the legal authority for ATF to review DOD contracts and related operation procedures and documents that are outside the scope of ATF firearms or explosives regulations? What will ATF do with such information and records it obtains from a DOD contractor?
In determining whether to comply with requests
from ATF for documents that are not within the scope of ATF's inspection authority during a warrantless compliance inspection, licensees and SOTs should consult with qualified legal counsel. All records that ATF is entitled to inspect should be kept in a designated area to allow convenient and ready inspection by IOIs. Records that are not subject to a warrantless ATF inspection should be kept in a separate location that is accessible only to authorized personnel. Inspections can have significant consequences, and any demands by an IOI to inspect records that are not within ATF's warrantless inspection authority should be brought immediately to the attention of corporate counsel and ATF counsel to determine the appropriate next steps.
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The authors extend their sincere thanks and appreciation to Stephen P. Halbrook, Esq., (stephenhalbrook.com) for his invaluable contributions to this alert. Mr. Halbrook is an attorney and author of numerous firearms-related historical and legal publications, including the Firearms Law Deskbook (Thomson Reuters, 2017-18 ed.).
The above alert is for informational purposes only and is not intended to be construed or used as legal advice. Receipt of this alert does not establish an attorney-client relationship.
Questions about this alert can be directed to:
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