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*** R|D ALERT ***

ATF Publishes Three Rulings on Electronic Records and Consolidation of Records
Part 1 of 3

On May 3, 2016, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) published  three rulings addressing requirements for maintaining electronic records and consolidating manufacturer records with disposition records: ATF Rul. 2016-1 (electronic acquisition and disposition records), 2016-2 (electronic versions of Form 4473 Firearms Transaction Record), and 2016-3 (consolidation of manufacture and disposition records, and recording changes to firearms already logged into A&D records). 
The three rulings make significant revisions to record keeping requirements imposed by the Gun Control Act by authorizing more modern record keeping practices, including cloud storage for acquisition and disposition records, and electronic signatures on the e-Form 4473.   Federal Firearms Licensees ("FFLs") utilizing software to complete ATF Form 4473 will still be required to print out a hard copy of each form, but electronic signatures will now be acceptable.
FFLs should study the rulings carefully (all are available on  ATF's website) to determine whether their software systems and procedures are consistent with the rulings and take appropriate action.  We provide an overview of each ruling in three separate alerts.  This first alert addresses ATF Rul. 2016-1

ATF Rul. 2016-1
This ruling addresses the requirements for FFLs to maintain their acquisition and disposition records electronically rather than on paper.  The ruling supersedes ATF Rul. 2013-5, which also addressed electronic acquisition and disposition records.  The ruling allows FFLs to use software to create and maintain their acquisition and disposition records without applying for and receiving an approved variance, as long as all the requirements specified in the ruling are met.  The requirements of the new ruling are as follows, and we mark in red and underscore the requirements of Rul. 2016-1 that differ from those in Rul. 2013-5:  
  • The software must record all acquisition and disposition information required under the regulations in 27 C.F.R. Part 478, Subpart H.  The software may record additional information beyond that required in the regulations in additional columns, as long as the additional information is separate from the regulatory information and the required information is "readily apparent."  
  • The software must track corrections and changes utilizing one of the following methods: 
    • By retaining corrections as an entirely new entry without deleting or modifying the original entry. The software must be able to quickly and easily change views of the bound book to show only original entries, only corrected entries, and both original and corrected entries in the same bound book
    • By printing corrections as a separate report containing the same information as a paper bound book.  The correction report should follow the bound book format specified in the regulations or another column format as long as the necessary information is included in the report (may be in a notes column); or
    • If a spreadsheet program, such as Excel, is used, the system must track edits and corrections in a notes column.  The corrections may overwrite the original entry as long as the notes column explains what was changed, who made the change, and why the change was needed.
  • The software cannot rely on invoices or other paper records to provide required record information.  Significantly, the ruling provides that if an FFL chooses to use an electronic record keeping system for any of its acquisition and disposition records, then all such records must also be electronic records that comply with the requirements of ATF Rul. 2016-1.
  • The software must allow queries by firearm serial number, acquisition date, name of manufacturer, name of importer, name of purchaser, address of purchaser/transferee, and Form 4473 transaction serial number, if any.
  • FFLs who utilize electronic record keeping systems must download all records to a physical storage device (hard drive, CD, DVD, flash drive) at the FFL's premises or print and maintain the records at the licensed premises.  Downloads or printouts must include all firearms in inventory, firearms transferred during the period covered (sequentially by date of acquisition), and be limited to display only information required by the regulations.  Additional information may also be displayed/printed as long as required information is "readily apparent."  The downloads/printing must take place:
    • At least semiannually, but if the records are downloaded from a remote storage location (discussed in Item 9), they must be downloaded daily.  The records must be downloaded in unencrypted form with required information "readily apparent;"
    • Prior to discontinuance or change of software, database system, or host facility; and
    • Prior to discontinuance of the FFL's firearms business. 
  • If records are downloaded to a physical storage device, the download must be retained on such device until the next download is prepared.  FFLs must be able to present the most current version of the records in printed format at ATF's request.
  • If the FFL prints out the records, the printout must be retained until the next printout is made.
  • Downloads and printouts may include antique firearms but no other merchandise. 
  • Electronic acquisition and disposition records may be stored on an off-site server or device provided:
    • The records are readily accessible through a computer or device located at the licensed premises during regulation business hours; and
    • The FFL's server is located within the U.S. or its territories OR if a host facility is used, the facility must have business premises within the U.S. or its territories and must be subject to U.S. legal process. 
  • Changes in remote storage location or cloud storage providers must be reported to the local ATF office within 30 days.  The name and address of the facility must be included in the report.
  • FFLs must maintain acquisition and disposition records on a separate/partitioned database that cannot be intermingled with records associated with another federal firearms license.
  • Software must back up the acquisition and disposition records at least daily.
  • FFLs must retain all records in accordance with 27 C.F.R. 478.129, ATF Rul. 2010-8, and ATF Rul. 2011-1. 
  • Upon discontinuance of business, FFLs must send required records to the ATF Out-of-Business Records Center in accordance with 27 C.F.R. 478.127.  FFLs must print out records or download them to a physical storage device. 
ATF Rul. 2016-1 supersedes ATF Rul. 2013-5, and FFLs with software meeting the requirements of the 2013 ruling should carefully review the specifications and performance of those systems to ensure they comply with ATF Rul. 2016-1.  If the software does not comply, an approved variance must be obtained from ATF's Firearms Industry Programs Division. 
ATF Rul. 2016-1 does not supersede or revoke previously approved variances covering the use of electronic acquisition and disposition records.  Remember, however, that ATF Rul. 2013-5 did supersede all previously approved variances for such records.  FFLs with questions regarding the status of a recordkeeping variance should consult ATF. 

This concludes our review of Rul. 2016-1.  We will address ATF Rul. 2016-2 and 2016-3 in upcoming separate alerts.

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, in and of itself, an attorney-client relationship.    

Questions about this alert can be directed to: 

Johanna Reeves: 202.715.9941  | [email protected]
Teresa Ficaretta:    202.715.9183  [email protected]
Katherine Heubert: 202.715.9940  | [email protected]

About Reeves & Dola

Reeves & Dola is a Washington, DC law firm that specializes in helping clients navigate the highly regulated and complex world of manufacturing, sales and international trade of defense and commercial products. We have a deep understanding of the Federal regulatory process, and use our expertise in working with a variety of Federal agencies to assist our clients with their transactional and regulatory needs.

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